Missing the point

Few would disagree that the use of mediation to resolve disputes has brought dramatic savings of time and costs, which would otherwise have been expended in court actions or arbitrations. The emphasis placed on the need to consider mediation as part of the Woolf reforms has also helped further its use.

Although mediation's rise in the firmament of dispute resolution is to be celebrated, the recent decision in Shirayama Shokusan Company & Others vs Danovo may have gone too far, in that it appears to suggest that a crucial aspect of mediation – the voluntary nature of the process – may be of less importance than other factors. Is this really correct?

Shirayama is the owner and operator of an art gallery housed in County Hall in London. Danovo occupies under a sub-underlease from Cadogan Leisure (Investments), the sixth claimant in the dispute. Cadogan in turn holds an underlease from Shirayama. Danovo has rights under its sub-underlease and other rights arising from licensing arrangements concerned with the display of art works and signage advertising the gallery outside the areas. The disputes between Danovo and Shirayama concerned, among other things, Danovo's use of those areas.

Shirayama was seeking an injunction against Danovo to stop what it alleged were acts of trespass on Danovo's part. There was, however, a continuing business relationship between Shirayama and Danovo which meant that they were not likely to simply ignore each other once their disputes were concluded. Danovo suggested that certain disputes between itself and Shirayama could be dealt with by mediation. Meanwhile, Shirayama issued an application for summary judgment. Danovo argued that the court could order mediation, basing its proposed order on the draft available in the Admiralty and Commercial Courts Guide (a section of the Civil Procedure Rules). Shirayama argued that the court had no jurisdiction to do so.

The court decided that it did have the necessary jurisdiction. The judge referred to a case from 1999, Guinle vs Kirreh, Kinstreet vs Balmargo Corporation, in which the court took the view that civil procedure rule 1.1 permitted an order to be made even where one party was unwilling to mediate. The court made an order using the draft in the Admiralty and Commercial Court Guide.

The judge concluded that there was no indication in the earlier decisions that the power to order a mediation was limited to cases where both parties wished to mediate. He noted that it had been remarked in Cable and Wireless vs IBM United Kingdom (2002) that the commercial court often made such orders even where one party objected and occasionally when both parties opposed the order. It was significant in this case that Danovo and Shirayama had a long-term business relationship and that Danovo and Cadogan had a shared interest in the success of the gallery. The existence of continuing disputes would sour these relationships. Clearly, these issues needed to be resolved immediately.

Although mediation is an important dispute resolution mechanism and should be considered in every case, it is nevertheless very unlikely to succeed if neither party wishes to use it

Shirayama argued that there was a lack of trust between the parties, which would not engender an atmosphere in which mediation would succeed. But, after some hesitation, the judge took the view that the benefits to be gained from attempting mediation outweighed the chances of failure. He left the issue of who would pay the costs if the mediation failed until another day.

What is of particular interest here is the court's finding that its jurisdiction to make a mediation order was not dependent on both parties being willing to mediate. The courts encourage parties to mediate and take a dim view if a party unreasonably fails to do so, ordering that it to bear its own costs even if successful in litigation. We are now at a position where the court will be willing to grant a stay even if one party objects.

The approach in Shirayama may, however, mark a further step along this path by adopting the practice in the commercial court of ordering mediation when neither party is willing. Will we see more of these orders in the future?

Mediation is essentially a voluntary process in that the parties must reach a consensual settlement of their disputes. Although it is an important dispute resolution mechanism and should be considered in every case, it is very unlikely to succeed if neither party wishes to use it. If the courts make mediation compulsory in some cases because it would be a sensible thing for the parties to do, they should also give some consideration to the parties' willingness to negotiate. The courts may penalise the reluctant party or parties on costs, but they cannot venture too far into the manner in which the mediation has been conducted because it is a private process. The judge in Shirayama did not feel that this issue would cause him any difficulty, but I think that remains to be seen. It will not be easy for the court to decide why a mediation failed when it is not allowed to enquire into the details of the process itself.