“But we went to mediation”: why participation does not wipe the litigation slate clean

Parties are increasingly familiar with the costs risks of unreasonably refusing mediation. But what happens when a party does mediate, yet conducts the rest of its case unreasonably?

In APL Holdco Ltd v Apple Properties Ltd [2026] EWHC 2691 (BP), the High Court gave express credit for mediation and procedural cooperation. It nevertheless ordered indemnity costs, finding that the wider circumstances and conduct of the case were well outside the norm.

The decision illustrates an important principle: participation in mediation is relevant to costs, but it does not erase the consequences of serious misconduct elsewhere in the proceedings.

The dispute behind the costs decision

APL Holdco sought the winding up of Apple Properties, an Isle of Man company. The petition was opposed by Lake Limited.

The petition was dismissed. The parties then agreed that Holdco should pay the costs of the company, if any, and Lake, together with a £40,000 payment on account of Lake’s costs.

What remained disputed was the basis of assessment: standard or indemnity.

Holdco argued that this had been hard-fought commercial litigation. It relied on having sent a letter of claim, participated in mediation and cooperated in the procedural conduct of the case.

Lake relied on a much more troubling picture, including dishonest evidence, responsibility for the underlying deadlock, the choice of forum and non-compliance with earlier orders.

The court considers the whole picture

Mr Philip Rainey KC, sitting as a Deputy Judge, explained that the costs discretion requires consideration of all the circumstances.

The conduct factors in CPR 44.2 include whether it was reasonable to raise or pursue an issue, how the case was conducted, and whether a party failed to comply with an ADR order or unreasonably failed to engage in ADR.

For indemnity costs, the critical question was whether the conduct or circumstances took the case outside the norm. Where the application rests on conduct, that conduct must be unreasonable to a high degree.

The judge also rejected the suggestion that indemnity costs should be treated as an automatic starting point for the type of unsuccessful petition before him. The discretion required an assessment of the particular case.

Dishonest evidence could not be separated from litigation conduct

A central feature was the evidence of Habib and Omar, which the judge found thoroughly dishonest and unreliable.

Holdco sought to distinguish dishonesty about the facts from dishonesty in conducting the litigation. The judge rejected that distinction here: the evidence concerned the central questions of how the deadlock arose and whether winding up was just and equitable.

The judge also considered that, rather than abandoning their position in the face of emerging documents, the witnesses had attempted to sustain their dishonest evidence through further explanations which he rejected.

The lesson is clear. Procedural cooperation between legal teams cannot remove the significance of dishonest evidence on the issues the court must decide.

The choice of court and unpaid orders mattered

The judge found that the petition had deliberately been brought in the wrong court to avoid addressing non-compliance with earlier Isle of Man orders. In the circumstances, the appropriate forum was the High Court of the Isle of Man.

This was therefore more than an unsuccessful attempt to obtain relief. The choice of forum formed part of the conduct which the judge considered unreasonable to a high degree.

He also took account of unpaid costs orders: an interim order for £250,000 in the Isle of Man proceedings and a further £10,000 following an unsuccessful attempt to prevent registration of that costs order in England.

The judge contrasted the failure to pay those sums with the ability to obtain funding for Holdco’s fresh proceedings. He also took account of the illegitimate pressure created against Shafe.

What difference did mediation make?

The judge accepted that Holdco had sent a letter of claim, that there had been procedural cooperation and that the parties had engaged in mediation.

He expressly gave Holdco credit for those matters. However, weighed against the other findings, he regarded them as carrying very limited weight.

The court therefore ordered that Holdco’s costs liability be assessed on the indemnity basis.

This is an important distinction. The judgment did not find that the mediation was insincere, that attendance was merely tactical or that Holdco had mediated improperly.

Participation counted in its favour. It simply did not outweigh the other conduct.

What are indemnity costs?

An indemnity costs order can make a substantial financial difference.

On the standard basis, costs must be reasonably incurred, reasonable in amount and proportionate. Doubts are resolved in favour of the paying party.

On the indemnity basis, costs must still be reasonably incurred and reasonable in amount, but the standard-basis proportionality requirement does not apply. Doubts are resolved in favour of the receiving party.

Indemnity costs therefore provide a more favourable basis of assessment for the receiving party. They do not guarantee recovery of every pound spent.

The £40,000 payment on account agreed in this case was an interim payment towards Lake’s costs, rather than a statement of the final assessed bill.

A constructive example of cooperation

There was also a positive procedural lesson.

The parties agreed that the remaining costs issue should be decided without a hearing, using written submissions limited to five pages each. The judge commended that agreement.

Even after contentious proceedings, parties can still reduce further expenditure by narrowing the remaining issues and choosing a proportionate way to resolve them.

What should parties and advisers take from the case?

Mediation should form part of a continuing assessment of how to resolve a dispute responsibly.

Alongside considering settlement, parties and advisers need to reassess the evidence, the relief sought, the appropriate forum and compliance with existing orders.

An earlier mediation does not remove the need to reconsider a case when documents undermine its factual basis. Nor does it excuse pursuing proceedings in a manner which the court considers highly unreasonable.

Equally, this judgment should not discourage mediation. The judge recognised its value and gave credit for participation. The decision demonstrates how that credit fits within the wider costs assessment.

Courts assess the conduct of the proceedings as a whole. A party may have taken a constructive step towards settlement and still face indemnity costs because of the seriousness of its other conduct.

How ProMediate can help

ProMediate provides independent commercial mediation for civil and commercial disputes, including shareholder and business disputes.

Mediation offers an opportunity to examine litigation risks, explore practical outcomes and negotiate a resolution before further costs accumulate.

Contact ProMediate to discuss appointing a mediator.

Read the judgment: APL Holdco Ltd v Apple Properties Ltd [2026] EWHC 2691 (BP)

This article provides general information and is not legal advice on an individual dispute.