When ADR Doesn’t Settle: Failed Early Neutral Evaluation and the Costs of Trying

3173 Bidco Ltd & Anor v Roberts & Anor (No.2) (Re Costs of Early Neutral Evaluation) [2026] EWHC 2312 (Comm)

Mediation and other forms of alternative dispute resolution are now firmly embedded in the civil justice system. In commercial disputes the financial cost of litigation can be considerable, and the disruption to management time, trading relationships and reputation greater still.

But what happens when an ADR process does not work?

Should the party said to have caused its failure have to pay the costs of it?

That was the unusual question considered by His Honour Judge Pearce in 3173 Bidco Ltd & Anor v Roberts & Anor (No.2) [2026] EWHC 2312 (Comm) — a decision about judicial Early Neutral Evaluation rather than mediation, but one with clear practical implications for anybody involved in commercial mediation.

What happened

The underlying proceedings concerned a commercial dispute involving restrictive covenants following the departure of an employee from a professional trustee services business.

As part of the court proceedings the parties took part in an Early Neutral Evaluation (ENE) conducted by a judge.

During the evaluation an argument emerged which had not previously been fully pleaded. The judge considered that an amendment to the defence was required, and that it was unrealistic to continue the ENE while that position remained unresolved.

The ENE was adjourned and ultimately did not resume.

The claimants subsequently sought the costs of what they regarded as a fruitless ENE, and asked for those costs on the indemnity basis. The defendants said the costs should simply be costs in the case.

ENE and mediation are not the same thing

The distinction matters, and it is worth stating clearly because the two processes are often spoken of interchangeably.

Early Neutral Evaluation is evaluative. An independent evaluator — here, a judge — considers the parties’ respective positions, or particular issues within the case, and gives an assessment. That can be extremely useful where fundamentally different views of the law or the evidence are preventing sensible negotiation.

Mediation is a confidential facilitated negotiation. The mediator does not decide who is right and does not impose an outcome. The parties retain control over whether they settle and upon what terms. The mediation process is designed around that difference.

Both are forms of ADR. They perform different functions, and the choice between them is a decision worth taking deliberately rather than by default.

Strong judicial support for ADR

The judgment should not be read as criticism of ENE, or of ADR generally. The court recognised the strong judicial support for ADR and the increasingly important role of processes such as ENE in resolving disputes without a trial.

The judge noted that evaluative procedures of this kind are now used in a range of contexts beyond conventional commercial litigation, including financial dispute resolution style hearings and disputes concerning trusts — further evidence of how widely evaluative ADR has spread.

The interesting question was not whether ENE is valuable. It was what should happen to the costs when an ENE does not achieve its intended result.

The court’s approach to costs

The court concluded that there were powerful reasons for starting from the position that the costs of an unsuccessful ENE should be costs in the case unless there are compelling factors pointing in another direction.

That is a starting point, not an absolute rule. The judge expressly rejected the suggestion that there could never be an adverse costs order following an unsuccessful ENE. Such a rule would protect a party who attended without any genuine intention of engaging in the resolution of the dispute, and the court’s ability to make adverse costs orders remains an important means of encouraging litigation to be conducted efficiently.

The message is therefore a nuanced one: caution about penalising parties merely because an ADR process did not succeed, combined with a retained power to respond to genuinely unreasonable conduct. The courts have shown elsewhere that they will use costs to mark unreasonable behaviour, as our note on indemnity costs and litigation risk discusses.

Why routinely penalising failed ADR would be counterproductive

One reason for that starting point deserves particular prominence.

The purpose of ADR is to encourage parties to cooperate and to attempt to resolve their dispute. If every unsuccessful ENE were followed by an argument about who was responsible for its failure and who should pay for it, parties might understandably become more reluctant to take part at all.

Routinely exposing parties to separate adverse costs orders following an unsuccessful ENE could therefore discourage engagement with ADR, and undermine the wider policy of encouraging parties to resolve disputes without a trial.

A dispute about why the attempt to resolve the dispute failed?

One of the most persuasive aspects of the judgment is the court’s concern about satellite litigation.

Deciding who caused an ENE to fail can require the court to investigate what might have happened had the parties behaved differently:

• Would the ENE otherwise have succeeded?
• Would the parties have settled?
• Was the case sufficiently developed?
• Was the timing wrong?
• Was one party inadequately prepared?
• Would different pleadings or evidence have changed the evaluator’s assessment?

Those are hypothetical questions, and answering them can create another layer of litigation — effectively, a dispute about why the attempt to resolve the dispute did not succeed. That is an expensive way to conduct proceedings which were supposed to be settling.

An unsuccessful ADR process is not necessarily a wasted one

The defendants argued that the ENE had not been wholly unproductive, because it had allowed each side to hear and better understand the other’s case.

That observation resonates strongly with mediation. We tend to judge dispute resolution by asking one simple question — did the case settle? — but that is not the only measure of value. An ENE or mediation which does not produce an immediate settlement may still:

• clarify the real issues between the parties;
• expose weaknesses in the parties’ respective cases;
• identify evidential gaps;
• narrow the matters actually in dispute;
• enable each party to understand the other’s position;
• provide a more realistic assessment of litigation risk;
• improve the quality of subsequent negotiations; or
• lead to settlement at a later stage.

Settlement can be a process rather than an event

Commercial parties sometimes need time to reconsider information, risk and settlement proposals after an ADR process has concluded. A board may need to reconvene. A finance director may need to re-run the numbers. An insurer or funder may need to revisit its position.

A proposal rejected at 4pm can look rather different a fortnight later, once the alternative is further months of litigation, additional legal costs and the uncertainty of trial.

A mediation which does not produce an agreement on the day should not automatically be regarded as a failed mediation.

Timing

Early mediation can:

• control legal costs;
• prevent positions becoming entrenched;
• preserve commercial relationships; and
• resolve a dispute before substantial management time is consumed.

But mediation can also take place too early. If the parties do not yet understand the case against them, or lack information which is necessary to make a commercial decision, agreement may be difficult.

Conversely, waiting for full disclosure, witness statements and expert evidence may mean that substantial costs have already been incurred and that positions have hardened.

The appropriate moment depends upon the dispute. Choosing the right timing can be as important as choosing the right process.

Preparation

ADR should not be treated as a procedural box to tick. Parties contemplating mediation or ENE should consider:

• whether the real issues have been identified;
• whether the pleadings adequately reflect the parties’ positions;
• what documents need to be exchanged;
• whether valuation or expert evidence is necessary;
• who should attend;
• whether the attendees have sufficient settlement authority;
• whether insurers or other decision-makers need to participate;
• what each party wants to achieve; and
• whether the chosen ADR process is the right one for the dispute.

Our practical guide on how to prepare for mediation develops these points in more detail.

What commercial mediation can offer that a judgment cannot

A court generally determines legal rights and remedies. A commercial mediation can address wider business interests, including:

• payment arrangements;
• renegotiated contractual terms;
• continuing trading relationships;
• confidentiality;
• future business;
• timing and implementation;
• reputational concerns; and
• solutions which a court could not order.

Whether that flexibility is worth the cost of the process is a commercial judgment in itself; our fees are published so that the comparison can be made sensibly.

Conclusion

3173 Bidco is not a warning against ADR. If anything, the judgment demonstrates the importance which the courts now attach to it.

It also provides a useful reminder that ADR should not be treated simply as a procedural box to tick. The choice of process, the timing, the preparation and genuine engagement can all affect whether it succeeds.

And an ENE or mediation which does not result in an immediate settlement may nevertheless have moved the parties considerably closer to resolving their dispute. If you would like to discuss a commercial dispute, please contact us.

[1]3173 Bidco Ltd & Anor v Roberts & Anor (No.2) (Re Costs of Early Neutral Evaluation) [2026] EWHC 2312 (Comm). Search the judgment on BAILII ↩