Whitehall faces costs penalties if it rejects mediation

Government departments face costs penalties if they turn down the opportunity to mediate - even if they subsequently win cases - the High Court has confirmed.

In Royal Bank of Canada Trust Corporation Ltd v Secretary of State for Defence, the claimant wanted to mediate in a lease dispute.

The Ministry of Defence refused because the dispute turned on a point of law, was between commercial parties, and - unlike previous alternative dispute resolution (ADR) cases involving costs penalties - the matter was not one where emotions played a significant part in the case.

The ministry won in court but the claimant argued that it ignored the government's ADR pledge - given by the then Lord Chancellor's Department in March 2001 - which stated that 'ADR will be considered and used in all suitable cases wherever the other party accepts it'.

Mr Justice Lewison said the ministry's reasons did not make the matter unsuitable for mediation, and declined to award it any costs.

Jane Turley, a senior assistant in Nabarro Nathanson's Sheffield office who acted for the claimant, said: 'From now on, this case will be referred to in any matter in which a government department turns down an offer to mediate.'

Jeremy Fleming