DKH Retail v City Football Group: Mandatory mediation puts fashion and football on the same team

The recent case of DKH Retail Ltd and others v City Football Group Ltd marks the re-awakening of the English High Court’s power to order compulsory mediation, despite there being no such requirements in any of the underlying commercial agreements. This important case illustrates the shift in the courts’ views on alternative dispute resolution (ADR), evolving from encouraging its use to actively requiring it, following the Court of Appeal’s decision in late 2023 that the English courts do have the power to order parties to engage in ADR.

Background

The dispute in question arose between the owners of the Superdry clothing brand and City Football Group Ltd, the company that manages Manchester City Football Club’s commercial operations. Falling under the Shorter Trials Scheme, the claim centred on whether the branding on the club’s kit, featuring the words “Super” and “Dry”, infringed upon the Superdry trademark, or whether it was more likely to be seen by the public as branding denoting the defendant’s sponsor, Asahi Super “Dry” 0.0% lager.

On 1 October 2024, the Civil Procedure Rules (CPR) were amended to take account of the ruling in Churchill v Merthyr Tydfil County Borough Council, in which the Court of Appeal held that the courts could compel disputing parties to engage with ADR. The amendments included amending the overriding objective to provide for the promotion or use of ADR.

In light of these changes to the CPR, the claimants in this case made an application, during pre-trial review, to the Court for compulsory mediation under these new rules. In making this application, the claimants argued that the dispute was capable of resolution via mediation, it was not particularly complex, and that mediation could offer a more flexible platform for compromise, potentially addressing issues such as the design and prominence of the disputed branding.

In opposing this application, the defendant argued that although the court did have the power to order mediation, it should only do so where there was a “realistic prospect of success” for the mediation. Further to this, it was argued that trial was “imminent”, with the parties having already spent “hundreds of thousands of pounds”.

Decision on Compulsory Mediation

At the pre-trial review on November 21, 2024, the Court acknowledged the defendant's reservations but ultimately ordered the parties to engage in mediation. The Court highlighted that it was common in litigation for parties to hold diametrically opposed positions and that it could “easily be said” that parties needed a judicial determination of a dispute. The Court pointed out, however, that “nonetheless the parties come through ADR to recognise the desirability of settling for less than their strict legal rights and compromising their positions”.

Although the Court noted the argument that trial was imminent, it concluded that there was in fact an advantage in the fact that the parties’ positions had been crystallised by the pleadings that had been prepared and the witness statements served. The Court was also not swayed by the argument that there was no realistic prospect of success for the mediation, pointing out that “the purpose of mediation is to remove roadblocks to settlement”, also stating that “bringing the parties together through mediation can overcome an entrenched reluctance of parties to negotiate, even where sincere…[and the] range of options available to the parties to resolve the dispute through mediation goes beyond the binary answer a court could provide. There may be solutions other than yes or no.’

The Court ordered the mediation to take place in December, though the parties settled their dispute prior to this.

Comment

Since the Woolf reforms, ADR has become an integral component of the dispute resolution landscape. While there had been an irregular stream of orders for mediation (such as in Kinstreet Ltd v Balmargo Corpn Ltd) these were put a stop to in 2004 by the Court of Appeal in Halsey v Milton Keynes which the Churchill decision has now clarified. Participants in commercial litigation must now prepare for the possibility of court-ordered mediation at all points of a dispute. This decision illustrates that these orders will be made by the High Court and that in appropriate cases compulsory ADR may even be ordered at a relatively advanced stage of the litigation timetable. Prospective litigants should of course be aware of the potential benefits of mediation from the inception of a dispute, especially in relation to costs savings and early resolution. There are a number of strategic implications for those engaged in commercial litigation, which may include parties being more motivated to engage in ADR proactively to maintain greater control over the resolution process.

The approach taken by the High Court in this case is a welcome recognition of the value of ADR. It is already well established that mediation can lead to significant savings in time and legal expenses for both parties. While mediating with a trained neutral does entail some additional costs in paying the mediator and in time spent preparing for and then attending the mediation, these pale in comparison to the full cost of litigation at trial, particularly in the context of the significant mediation settlement rate. As the High Court recognised in this case, resolving disputes outside of court can allow parties to achieve acceptable outcomes more swiftly and with reduced financial burdens. It is likely that there will be more orders of this kind both in the High Court and in other UK courts, with a resulting upswing in mediations.

With thanks to Associate Hugh Morrison for his assistance with this piece.