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Compulsory out of court dispute resolution? Churchill v Merthyr Tydfil Borough Council

12 June 2024

Churchill v Merthyr Tydfil Borough Council [2023] EWCA Civ 1416 is a Court of Appeal decision from November 2023, which confirms that the Court can order the parties to engage in alternative forms of dispute resolution without obstructing their right to a fair and public hearing under Article 6 of the European Convention on Human Rights ("ECHR").  

Background Facts

Mr Churchill had bought a property. It was claimed that Japanese knotweed had encroached on his property from the adjoining land to the east, land that was owned by the local council ("the Council").  Mr Churchill alleged that the encroachment caused damage to his property leading to a reduction in its value and a loss of enjoyment.

Mr Churchill issued proceedings against the Council in July 2021. On 15 February 2022, the Council issued an application for a stay on the basis that Mr Churchill should have first sought to remedy the issue by utilising the Council's complaints procedure.

Decision at first instance

At first instance in the County Court, the Council's application was refused on the grounds the Court was bound by Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 in which the Court of Appeal had said that "to oblige unwilling parties to refer their disputes to mediation would unacceptably obstruct their right of access to the court". However, the Judge did comment that Mr Churchill had acted unreasonably in failing to engage with the complaints procedure, and that his conduct was contrary to the relevant Pre-Action Protocol.

On 4 August 2022, the Council was granted permission to appeal and, such was the importance of the issue, it was referred straight to the Court of Appeal and the Law Society, the Bar Council and other bodies intervened.

Decision on Appeal

The Court of Appeal were asked to determine (1) whether a court can lawfully order the parties to court proceedings to engage in what was described as "a non-court-based dispute resolution process", and, (2) if so, in what circumstances it should do so. 

The Court of Appeal concluded that, as the decision in Halsey centred on the issue of costs sanctions, the question of whether the court had power to mandate ADR was not part of the justification for those conclusions and so the decision on that point was obiter.  Therefore the first instance judge in the present case was wrong to conclude they were bound by the Halsey decision. 

Nevertheless, the Court of Appeal went on to consider whether a court can lawfully stay proceedings for the parties to engage in a non-court-based dispute resolution process or, indeed, order them to engage in such a process. It found that a court could make either order, so long as the exercise of the power did not impair any rights under Article 6 of the ECHR, was in pursuit of a legitimate aim, and was exercised in such a way that it was proportionate to achieving that aim.

The Court made reference to the Civil Justice Council's June 2021 Report on Compulsory ADR which expressed the views that "any form of ADR which is not disproportionately onerous and does not foreclose the parties' effective access to the court will be compatible with the parties' Article 6 rights" and "we think the balance of the argument favours the view that it is compatible with Article 6 for a court or a set of procedural rules to require ADR".

Having established this, the Court then considered the circumstances in which the Court may grant a stay or order the parties to engage in non-court based dispute resolution.  The Bar Council, as one of the intervenors, suggested the following factors (amongst others) as relevant to the exercise of the court's discretion:   

  1. whether the alternative dispute resolution proposed was likely to be effective;
  2. the urgency of the case and any delay caused by the alternative dispute resolution;
  3. the costs of the proposed alternative;
  4. whether there was any significant imbalance in the parties' resources, bargaining power or sophistication;
  5. the reasons given for a parties' refusal, for example if there had been a previous unsuccessful attempt at mediation; and
  6. the reasonableness and proportionality of the sanction in the event of a refusal to engage in alternative dispute resolution.

Whilst the Court noted that these factors mirrored, to some extent, the factors discussed by the Court of Appeal in Halsey, and were likely to have "some relevance", it declined to set out a fixed checklist or score sheet to bind judges.  The judge in any particular case would need, when exercising their discretion, to consider all the circumstances to determine whether a particular process is or is not appropriate for the purpose of achieving the objective of bringing about a fair, speedy and cost-effective solution to the dispute.

Mr Churchill's claim

In Mr Churchill's claim, the exercise became somewhat academic.  Whilst the Court of Appeal found that it did have the power to stay the claim for the parties to engage in the council's complaints process, they declined to do so noting that matters had largely moved on and the stay was no longer appropriate but it made no order as to costs and encouraged the parties to engage in ADR.

Changes following Churchill v Merthyr Tydfil

In response to the Churchill decision, the Civil Procedure Rule Committee ("CPRC") published a consultation in April 2024 on proposed amendments to the Civil Procedure Rules ("CPR") to reflect the decision in Churchill and the court's power to order the parties to take part in a non-court-based dispute resolution process.

The key proposed changes are:

  1. Amending the Overriding Objective at CPR 1.1 to confirm that dealing with a case justly and at proportionate cost includes, so far as practicable, using and promoting alternative dispute resolution.
  2. Modifying CPR 1.4 (the courts' duties to manage cases) and 3.1 (the courts' case management powers) to clarify the position established by Churchill that judges may order, as well as encourage, parties to participate in alternative dispute resolution.
  3. Amending Parts 28 (fast/intermediate tracks) and 29 (multitrack) to require the court to consider ordering or encouraging ADR when making case management directions.
  4. Adding to CPR 44.2(5)(e) that the court's costs discretion may consider "whether a party failed to comply with an order for [ADR], or unreasonably failed to participate in [ADR] proposed by another party."

The consultation closed on 28 May 2024 and the responses will be considered at a future CPRC meeting.

Impact of the decision

It will be interesting to see whether the Churchill decision will give rise to an increase in the number of cases in which judges order that the parties should participate in an alternative form of dispute resolution and / or that the proceedings should be stayed to facilitate this.  Certainly the proposed changes to the CPR (above) if adopted will bring the principle front and centre of the litigation landscape and judges will consider the issue as part of their case management powers.

This decision demonstrates the significance that the Court of Appeal (including the Master of the Rolls and the Lady Chief Justice) attaches to proactive engagement in alternative dispute resolution by the parties to disputes, both before and during the course of proceedings. Going forward, rather than a party being penalised in costs at the end of the matter for refusing to engage in alternative dispute resolution, the court can require the party to engage in such a process during the proceedings themselves.

Each case will be looked at on its facts and will take into account different factors, so there are many unknowns.  These include what forms of out of court dispute resolution will fall within the ambit of the decision and whether judges will take account of the parties' representations about the timing of any ADR.  The phrase "non-court based dispute resolution" is wider than just the traditional forms of ADR such as mediation and early neutral evaluation. 

Whilst in most cases, professionals are well aware of the benefits of mediation, including resolving a matter at an earlier stage, the potential to maintain commercial relationships and confidentiality to name just a few, due to the operation of the Pre-Action Protocol process, the defendant professional may not have all key documents and or information about the Claimant's claim at the outset.

It also remains to be seen whether recalcitrant litigants who have been ordered to take part in an out of court process will refuse to engage properly, but experience suggests that is likely to be rare.

The alternative situation is where defendants do not want to engage in mediation, perhaps because the claim is spurious or there is a particular issue meaning a trial is necessary.  In those circumstances, defendants could oppose an application to engage in alternative dispute resolution.  The downside in that situation is the adverse costs of an interim application rather than the risk of having 25% of your entire costs bill deducted after proceedings, as was the case in a recent County Court case (Conway v Conway & Anor) where the County Court applied a 25% reduction to the Defendant's costs on the basis they had unreasonably refused to engage in ADR.

As ever, the importance of alternative dispute resolution cannot be over-emphasised.  There are many, many routes to resolve a dispute, ranging from negotiations and meetings, through adjudications, early-neutral evaluations and expert determination, through conciliation and ombudsmen, right up to arbitration and mediation itself.  The key is to identify early which is the best forum to resolve the parties' dispute and what information is required.  It may be that court proceedings are the best route, but they are certainly not the only way forward and the judicial direction of travel is ever increasingly towards encouraging or compelling litigating parties to resolve matters out of court.

Further Reading