Can the Court now order that parties to court cases must engage In Alternative Dispute Resolution?

The Court of Appeal recently delivered its much anticipated judgment in Churchill v. Merthyr Tydfil County Borough Council. Colin Ricciardiello and William Murrin analyse its likely impact.

Much anticipated because for the first time in about 20 years it tackled (at Court of Appeal level) whether a court can order parties in litigation to: (a) mediate or undertake some other form of alternative dispute resolution (“ADR”) ; or (b) stay proceedings to enable the parties to engage in ADR.

The key issue was summarised by the Court of Appeal at the very beginning of its judgment :

“The headline questions in this case are whether a court can lawfully order the parties to court proceedings to engage in a non-court-based dispute resolution process, and, if so, in what circumstances it should do so. “

The decision in Churchill overturns what was widely considered to be a bar on a court ordering ADR as decided by the Court of Appeal’s 2004 decision in Halsey v. Milton Keynes General NHS Trust. [2] The commonly encountered issues that Churchill considered attracted a lot of interest and that is why there were 7 interveners, including, the Law Society, The Bar Council and The Civil Mediation Council.

In summary prior to Churchill the generally accepted view was that Halsey decided that the court had no power to order parties to mediate /engage in ADR as to do so would be incompatible with Article 6 of the European Convention on Human Rights (“ECHR”) – being a right to fair trial. However, an unreasonable refusal to mediate/engage in ADR did give the court power to order costs sanctions against the refusing party.[3]

The Halsey decision applied to the facts in Churchill

Mr Churchill bought a property adjacent to land owned by the Council. Mr Churchill alleged that Japanese knotweed encroached from the Council’s land onto his property and that was an actionable nuisance.

Mr Churchill’s solicitors wrote a pre-action claim letter to the Council. In its response the Council queried why Mr. Churchill had not used the Council’s complaints procedure and warned that if he issued proceedings without doing so then the Council would apply to stay any issued proceedings and seek its costs incurred in any stay application. So, in essence, the Council were maintaining that (even though there was no applicable pre-action protocol in place for this kind of nuisance claim) the prescribed pre-action conduct in non-protocol cases demanded that its complaints procedure (being a form of ADR) had to be followed before proceedings could be commenced.

Mr. Churchill ignored that warning and issued proceedings. The Council accordingly issued an application for a stay of the proceedings to allow the complaints ADR procedure to proceed.

The deputy district judge who heard the stay application decided that he must dismiss the application as he was bound by the judgment in Halsey (particularly the leading judgment of Dyson LJ). He held decided that the Halsey judgment decided that to order unwilling parties to mediate would be an unacceptable obstruction to their ECHR right to access the court. He also held that Mr. Churchill had acted unreasonably and contrary to the relevant pre-action conduct requirements by failing to engage with the Council’s complaints procedure.

Post Halsey, it has been widely accepted that the court can strongly encourage parties to mediate but cannot oblige them to do so. Unreasonable refusals to engage in ADR – particularly when there has been court encouragement to engage in ADR – can attract costs sanctions, being an aspect of the parties conduct which needed to be taken into account when exercising the discretion as to the award of costs [4] .

Issue 1 in Churchill – Was the judge right to think that Halsey bound him to dismiss the council’s application for a stay ?

The simple question here was whether the Dyson LJ passage from the Halsey judgment, about ordering mediation amounting to an obstruction to the right to access the court, was actually part of the reasoning (“the ratio ) that led to the judgment in that case or was it a non-binding aside to that reasoning (“obiter”)? If it was part of the ratio then it was a binding precedent. If it was obiter then it was necessarily binding. In the context of analysing what issues were actually decided in Halsey, the Court of Appeal in Churchill concluded that the Dyson LJ passage in the Halsey judgment was not part of the ratio and so the judge in the court below was not bound to follow that part of the judgment.

In Halsey, the question for the Court of Appeal was whether a costs sanction should be imposed against the successful parties because they had refused to participate in ADR. In considering that question it identified a number of factors to be taken into account in deciding whether a refusal to mediate was unreasonable, and could therefore result in costs sanctions.( See paragraph 16 of the judgment in Halsey – most notably whether ADR had a reasonable chance of success. These Halsey grounds though should now be read more restrictively and in conjunction with the guidance in PGF II SA ).

Issue 2 in Churchill – Can the court lawfully stay proceedings or order the parties to engage in ADR ?

Because of the obiter finding in Issue 1, the Court of Appeal did not have to tackle the question of whether deciding that there was power to order ADR would conflict with the ratio in Halsey. So, it was open to it to decide that the court could compel ADR without that being decision being incompatible with the right to a fair trial under Article 6 of the ECHR. The short question and answer here was put this way in Churchill ;

“Can, despite what Dyson LJ said in Halsey, the court lawfully stay proceedings for, or order, the parties to engage in a non-court-based dispute resolution process? In my judgment, that power does indeed exist. It is not disputed that, if the power exists, it must be exercised so that it does not impair the very essence of the claimant’s article 6 rights, in pursuit of legitimate aim, and in such a way that it is proportionate to achieving that legitimate aim”. [5]

The above quotation was developed in paragraph 65 and 66 of the judgment in Churchill where it was confirmed that the court should only stay for, or order, the parties to engage in ADR if those measures were proportionate to the legitimate aim of settling the dispute fairly, quickly and at a reasonable cost in accordance with the overriding objective.  The Churchill judgment noted that the argument that the power to order ADR was not incompatible with Article 6 was supported by the Civil Justice Council’s June 2021 report on compulsory ADR.

Issue 3 in Churchill – How should the court decide whether to stay and order the parties to engage in a non-court based dispute resolution process?

Before addressing this issue, the judgment made two preliminary points.

First, the observation in Halsey that it is difficult to conceive of circumstances where it would be appropriate to order unwilling parties to mediate was contested as experience had shown that:  mediation had proven to be extremely beneficial to settle disputes cheaply and quickly; and “Even with initially unwilling parties , mediation can often be successful” [6]. Similar remarks about how mediation can be successful were made in PGF II SA in the context of where a party thought there was no reasonable chance of it succeeding eg. because of its belief in the strength of its case or the gulf in their respective settlement positions. [7]

Second, the argument that different legal principles applied to different methods of ADR was rejected. Although it was accepted that the characteristics of the available method of ADR would be relevant to whether an order to engage in any type of ADR should be made.

When deciding Issue 3 it was made clear that :

“Whether the court should order or facilitate any particular method of non-court-based dispute resolution in a particular case is a matter of the court’s discretion, to which many factors will be relevant “ [8]

The Bar Council made submissions on what factors are relevant to the court’s discretion on ordering the parties to engage in ADR. In part they were similar to the Halsey factors. At paragraph 66 of the judgment, it was said that these matters were likely to have some relevance but so could others depending on the circumstances. The Bar Council’s matters included ;

• The form of ADR
• Whether the parties were legally represented and whether ADR would be effective without such representation ;
• The urgency of the case and the reasonableness of the delay caused by ADR;
• Whether there was any realistic prospect of the claim being resolved through ADR; and
• The reasons a party gave for not wishing to engage in ADR, for example, if there had already been a recent unsuccessful attempt.

Also, at paragraph 66 of the Churchill judgment the open-ended nature of the exercise of discretion was understandably deliberately left open when it was stated that : “I do not believe that the court can or should lay down fixed principles as to what will be relevant to determining those questions “ and that it “…would be undesirable to provide a checklist or a score sheet for judges to operate.”

Issue 4 in Churchill – Should a stay have been ordered to allow the council’s internal complaints procedure to operate?

Matters had moved on considerably since the time of the stay application and so this issue was left over for another occasion but that did not impair allowing the Council’s appeal because it succeeded on Issues1,2 and 3. The recommendation in respect of Issue 4 was that the parties should consider a stay for mediation or some other form of non-court -based adjudication.

Conclusions

In brief summary Churchill decided that;

• The remarks in Halsey about ordering the parties to engage in ADR would infringe Article 6 of the ECHR were not an essential part of that decision and did not bind the judge to dismiss the application for a stay;
• The court can lawfully order a stay for, or order the parties to engage in a non-court- based ADR process where that does not impair the claimant’s right to a judicial determination and it is proportionate to achieving the legitimate aims a fair and quick resolution at a reasonable cost.
• There are no fixed principles for ordering a stay/engagement with ADR.

Where does that leave Halsey? Experience has borne out that there are some useful guidance in Halsey such as: ADR and mediation do not offer a panacea in every case and they have advantages and disadvantages.; when refusing  ADR because of the merits , courts should be astute to the danger of invitations to engage in ADR being a tactical ploy, using the threat of costs sanctions for refusing ADR to extract a settlement – noting that large organisations and public bodies were vulnerable to this pressure.

In the writer’s view there is no obvious reason why Churchill should restrict the court’s discretion to impose costs sanctions where there has been an unreasonable refusal to engage in ADR in cases where the court has not ordered a stay/the parties to engage in ADR. Further, if good grounds to decline ADR can be demonstrated (and it must be accepted that since PGF II SA the grounds for establishing that have been narrowed) the open textured nature of the discretion to order stays/engage in ADR ought to mean that those grounds will not be overridden simply because Churchill establishes that there is a power to order a stay/engagement in ADR. Only time will tell but it seems to the writer that if post PGF II SA grounds to reasonably refuse to mediate can be made out[9], then those same grounds should influence the exercise of the discretion not to order a stay/order some form of ADR.

In the writer’s experience ADR, and mediation in particular, are often successful alternatives to litigation and no doubt many practitioners have achieved settlements in cases where only a mediation could have produced that result .Churchill can only be seen as a means to further promote ADR but if a case is not suitable for a ADR, then the power to order ADR ought not be used or, if an ordered ADR process fails, the court option and the ECHR Article 6 right remains intact.

[1] [2023] EWCA Civ 1416

[2] [2004] EWCA Civ 576

[3] See also Nokia Corporation v. Interdigital Technology Corp [2005] EWHC 2134 where it was held that in accordance with Halsey the court could not order mediation where one party refused. Where the refusal was unreasonable all the court could do was protect its own position and that of other litigants by the ultimate sanction of costs .

[4] The Court of Appeal’s judgment in PGF II SA v. OMFS Company 1 Ltd [2013] EWCA 1288 is important and revisited Halsey . It gave guidance on the proper approach as to the issue of costs when a party had failed to engage in ADR. In particular it made a “…modest extension to the principles and guidelines set out in the Halsey case…” by holding that silence in the face of an invitation to mediate was as a general rule to be treated as a deemed unreasonable refusal to mediate and sufficient to warrant a costs sanction. The court though did not go as far as saying that even a refusal to engage in a discussion about ADR would automatically produce a cost sanction. Silence of course means that there was also a failure to provide reasons for refusing ADR and that absence is likely to fatal to any argument that there were good Halsey grounds to refuse ADR. There was also a remark that reversing the normal costs rule by ordering that a successful party pays some or all of the unsuccessful party’s costs is a draconian sanction that was reserved for only the most serious and flagrant failures to engage in ADR, “ …for example where the court had taken it upon itself to encourage the parties to do so, and its encouragement had been ignored”.

[5] See paragraph 50 of the Churchill judgment.

[6] See paragraph 59 of the Churchill judgment.

[7] See also Laporte & another v. The Commissioner of Police for the Metropolis [2015] EWHC 371 (QB) where the Defendant refused to engage in ADR as it thought that the Claimants would only settle at a level it was not willing to offer. That was held to be an unreasonable refusal and the successful Defendant was penalised by only being awarded two-thirds of its costs.

[8] See paragraph 59 of the Churchill judgment .

[9] For example, in Capital PLC v. Edwardian Group Ltd [2018]6 Costs LR 1235 the Claimant lost at trial but sought an order that the Defendant pays its cost as it unreasonably refused to mediate. The Defendant refused because it considered the claim to be of no merit and it saw the offer to as a means to extract a nuisance payment in a single-issue case as to whether an oral contract had been concluded. Here, there were the added factors of the court being concerned about the Claimant’s approach to the litigation and the veracity of one of its witnesses. For those reasons the Claimant was ordered to pay the winning Defendant’s costs on the indemnity basis. Without those additional factors, in itself, a profound belief in a watertight case is unlikely to stand as a reasonable ground to refuse to mediate.

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