Mediate or wait: Churchill v Merthyr Tydfil

The Court of Appeal has handed down its judgment in James Churchill v Merthyr Tydfil County Borough Council (the Council) in which the Court of Appeal confirmed that judges have the power, in appropriate circumstances, to order parties to participate in alternative dispute resolution (ADR).

The judgment provides a further boost to ADR as a central and important part of the dispute resolution landscape as it has been for many years in the construction sector in the UK.

Background

Having purchased a house in Merthyr Tydfil James Churchill noticed Japanese Knotweed growing in his garden. The Council acknowledged that they had previously treated Japanese Knotweed on the neighbouring land they owned for several years.

Mr Churchill sought compensation for losses incurred in respect of the encroachment of the Japanese Knotweed onto his land.

The Council denied liability but referred Mr Churchill to their internal Corporate Complaints Procedure.

Ignoring the request Mr Churchill issued proceedings in the County Court and the Council applied for a stay of the proceedings on the basis that they could complete the Corporate Complaints Procedure should be completed first.

The first hearing

While the Judge found that Mr Churchill and his lawyers had acted unreasonably and contrary to the spirit and the letter of the Practice Direction for Pre-Action Conduct (PD) in refusing to use the internal complaints procedure, he nevertheless dismissed the Council's application to stay the proceedings.

The Judge held that he was bound to follow Dyson LJ’s statement in Halsey v. Milton Keynes General NHS Trust [2004] EWCA Civ 576, [2004] 1 WLR 3002 (Halsey) to the effect that: “to oblige truly unwilling parties to refer their disputes to mediation would be to impose an unacceptable obstruction on their right of access to the court”.

The Council appealed the decision.

The relevant Court rules

Parties pursuing court proceedings must follow the Civil Procedure Rules (CPR). 

The CPR incorporates a number of Protocols for specific types of claims including the Pre-Action Protocol for Construction and Engineering Disputes which regulate parties' conduct prior to the commencement of proceedings by setting out steps for the parties to follow which are designed to encourage settlement. 

Where there is no applicable Protocol, as was the case for Mr Churchill's claim, pre-action conduct is regulated by the PD which requires pre-action behaviour aligned with that required under the Protocols and provides specifically that before commencing proceedings the court “expect the parties to have exchanged sufficient information to – … (c) try to settle the issues without proceedings; (d) consider a form of Alternative Dispute Resolution (ADR) to assist with settlement; … and (f) reduce the costs of resolving the dispute”.

Importantly, the PD notes that “[l]itigation should be a last resort. … the parties should consider whether negotiation or some other form of ADR might enable them to settle their dispute without commencing proceedings”.

If proceedings are issued, “the parties may be required to provide evidence that ADR has been considered”, and that a party’s refusal to participate in ADR might be considered unreasonable and lead to an order to pay additional costs.

If a party has “unreasonably refused to use a form of ADR or failed to respond at all to an invitation to do so” the court may decide that there has been a failure to comply.  

In such circumstances, the defaulting party may be subject to sanctions (primarily in respect of costs) or it may be that the “proceedings are stayed while particular steps are taken to comply” with the PD.

The issues and decision

The Court of Appeal addressed a series of issues, but the key elements are follows:

• Can the court lawfully stay proceedings for, or order the parties to engage in a non-court-based dispute resolution process?

The Court of Appeal held that they could lawfully stay proceedings for, or order, the parties to engage in a non-court-based dispute resolution processes provided that the order made does not impair the very essence of the claimant's right to proceed to a judicial hearing and is proportionate to achieving the legitimate aim of settling the dispute fairly, quickly and at reasonable cost.

• How should the court decide whether to stay the proceedings for, or order, the parties to engage in a non-court-based dispute resolution process?

The Court of Appeal noted that this would need to be considered on a case-by-case basis and was not prepared to impose a fixed set of principles as to what may be relevant.

The judgment does however provide some guidance as to the factors to be considered to establish if a party has unreasonably refused to engage in ADR.

The court will generally weigh the circumstances of the case to the form of ADR proposed to understand the benefit to the parties when considering a stay.

These include matters such as whether parties are represented, the reasonableness and proportionality of the sanction, as well as the costs of ADR, among others.

The Court of Appeal noted that "other factors too may be relevant depending on all the circumstances. It would be undesirable to provide a checklist or a score sheet for judges to operate."

Comment

This decision clearly provides robust judicial support for ADR by establishing that in principle the court may stay proceedings should parties fail to meaningfully engage in ADR. 

The construction sector has been a significant adopter of ADR in the UK including such processes as mediation, which in our experience has provided an effective alternative to both adjudication and court proceedings in many cases.

While pockets of resistance to ADR remain, this case provides useful support and may be persuasive in changing the view of parties resistant to ADR. 

Of course, the effectiveness of ADR corresponds to the commitment of those taking part and there is always a risk of parties participating simply to tick a box.

In such cases it can be an expensive waste of time with little hope of any sanction being imposed on the non-committed party. Such behaviour can be challenging, if not impossible, to demonstrate. 

It is difficult to see this problem being overcome by anything other than effective advocacy for the process across the construction sector as a worthwhile and effective forum for dispute resolution whether by practitioners, industry leaders, ADR providers (several intervened in the Churchill case), insurers and the courts with the objective of demonstrating the commercial benefits of ADR.

The momentum is certainly with ADR mechanisms transitioning to the forefront of dispute resolution as demonstrated by the 2021 Civil Justice Council report on 'Compulsory ADR' which promoted the objective of compulsory ADR.