In this important recent English Court of Appeal judgment, Churchill v. Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416 (https://www.bailii.org/ew/cases/EWCA/Civ/2023/1416.html), the Court held that it had the power to order the parties to engage in alternative dispute resolution (“ADR”), and stay the proceedings whilst they did so. Whilst it was held that any such order must not impair access to justice, and be proportionate, it seems inevitable that this judgment will contribute to ADR’s continued Japanese knotweed-like spread throughout the dispute resolution landscape of England and Wales, writes Richard Hickey, Managing Associate, CJC.

Introduction

Mediation and other ADR procedures have continued to grow in popularity in recent years as a way of avoiding some of the downsides involved in litigation, such as costs and uncertainty. However, it was thought until recently that the English Courts had limited powers to compel litigants to seek to resolve their disputes by way of ADR.

Following Churchill v. Merthyr Tydfil it is now clear that such powers do exist. However, that does not mean that the Courts will automatically grant applications to stay proceedings in favour of ADR. Any party making such an application will need to carefully consider the guidance laid down by the Court of Appeal as to the circumstances to be taken into account when considering such applications. Equally, any party that is asked by its counterpart to mediate will now have to think even more carefully than before about refusing, lest it find itself on the losing side in an application to the Court for a mandatory stay of proceedings whilst ADR is conducted.

Some observers will see this decision as part of a general attempt to steer as many potential litigants as possible away from the Courts in order to ease the pressure on an overworked and underfunded judicial system. Others will welcome it as further recognition of the valuable role played by ADR in the modern civil justice landscape. Both perspectives have force.

Facts

Briefly, Mr Churchill was suing Merthyr Tydfil Council for allegedly allowing knotweed from one of its properties to spread to his land, causing serious problems. When he eventually commenced court proceedings, the Council applied to have them stayed, arguing that he was obliged to use their Corporate Complaints Procedure.

The Council’s application was dismissed by the District Judge who first heard it. In his view, he was constrained by the Court of Appeal case of Halsey v. Milton Keynes General NHS Trust [2004] EWCA Civ 576, [2004] 1 WLR 3002 (Halsey), which he took to have held that the Court could not force unwilling parties to carry out ADR before starting or continuing legal proceedings.

Judgment

The Court of Appeal carried out an exhaustive review of European and domestic case law, as well as an in-depth analysis of the applicable procedural rules. It ruled as follows:

1. It was not bound to follow Halsey, which had commented on the issue but not as part of the essential reasoning of the judgment.

2. The Court can lawfully stay proceedings as part of an order that the parties engage in a non-court-based dispute resolution process.

3. However, such an order must not impair a claimant’s right to a trial, and must be proportionate in achieving its aim of settling the dispute fairly, quickly, and at reasonable expense.

4. As to the specific principles that the Court will consider when deciding the suitability of any particular proposed ADR procedure, it was careful not to endorse a rigid list. However, it did give some useful guidance, as explored below.

On the facts, the stay application was refused. However, of more interest to most observers will be what factors the Courts will in future consider to be relevant in deciding whether to stay proceedings in support of a proposed ADR regime.  

In this regard, the Court refused to be prescriptive, stating that it would be “undesirable to provide a checklist or a score sheet for judges to operate”. The nearest that the Court came to providing guidance was to state that a list of relevant factors suggested by the Bar Council (who also made submissions in the case) “are likely to have some relevance”. These are as follows:

1. The form of ADR being considered.

2. Whether the parties were legally advised or represented.

3. Whether ADR was likely to be effective or appropriate without such advice or representation.

4. Whether it was made clear to the parties that, if they did not settle, they were free to pursue their claim or defence.

5. The urgency of the case and the reasonableness of the delay caused by ADR.

6. Whether that delay would vitiate the claim or give rise to or exacerbate any limitation issue.

7. The costs of ADR, both in absolute terms, and relative to the parties' resources and the value of the claim.

8. Whether there was any realistic prospect of the claim being resolved through ADR.

1. Whether there was a significant imbalance in the parties' levels of resource, bargaining power, or sophistication.

10. The reasons given by a party for not wishing to mediate.

11. The reasonableness and proportionality of the sanction, in the event that a party declined ADR in the face of an order of the Court.

However, the Court also emphasised that other factors may be relevant. Practically speaking, it is suggested that this (non-exhaustive) checklist should be a starting point for any commercial party assessing the suitability of any proposed ADR regime and whether a Court would be likely to stay proceedings in support of such a regime; however, it is a starting point only, and it is clear this list does not fetter the Court’s ability to consider any other factors that may be relevant.

Conclusion

It has been suggested by some commentators that the impact of this judgment is likely to be limited to cases such as this involving litigants in person trying to sue councils. This seems optimistic. It is not unknown for contracts between commercial entities to include clauses providing for ‘commercial discussions’ prior to the commencement of proceedings.

It is possible to foresee such provisions become more formal, and widespread. For example, any entity with sufficient power in the market (for instance, a shipping giant or large commodities trader) could craft a bespoke set of in-house ADR rules compelling its trading partners to jump through an onerous (although not too onerous to fall foul of the principles set out in Churchill) series of ADR hoops before they are permitted to start legal proceedings.

Other problems can be foreseen. How, for example, is a judge expected to determine whether there was any realistic prospect of a claim being resolved by mediation when the parties’ without prejudice discussions will be subject to privilege? Is a judge really better placed to determine this than the parties or their legal representatives?

Finally, whilst on balance the Court’s encouragement of mediation is to be welcomed as a sensible part of modern case management, the question might be asked as to exactly how much further the process should go. If the end result is large numbers of commercial litigants taking part in “sham” mediations with no intention to settle, just to safeguard themselves from possible sanction by the Court, ADR may well lose its current good reputation, which would be in no one’s interest.

For further information, please contact:

Richard Hickey, Managing Associate, richardh@cjclaw.com