Court of Appeal holds that English courts can compel parties to engage in ADR

Last month, the Court of Appeal confirmed that English courts can order a stay of civil litigation and compel parties to engage in “non-court-based” dispute resolution. Here, we examine the latest chapter in the mandatory use of alternative dispute resolution (ADR) by parties in commercial cases.

The background: Churchill v Merthyr Tydfil County Council [2023] EWCA Civ 1416

Churchill involved litigation initiated by a homeowner for damage caused to his land by the encroachment of Japanese knotweed from adjacent property, owned by the local Council. The Council argued that the claimant should have used its internal complaints procedure – a form of ADR – before proceeding with litigation.

At first instance, the Deputy District Judge rejected the Council’s argument, relying on comments from Dyson LJ in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 (‘Halsey’) – a prior Court of Appeal decision. In Halsey, Dyson LJ stated that compelling an unwilling party to engage in ADR would be an unacceptable constraint on that party’s right of access to the court, and therefore a violation of Article 6 of the European Convention on Human Rights (EHRC), which states that everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal. The Council appealed the District Judge’s decision.

What is alternative dispute resolution?

ADR can take numerous forms, such as informal negotiations, mediation, or early neutral evaluation by an independent third party.

It provides the parties with an opportunity to settle their disputes out of court, thus avoiding unnecessary costs by resolving matters at an early stage. A successful ADR process leads to parties agreeing settlement terms in a legally enforceable binding contract.

The Civil Procedure Rules (CPR) contain several provisions that clearly encourage the use of ADR from the outset, including:

• An expectation of the courts that parties will have exchanged sufficient information and considered using ADR to settle their issues before commencing litigation.
• Using litigation as a last resort, and first considering whether negotiation or another form of ADR will enable a settlement out of court.
• The possibility of a court ordering cost sanctions or a stay if a party unreasonably refuses to use a form of ADR.

Other recent developments in England and Wales are also consistent with these provisions.

In 2021, for example, the Civil Justice Council issued a report on compulsory ADR, which stated that compelling parties to use ADR is lawful and should even be encouraged.

More recently, the Ministry of Justice announced that the CPR would be amended to mandate referral to mediation for certain civil claims of up to £10,000. The UK Government also signed the Singapore Convention on Mediation in May 2023, which provides for the mutual enforcement of international settlement agreements resulting from mediation of commercial disputes.

What did the Court of Appeal say in Churchill v Merthyr?

On the specific facts of Churchill, the Court of Appeal chose not to exercise its discretion to order a stay, as the Council’s complaints procedure was intended to apply before litigation commenced. The facts of the case had also moved on to such an extent that a one-month stay was deemed unlikely to resolve the dispute. Nevertheless, the court stated that the parties should agree to pursue ADR.

The Court of Appeal also stated that:

1. the passage in Halsey concerning Article 6 of the ECHR was not strictly binding because Dyson LJ’s comments in that case did not form the core reasoning of the decision;
2. English courts can order a stay of litigation and compel ADR, provided that doing so does not impair a claimant’s rights under Article 6 and is proportionate to achieving the legitimate aim of settling the dispute fairly, quickly and at reasonable cost; and
3. there are no fixed principles in determining whether the court should exercise its discretion to order a stay of litigation and compel ADR. Judges are well-qualified to decide if a form of ADR is appropriate or likely to achieving the objectives of the Civil Procedure Rules.

What does this decision mean for the future of ADR?

The Court of Appeal’s ruling signals the potential for more active case management by English courts at an early stage of civil litigation, including compelling parties to attempt a form of ADR before, or even after, litigation commences.

This also aligns the English courts’ approach with those of certain overseas jurisdictions. In New York state courts, for example, judges can compel parties to mediate commercial disputes in good faith and sanction those that fail to do so.

The damages claimed in Halsey were just £43,000 and, so far, proposals by the Ministry of Justice to mandate ADR have been limited to relatively low-value claims. Following Churchill, however, it is possible that English courts could mandate the use of ADR in high-value claims as well.

In the future, lawyers and their clients will need to think more strategically at the outset of civil disputes about exploring forms of ADR in addition to, or instead of, court proceedings.