Courts can compel parties to engage in ADR: Court of Appeal finds comments to the contrary in Halsey not binding

In a landmark decision handed down today, the Court of Appeal has held that the court can order the parties to engage in ADR, or stay the proceedings to enable them to engage in ADR, provided that the order does not impair the essence of the claimant’s right to a fair trial, and it is proportionate to achieving the legitimate aim of settling the dispute fairly, quickly and at reasonable cost: Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416.

The Court of Appeal's decision does not, however, lay down fixed principles as to when such an order should be made. The court noted that many factors may be relevant, depending on all the circumstances, and it would not be desirable to provide a checklist or score sheet for judges to operate.

The court's decision is consistent with the general direction of travel on the part of the government and the civil judiciary in recent years, which has been toward embedding ADR into the litigation process including by compulsion if necessary (as illustrated by the recent announcement of new powers to compel ADR in County Court Small Claims and the Employment Tribunals).

In the context of complex commercial litigation, however, the Civil Justice Council recently recognised a concern that an attempt to mandate when the parties should mediate, particularly at the pre-action stage, could be counterproductive. It is therefore welcome that the Court of Appeal has not, in the present case, sought to lay down any set rules as to when the courts will order parties to engage in ADR. No doubt judges in such cases will take into account the nature of the dispute and the sophistication of parties in determining whether it is appropriate to compel the parties to mediate, or whether they should be allowed the flexibility to determine for themselves when the time is right.

Background

The claimant, Mr Churchill, owns a property adjacent to land owned by the defendant Council. In October 2020, Mr Churchill sent the Council a letter of claim regarding the encroachment of Japanese knotweed from the Council's land onto his property. The Council's response in January 2021 queried why Mr Churchill had not made use of its complaints procedure and said that the Council would apply to the court for a stay if Mr Churchill issued proceedings without having done so.

Despite that warning, Mr Churchill issued proceedings in nuisance against the Council in July 2021 and the Council applied to stay the proceedings.

The deputy district judge dismissed the stay application. He held that Mr Churchill had acted unreasonably, and contrary to the relevant pre-action protocol, by failing to engage with the Council's complaints procedure. However, he considered himself bound to follow Dyson LJ's statement in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 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.

Decision

The Court of Appeal unanimously allowed the appeal. Sir Geoffrey Vos, Master of the Rolls, gave the leading judgment, with which Birss LJ and the Lady Chief Justice agreed.

Was the judge bound by Halsey to dismiss the application?

The Court of Appeal held that the judge had not been bound by Halsey to dismiss the Council's application for a stay, as the passage on which the judge relied was not a necessary part of the reasoning that led to the Court of Appeal's decision in that case. In other words, that passage was obiter dicta, rather than ratio decidendi.

In Halsey, the question the Court of Appeal had to consider was whether a costs sanction should be imposed against the successful parties in the two cases under appeal on the grounds that they had refused to participate in ADR. The Court of Appeal held that, in each case, there should be no costs sanction as it had not been established that the refusal was unreasonable. It identified a number of factors as relevant in deciding whether a refusal to mediate was unreasonable.

It was in that context that Dyson LJ had made his comments on the question of whether the court had power to order parties to mediate against their will. That was not a necessary step in reaching the court's conclusions on the costs questions decided in the two appeals, ie as to how the court should decide whether a refusal to mediate was unreasonable. The factors the court identified as relevant to that question were relevant whether or not the court had power to require the parties to mediate.

Can the court lawfully order the parties to engage in ADR?

Having considered relevant cases from the European Court of Human Rights and pre-Brexit decisions of the Court of Justice of the EU, as well as domestic case law, the Court of Appeal held that the court does have the power to stay proceedings for, or order, the parties to engage in ADR, provided that the order made: (a) does not impair the very essence of the claimant’s right to a fair trial under article 6 of the European Convention on Human Rights, (b) is made in pursuit of a legitimate aim, and (c) is proportionate to achieving that legitimate aim.

The court rejected Mr Churchill's argument that any impediment to his right of access to the courts required a statutory footing. Mr Churchill relied on R (UNISON) v Lord Chancellor [2017] UKSC 51, in which the Supreme Court held that the right of access to the courts could only be curtailed by express primary legislation, and therefore a statutory instrument increasing fees to commence proceedings in the Employment Tribunal was unlawful since it prevented access to justice. However, as the Court of Appeal pointed out in the present case, in UNISON the impediment prevented access to a judicial determination. That case did not mean that primary legislation was required to enable existing proceedings to be stayed or delayed for a legitimate objective such as achieving resolution of the dispute by other means.

The Court of Appeal noted that its conclusion was supported by the Civil Justice Council’s June 2021 Report on Compulsory ADR (considered here) which expressed the view 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”.

How should the court decide whether to exercise its powers?

The Court of Appeal noted that, in Halsey, the court said that even if it had jurisdiction to order unwilling parties to refer their disputes to mediation, it was "difficult to conceive of circumstances in which it would be appropriate to exercise [that jurisdiction]”. The court in this case said it would not go so far. As the Master of the Rolls put it:

"Experience has shown that it is extremely beneficial for the parties to disputes to be able to settle their differences cheaply and quickly. Even with initially unwilling parties, mediation can often be successful. Mediation, early neutral evaluation and other means of non-court-based dispute resolution are, in general terms, cheaper and quicker than court-based solutions. 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."

The court listed a number of factors that the Bar Council had submitted would be relevant in exercising the court’s discretion, namely: (i) the form of ADR being considered, (ii) whether the parties were legally advised or represented, (iii) whether ADR was likely to be effective or appropriate without such advice or representation, (iv) whether it was made clear to the parties that, if they did not settle, they were free to pursue their claim or defence, (v) the urgency of the case and the reasonableness of the delay caused by ADR, (vi) whether that delay would vitiate the claim or give rise to or exacerbate any limitation issue, (vii) the costs of ADR, both in absolute terms, and relative to the parties’ resources and the value of the claim, (viii) whether there was any realistic prospect of the claim being resolved through ADR, (ix) whether there was a significant imbalance in the parties’ levels of resource, bargaining power, or sophistication, (x) the reasons given by a party for not wishing to mediate: for example, if there had already been a recent unsuccessful attempt at ADR, and (xi) the reasonableness and proportionality of the sanction, in the event that a party declined ADR in the face of an order of the Court.

The court noted that these factors mirror, at least to some extent, the factors discussed in Halsey as relevant to the question of whether a party had behaved unreasonably in refusing ADR. However, the Court of Appeal in this case did not consider it appropriate to lay down fixed principles as to what the court should take into account in exercising its discretion to order ADR or stay the proceedings for ADR. While it said the above factors were likely to have some relevance, other factors may also be relevant depending on all the circumstances and it "would be undesirable to provide a checklist or a score sheet for judges to operate".

Should the court have granted the Council's application for a stay?

The Court of Appeal said it was plain that, if the judge had not concluded that he was bound by Halsey to refuse a stay, he would have granted one to allow Mr Churchill to pursue a complaint under the Council's internal complaints procedure.

However, things had moved on considerably since that application, including because Mr Churchill had refused to allow the Council to treat the knotweed in his garden, standing on his right to seek compensation and costs from the court. The court commented that there was little point in granting a stay of the claim now, as the court could not properly grant a mandatory injunction requiring Mr Churchill to allow the Council to treat the knotweed, which had neither been sought nor argued. And, while there had been no challenge to the finding that Mr Churchill had been unreasonable to refuse to use the complaints procedure, the Court of Appeal appeared to have some reservations as to whether that was the most appropriate procedure in this case.

The court therefore allowed the appeal on the other points, but declined to order a stay of the proceedings. It noted however that the parties ought to consider whether they could agree to a temporary stay for mediation or some other form of non-court-based adjudication.