In a landmark decision, James Churchill v Merthyr Tydfil County Borough Council, the Court of Appeal has ruled that the courts can stay proceedings and order parties to engage in Alternative Dispute Resolution (ADR), even where one or both parties have expressed an unwillingness to engage in the process.
The benefits of ADR have long been recognised. It is an efficient mechanism for resolving disputes quickly, privately and usually far more cheaply than taking a case to trial. The Pre-action Protocol for Professional Negligence (which covers claims against accountants and auditors) requires the parties to consider ADR before commencing court proceedings. The Court of Appeal decision in Churchill goes further by underscoring the importance of ADR even once proceedings are underway. The courts have the power to stay the proceedings and compel the parties to engage in ADR and there is an expectation this power will be exercised.
Facts
Mr Churchill brought a claim in nuisance against the Council, the owner of adjoining land, for damage caused by encroaching Japanese knotweed. The Council applied to stay the proceedings to allow the parties to engage in its complaints procedure. The court dismissed the application finding that, whilst Mr Churchill's refusal to use the complaints procedure was unreasonable, it was bound by the Court of Appeal decision in Halsey v. Milton Keynes General NHS Trust [2004], namely "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 Court of Appeal decision
Master of the Rolls, Sir Geoffrey Voss, gave the unanimous judgment of the Court of Appeal in Churchill on the key issues raised in the Council's appeal.
1. Was the judge bound by Halsey?
No. Halsey was a case about costs sanctions where the parties had refused to mediate and not whether the courts can compel parties to participate in mediation or other forms of ADR. Accordingly, Lord Justice Dyson's statement in Halsey about compulsion to use ADR being an "unacceptable obstruction" to justice was not binding.
2. Can the court lawfully order the parties to engage in a non-court based dispute resolution process?
Yes, the power is derived from the Civil Procedure Rules and should be exercised provided "it 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.". Ordering compulsory mediation does not breach Article 6 of the European Convention of Human Rights (the right to a fair trial).
3. 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?
Whether the court should order or facilitate any particular method of non-court based dispute resolution in a particular case is a matter for the court's discretion, to which many factors will be relevant. The Court of Appeal declined to set out fixed principles or "provide a checklist or score sheet for judges to operate" but relevant factors may include the form of ADR being considered, whether the parties were legally represented, the urgency of the case, costs of ADR, and any imbalance between the parties.
Issue 4: Should the first instance judge have granted the Council’s application to stay the proceedings to allow Mr Churchill to pursue a complaint under the Council’s internal complaints procedure?
The judge in the first instance court would have granted a stay of proceedings if he had not considered himself bound by Halsey. The Court of Appeal decided not to impose a stay but encouraged the parties to consider agreeing a temporary stay to engage in ADR.
Comment
For two decades, Halsey has been treated as binding authority that the courts could not force parties to refer their dispute to ADR. The courts would encourage parties to use ADR and would impose cost sanctions on a party that unreasonably refused to engage in ADR but compelling unwilling parties to submit to the process was deemed unconscionable.
Halsey came from an era when ADR’s use was less commonplace and there was a perception (which the Court of Appeal in Halsey shared) that ADR was not a panacea and it would not be suitable for every case. But times and views have moved on. With significant pressure on court resources, an enhanced focus on improving efficiencies in the court system, and increased recognition that ADR has many benefits, there has been growing criticism of Halsey (fuelled by Sir Geoffrey's comments in McParland & Partners v Whitehead [2020]). Sir Geoffrey seized the opportunity for ADR reform in Churchill.
Accountants and auditors who find themselves defending allegations of negligence, for example for negligent tax planning or negligent auditing, should, on balance, welcome the decision. It not only sends a clear signal that the courts expect the parties to engage in ADR as a first step, but obstructive claimants may actually be prevented from advancing their claim further if they refuse to engage in ADR. There will no doubt be cases where defendant accountants feel pressured to take part in mediations which are considered premature or a waste of costs (eg because the case is hopeless on the merits, or settlement discussions would be more appropriate after disclosure). Future decisions will clarify whether the courts are sympathetic to such considerations, in particular whether it will order parties to engage in mediation before disclosure. For now, professional defendants and their in-house counsel have additional leverage to use ADR at an early stage, which should in turn (hopefully) enable the parties to achieve an early resolution, before costs escalate.
