Parties have always been encouraged to explore ways to resolve their disputes outside litigation. There has been a significant shift in how litigation is pursued in England and Wales, with the move to integrate alternative dispute resolution (ADR) into the process to help facilitate resolution at the earliest opportunity.
In this podcast, Oliver Rawkins, Catherine Lewis and George Pissarro discuss the recent shift in the move to more formally integrate ADR into the proceedings,...
Parties have always been encouraged to explore ways to resolve their disputes outside litigation. There has been a significant shift in how litigation is pursued in England and Wales, with the move to integrate alternative dispute resolution (ADR) into the process to help facilitate resolution at the earliest opportunity.
In this podcast, Oliver Rawkins, Catherine Lewis and George Pissarro discuss the recent shift in the move to more formally integrate ADR into the proceedings, including the impact of the Court of Appeal’s decision in Churchill v. Merthyr Tydfil County Borough Council in 2023 and further recent jurisprudence on ADR issues.
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Transcript:
Intro: Welcome to Disputes in Perspective, a Reed Smith podcast. This podcast series will discuss disputes-related trends, hot topics, and developments occurring in the global legal landscape, and hopefully provide you with some helpful insights and practical tips. If you have any questions about any of the episodes, please feel free to contact our speakers.
Ollie: Welcome to the Disputes in Perspective podcast series. My name is Ollie Rawkins. I'm a partner in Reed Smith's Global Commercial Disputes Group in London. And today I'm joined by two colleagues, Catherine Lewis and George Pissarro, to discuss recent developments in the approach to Alternative Dispute Resolution, or ADR, here in England. So I just wanted to sum up first the ground we're going to cover today. First, we're going to give a brief overview of ADR itself. We're then going to look at one of the most significant decisions in ADR in recent years. This is the Churchill and Merthyr Tydfil County Borough Council case from 2023. We're going to look at some procedural changes that are either going to be implemented or in fact have been implemented already. Then we're going to look at a couple of court decisions from 2024 and how they reflect or illustrate the approach to ADR here in England and in English courts. Finally, we're going to look to the future and see what trends or themes in relation to ADR might be on the horizon. So first, I'm going to give a very brief overview of ADR. This is a bit of initial background to those listeners who may be less familiar with ADR as a concept. So it encompasses a variety of methods which were designed to resolve disputes. Without resorting to litigation or where proceedings are already on for bringing that litigation to a consensual resolution. So, just to be clear, we're looking at the types of ADR in play in the context of court proceedings. ADR processes can be binding, meaning that the outcome is final and can be enforced, or alternatively they can be non-binding, which means that the parties can proceed with litigation to resolve the dispute if they're not satisfied with the outcome of the process. Non-binding ADR processes may involve third-party intervention, but do not have to. So the most commonly used methods of ADR include mediation and negotiation, early neutral evaluation and expert determination. The pros and cons of ADR depend to a large extent on the specific mechanism in question and may not apply across the board. However, generally speaking, the benefits are seen to be that it saves time, it saves costs, offers flexibility and choice, confidentiality, and it can help maintain positive business relationships. And even if the ADR process in question doesn't itself result in settlement it might produce or have other benefits for the parties. It might narrow the issues of dispute, test the strengths and weaknesses of each party's case and establishing an ADR process and one that the parties can agree to and then engaging in it can also build or re-establish lines of negotiation or dialogue between the parties and ultimately increased the prospects of settlement being reached before trial. As a general principle, mediation is heavily endorsed and encouraged by the English legal system. However, until recently, the case law indicated that the courts would not compel parties to mediate. It was a matter of discretion for the parties involved. Now, to a certain extent, that has changed. I'm going to hand over to George, who's going to talk us through the a relatively recent decision from the Court of Appeal that has changed this position.
George: Thanks, Ollie. So, as you mentioned, on the 29th of November 2023. The Court of Appeal handed down its judgment in the case of Churchill and Merthyr Tydfil County Borough Council, and the judgment is a landmark in the context of ADR. So, the headline questions were whether a court can lawfully order the parties to court proceedings to engage in a non-court-based dispute resolution process? And if so, in what circumstances it should do so? The underlying claim was for nuisance allegedly caused by Japanese knotweed brought by Mr Churchill against the council without using the council's internal complaints procedure first, a procedure to which Mr Churchill was not contractually bound. The council argued that Mr Churchill had refused to engage in a form of ADR and sought a stay of proceedings to allow him to go through its complaints procedure. That application was dismissed by the Deputy District Judge at first instance, who followed the guidance in the 2004 Court of Appeal case of Halsey and Milton Keynes General NHS Trust. In that case, Lord Justice Dyson stated 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. Following the dismissal of the council's application, it appealed and the case was leapfrogged to the Court of Appeal, with several interveners joining the proceedings, including the Bar Council, the Law Society, and numerous dispute resolution groups.
Ollie: So if I can just jump in here, George. So before Churchill, Halsey was viewed as a barrier to court-mandated ADR in circumstances where one party was unwilling or where court proceedings had been initiated. This was on the basis that the ADR process is a voluntary one, conceptually, and the role of the court was to encourage, not to compel the parties. So George, has the Court of Appeals decision now changed that position?
George: Well interestingly the court of appeal decided the following key points. Firstly, the judge was not bound by Halsey as the relevant passages in that case were obiter and did not address the power to order mediation but only the cost consequences of refusing it. Secondly, the court did have the power to stay proceedings for or order the parties to engage in non-court-based dispute resolution processes as long as it did not infringe the party's right to a fair trial under Article 6 of the European Convention on Human Rights, and was in pursuit of a legitimate aim, and in such a way that it is proportionate to achieving that legitimate aim. Thirdly, the court found that it should only stay proceedings for or order the parties to engage in 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. Here, the court should exercise that power with discretion, taking into account various factors. Although the court did not lay down fixed principles here as to what will be relevant, it acknowledged that the characteristics of the non-court-based dispute resolution process under consideration would be relevant. And finally, the judge in the Court of Appeal did not order a stay on the basis that the circumstances had changed since the application was made, and a stay would would not serve any useful purpose at that stage. However, the Court of Appeal encouraged the parties to consider a temporary stay for mediation or some other form of non-court-based adjudication. The Court of Appeal's decision in Churchill marks a significant milestone in the ADR landscape and pulls down this perceived barrier to court-mandated mediation that was put up by Halsey in circumstances where court proceedings have commenced. As a consequence, the court can lawfully stay existing proceedings for or order the parties to engage in a non-court-based dispute resolution process if it is proportionate and preserves the essence of the party's right to a judicial hearing. The fact that the Court of Appeal chose not to refer to ADR in its judgment. Opting for non-court-based dispute resolution, is also of note. Here, the Court has defined ADR are widely enough so as to catch internal complaints procedures, albeit provided such procedures are rigorous enough to satisfy the legitimate aim of settling a dispute fairly quickly and at reasonable cost. However, it must be remembered that whether the court should order or facilitate any particular method of non-court-based dispute resolution in a particular case will be a matter for its discretion where multiple factors could be relevant.
Ollie: Thank you, George. Clearly, this is a very significant decision when it comes to case management, when it comes to how far the court will intervene in the context of ADR. This isn't the only development in the approach and attitude to ADR in England in the last couple of years. Catherine, what procedural changes have there been or can we expect to see, including in light of Churchill, in respect of ADR?
Catherine: There are a couple of interesting developments that I will mention now. The first is that there is a new mediation pilot scheme for small money claims, which are claims for less than £10,000 to promote the use of mediation to resolve these claims. And there is a new practice direction governing this new scheme and the civil procedure rules. Given that it only applies to small claims, I don't propose to go into great detail right now. But obviously, if any listeners are interested in this, then please do not hesitate to reach out to any of us on this podcast. The second development is a new CPR consultation. So in April 2024, the Civil Procedural Committee, which is the UK body responsible for making and amending the civil procedure rules, announced a consultation on draft amendments to the CPR regarding the court's powers to order litigants to engage in ADR. And the consultation is said to flow directly from the Court of Appeal judgment in Churchill. And these proposed rule changes include to the overriding objective in CPR 1.1, And that's the overarching objective of dealing with cases justly and at proportionate cost and should include, so far as practicable, using and promoting ADR. There's also a change to the case management duties and powers in CPR 1.4 and 3.1 to clarify that the court's duties and powers include ordering parties to participate in an ADR procedure and not just encouraging them to do so. And similarly, amendments to the directions in Parts 28 for fast and intermediate tracks and Part 29, which is the multi-track, to confirm that the court should consider whether to order or encourage the parties to participate in ADR when making case management directions. And to my mind, these pick up on the points that George mentioned earlier about stepping towards heavily encouraging parties or even being able to compel parties by way of an order to engage in ADR as part of the general litigation process. And the final rule change goes to the cost discretion that the court has in part 44 of the CPR. So when considering exercising its discretion on costs, the court can consider whether a party has failed to comply with an order for ADR or has otherwise unreasonably failed to participate in ADR proposed by another party to the claim. That consultation closed on the 28th of May 2024, and the committee will now consider these amendments further. And it's fair to say that these proposed changes reflect the court's power to order ADR following the Churchill judgment. And as George mentioned, the judge in Churchill didn't lay down any specific principles for judges when deciding whether to order ADR. And the proposed changes reflect this. It still remains a matter of the court's discretion.
Ollie: Yes, and as to when and how the court will exercise its discretion, inevitably we'll see these principles develop through case or in due course. So I could turn back to George now. I appreciate the Churchill decision was a relatively recent one. It was a 2023 Court of Appeal decision. But could you talk us through any recent relevant decisions on the use of ADR or the approach to ADR that illustrate the position of the court?
George: Thanks, Ollie. So, yes, while not addressing the same specific issues as Churchill, Recent case law continues to highlight the judiciary's encouragement of ADR, reflecting what is a proactive stance towards integrating ADR into the civil justice system, as well as the willingness to sanction parties who fail to engage. There are two notable cases in that regard handed down since Churchill, which Catherine and I will discuss very briefly, if only to illustrate the seriousness with which the courts continue to treat this issue. So firstly, in the case of North Amber, PLC and Genee World Limited and others. The Court of Appeal considered a number of issues following a judgment relating to breach of an exclusive distribution agreement. One of the issues the court had to consider was an appeal in relation to costs. So following a CMC, it had been previously ordered by the court that at all stages the parties should consider engaging in ADR. This order provided that any party not engaging in any such means proposed by another must serve a witness statement giving its reasons. Despite the court's direction, the defendants failed to respond to the claimant's proposal for mediation or provide a witness statement explaining their refusal. On appeal, it was therefore argued that the trial trial judge failed to take sufficient account of the fact that the claimant had made an offer to mediate and there had been no substantive response from the defendant. The Court of Appeal agreed with this and increased North Amber's cost recovery by an additional 5% to 75%. It is important to note, of course, that this case did not actually cite Churchill in the judgment, but it's still indicative of the court's approach to ADR post-Churchill.
Catherine: Thanks, George. So the second case that we wanted to discuss briefly is Conway and Conway and another. And in this case, the claimant had a proprietary estoppel claim in relation to a barn arm that the defendants had been converting. Ultimately, the court rejected the claimant's claim. And even though the defendant was successful, they were criticized by the court for refusing to mediate. The claimant had offered to mediate on a number of occasions and had made without prejudice offers to settle. The defendants had ignored the claimant's attempts as they believed that they were almost certain to win a trial and that the breakdown in the relationship with the claimant meant that any mediation would have been unsuccessful. And so despite the of successfully defending the claim, the defendant's recoverable costs were reduced by 25% because of their refusal to mediate. And the judge here clearly had Churchill in mind when penalising the defendant's cost recovery. And so it's a fairly serious consequence and one that parties to litigation should bear in mind.
Ollie: Thank you, Catherine. So George, just I suppose stepping back, what are the main takeaways from these two cases when thinking about the general approach the courts to ADR and parties' conduct?
George: There are a handful of takeaways from these cases. Ultimately, these recent cases affirm the judiciary's robust support for ADR and demonstrate that the courts are increasingly willing to penalise parties who unreasonably refuse to engage in mediation or other forms of ADR. None of that is particularly new, of course. Cost sanctions, for example, have long been a possibility for failure to engage in ADR. However, the consistent message from the courts is very clear. ADR is not just an optional extra, but an integral part of the dispute resolution landscape that parties are expected to consider and utilise where appropriate. In Conway, the judge did specifically refer to Churchill in support of a statement about the importance of mediation, before deciding to significantly reduce the costs award of the successful party. If anything, post-Churchill, we may see the courts more prepared than ever before to sanction parties for a failure to engage. It is also important to note that we are not aware of case law in which a court has compelled the parties to mediate post-Churchill. But that is not to say it isn't happening or hasn't happened. It may be the case that such an order was contained in some form of directions, order that hasn't been reported.
Ollie: Thanks George. Now we're going to briefly look to the future and what trends or themes may be on the horizon in the context of ADR. So the combination of the judgment in Churchill, small claims mediation pilot and the CPR consultation mark a significant shift in how litigation should be pursued and case managed. The aim of integrating ADR as a process to facilitate and encourage resolution at the earliest opportunity has never been clearer. This use of ADR is likely to increase either through compulsion or through increased judicial scrutiny surrounding attempts at settlement and parties' refusals to participate in ADR. It's clear from the recent cases that parties who behave unreasonably risk cost sanctions and often very serious ones and even if they're successful at trial. Plainly it is critical for parties to meaningfully engage with the ADR process. So thinking about the future ADR is likely to play an even more prominent role and dispute resolution. Catherine, what trend do you think we'll see in the coming years in relation to this?
Catherine: Thanks, Ollie. Yeah, so I think it's fair to say that we'll see an expansion of mandatory ADR programmes. In its response to the consultation which gave rise to the small claims mediation pilot that I mentioned earlier, the UK government has said that the pilot is just the first stage of a plan to progressively integrate a mandatory mediation step into higher value claims in the county court. So that's within the fast track, which is 10 to 25,000 pound claims and the multi-track, which is claims over 25,000 pounds. As you can imagine, the integration of mediation within these higher value claims will involve referring parties to external mediators rather than mediators employed by HMCTS. And in its response, the government has recognised that many mediators are registered with professional bodies such as the Civil Mediation Council and the Chartered Institute of Arbitrators. And so, given the strength of the existing self-regulation among such bodies, the government has decided against, at this stage at least, introducing a centralised statutory regime to regulate this private mediation industry. That said, the government has said that it would continue to review how these existing regulatory requirements could be considered for the purposes of overseeing integrated mediation. So there's not been any details yet about when mandatory mediation provisions will be rolled out to the fast and multi-track cases. But it'll be really interesting space to watch to see that rollout and to see if any changes do come to this regulation of the private mediation industry.
Ollie: Thanks, Catherine. Another of the most significant trends in ADR is the move towards global harmonization, which involves creating consistent and cohesive ADR practices and standards across different jurisdictions. So, for example, last year the UK signed the Singapore Mediation Convention. This convention is an international treaty created by ANZATRAL, which provides an international framework for the enforcement of settlement agreements, resulting from mediation. The aim of the convention is to promote the use of mediation to resolve international commercial disputes by providing a harmonized and expedited enforcement ratio. To date, 57 countries have signed the Singapore Convention, and of these, 12 have also ratified it. The UK has not ratified it yet, but once it does, the convention will come into force six months later. It was expected to be ratified during the course of this year however for it to come into force implementing rules and legislation would need to be put in place and given the recent general election we'll have to see what happens next on this front and when. So that thought brings an end to our discussion today. Thanks very much for listening to this episode of Disputes in Perspective. If you do have any questions, please reach out to Catherine, George, or me, and we hope you will join us for the next episode.
Ourtro: Disputes in Perspective is a Reed Smith production. Our producers are Ali McCardell and Shannon Ryan. For more information about Reed Smith's litigation and dispute resolution practice, please email disputesinperspective@reedsmith.com. You can find our podcasts on podcast streaming platforms, reedsmith.com, and our social media accounts at ReedSmithLLP.
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