Setting out what will happen should a dispute arise between parties is frequently dealt with at contract stage with agreed terms for alternative dispute resolution. In practice, formal proceedings quickly ensue when issues occur further down the line. The Court of Appeal in Churchill v Merthyr Tydfil has been asked to consider whether parties should instead be required to explore alternative dispute resolution avenues before bringing a claim to the courts.

The decision will affect any party who wants to have their day in court but, importantly, could bring welcome relief to organisations that are facing a heavy caseload of claims that might instead be re-directed to a less costly disputes process – whether that is an in-house complaints process or court-mandated mediation. In particular, local authorities and social landlords will be watching this decision closely. We consider the key elements of the case and the potential outcomes expected.

Background

The case of James Churchill v Merthyr Tydfil County Borough Council, which was heard by the Court of Appeal beginning on 8 November 2023, will test the earlier decision in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576. That decision dealt with whether a claimant who unreasonably refuses to engage in alternative dispute resolution (ADR) can be prevented from bringing or advancing a claim in court.

ADR involves a number of out-of-court dispute resolution mechanisms, which are often quicker and less costly than referring to the courts. A notable example is mediation, where parties appoint an independent party to resolve the points at issue, and which does not preclude referring to trial: it simply postpones the parties' participation in court proceedings, while the attempt at mediation is made.

If Churchill is successful in overturning Halsey, in the appropriate circumstances the courts will have the power to stay proceedings and compel parties to mediate, even if the parties do not wish to do so.

The decision in Halsey

The current status quo comes from the 2002 decision in Halsey, in which the court decided that compelling parties to mediate constituted a breach of the European Convention of Human Rights, as it undermined the parties' right to a fair trial (protected by Article 6). This decision is considered by many to be wrong insofar as it applies to mediation, as even if the parties are automatically referred to mediation, they are not compelled to settle and they retain access to the Courts if no agreement can be reached.

Although case law on mediation since Halsey has sought to moderate the decision, and despite some judges expressing their regret for the impact of the case, Halsey is currently legal precedent.

Key issues for the Court of Appeal in Churchill v Merthyr Tydfil

The underlying facts in Churchill concern the claim by a homeowner for damage caused by the encroachment of Japanese knotweed from a neighbouring property, owned by the Council. The Council argued that the Claimant should have used its dispute resolution and complaints service before bringing proceedings. The County Court rejected this argument but granted appeal directly to the Court of Appeal.

On 27 June 2023, it was announced that three leading commercial mediation organisations – the Civil Mediation Council (CMC), the Chartered Institute of Arbitrators (CIArb) and the Centre for Effective Dispute Resolution (CEDR) – were granted permission to submit a written intervention, with the aim of setting aside Halsey. The CMC stated in its press release announcing the intervention, that Halsey "has proved to be a thorn in the side of mediation in England and Wales, stopping parties from being referred to mediation in many cases".

Rebecca Clark, chair of the CMC, has further stated that: "Mediation is a consensual process which empowers people to actively manage and resolve disputes and conflict. It is important that the Court of Appeal is given evidence as to its efficacy and increasing popularity: mediation saves time, money and Court resources."

Possible outcomes of the Court of Appeal decision

Practically speaking, a significant outcome would be that parties can no longer issue claims and will be required to try and resolve a dispute via alternative dispute resolution. This is good for organisations who face a huge caseload of small-value claims where legal costs of dealing with this caseload are often disproportionate to the figures claimed in the case: in particular, local authorities and registered providers of social housing dealing with disrepair claims.

However, a requirement to use alternative dispute resolution would of course affect any party wanting its day in court. It may be notable that Sir Geoffrey Vos, Master of the Rolls, previously observed whether the court might also require parties to engage in mediation despite the decision in Halsey. Sir Vos has also previously made clear his opinion regarding the direction of travel regarding ADR, stating that: "ADR should no longer be viewed as 'alternative' but as an integral part of the dispute resolution process; that process should focus on resolution rather than dispute."

This seems to be supported by the Ministry of Justice's 2022 consultation on the Government's proposal to introduce automatic referral to mediation for all small claims, which concluded that it should apply to all money claims up to £10,000.

If Halsey is overturned, and the courts are granted power to compel parties to mediate, it remains to be seen how a number of related considerations, such as who would determine the particulars of the mediation and whether mediation services should be regulated, will be addressed.

What steps can businesses take to avoid contractual disputes?

Given the current thrust of both the judiciary's and the Government's focus on the efficient resolution of disputes between parties, we advise clients, where appropriate, to engage in dialogue with the other parties. Such dialogue can open up the possibility of resolving at least some of the issues through extra-judiciary dispute resolution mechanisms.

Our earlier article on preventing and managing contractual disputes, outlines a number of top tips for businesses to consider in trying to resolve disputes without escalating to litigation proceedings.