Compulsory ADR in Construction Litigation

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Daniel Shaw examines the Court of Appeal’s decision in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416, and its potential implications for construction litigation.

Yesterday, the Court of Appeal handed down judgment in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416.

In this landmark decision concerning the interaction between litigation and ADR, it was held that the court does have the power to compel the parties to participate in ADR, and may stay the litigation in order to allow ADR to take place, providing that:

1. doing so does not impair a claimant’s right to a fair trial under Article 6 of the European Convention on Human Rights;
2. the order is made in pursuit of a legitimate aim, namely the fair, quick, and economical settlement of the dispute; and
3. it is proportionate to so order.

Almost 20 years ago, the Court of Appeal had held in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 that forcing unwilling parties to refer their dispute to ADR (in that case, mediation) would impose an unacceptable obstruction of their right of access to the courts, and 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.

However, Sir Geoffrey Vos MR yesterday held that the Court of Appeal was not bound by this previous decision on the question of compelling ADR, and clarified that:

1. the Court of Appeal in Halsey was considering whether to impose a sanction on the grounds that a party had refused to participate in ADR, and it had decided that no sanction should be imposed because the refusal was not unreasonable;
2. the comments in the judgment of Dyson LJ in Halsey regarding the court’s power to compel ADR were made in that context, and were obiter;
3. the court did have power to order parties to litigation – even potentially unwilling parties – to participate in ADR; and
4. “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”.

Whilst the Court of Appeal in Churchill did not elect to set out a fixed test that applies to the exercise of its discretion to order ADR or stay the proceedings for ADR, it did identify the following factors as being of potential relevance:

1. the form of ADR being considered;
2. whether the parties were legally advised or represented and, if not, whether ADR was likely to be effective or appropriate without such advice or representation;
3. whether the parties understand that, if they did not settle the dispute as part of the ADR process, they remained free to pursue their claims and/or defences before the court;
4. how urgent resolution of the dispute is, and what length of delay to that resolution the ADR might cause;
5. whether any such delay could impact the claim, such as by giving rise to limitation issues;
6. the likely costs of participating in the ADR, and the proportionality of those costs both in rela­­tion to the sums in dispute and the parties’ resources;
7. whether there was a realistic prospect of the dispute being resolved by the ADR
8. the existence and significance of any imbalance in the parties’ resources, bargaining powers, and commercial sophistication; and
9. any reasons given by one or both parties for not wanting to participate in ADR.

The facts of Churchill did not involve any construction.  They concerned Mr Churchill commencing proceedings for negligence against his local council without first engaging with the council’s complaints procedure (or, for that matter, the applicable pre-action protocol) when he discovered Japanese knotweed encroaching from the council’s land on to his own.

Nevertheless, the Court of Appeal’s decision was not confined to any specific area of law, or any particular form of ADR.

The construction industry is already heavily reliant upon ADR – specifically adjudication.  A discretionary statutory right to adjudicate often exists under the section 108 of the Housing Grants, Construction and Regeneration Act 1996.  Further, many standard form contracts (such as the JCT suite) provide a discretionary contractual right.  Some construction contracts seek to make adjudication of disputes mandatory, before litigation can be commenced.

The TCC is therefore familiar with ordering a stay of court proceedings to allow for adjudication to take place.  Such a stay will usually be ordered where there is a mandatory adjudication clause, but may nevertheless be ordered if it is discretionary (see DGT Steel & Cladding Ltd v Cubitt Building & Interiors Ltd [2007] EWHC 1584 (TCC)).

But in light of Churchill, the TCC may now be asked to go a step further, and order (potentially even unwilling) parties to participate in adjudication regardless of whether the parties have a right to adjudicate.

Daniel Shaw specialises in construction and engineering disputes, including adjudication and litigation.