Mediation and the impact of Churchill v Merthyr Tydfil County Borough Council

On 29 November 2023, the Court of Appeal handed down its judgment in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416, ruling that courts can order parties to engage in alternative dispute resolution (ADR), including mediation. This signifies an important shift by the courts of England and Wales in their approach to mediation.

ADR

ADR is a term used to describe various methods of dispute resolution that have in common the potential to resolve a dispute without any court involvement. This is why it is referred to as ‘alternative’ – it’s an alternative to court litigation. The most common forms of ADR are:

• Mediation – where parties work towards a negotiated settlement, with the help of a neutral third party (the mediator);
• Arbitration – the dispute is submitted, by the agreement of the parties, to one or more arbitrators who make a binding decision on the dispute;
• Neutral evaluation - a non-binding preliminary assessment of the facts from a neutral third party with expertise in the relevant field, often undertaken in the early stages of a dispute and also referred to as early neutral evaluation;
• Adjudication – a fast-tracked decision by an independent third party that is temporarily binding (i.e., binding unless overturned by litigation or arbitration); and
• Conciliation – used in an employment dispute context, where an independent conciliator meets with the parties separately and together in an attempt to resolve their differences.

Mediation

Aside from arbitration, which is more akin to the court process, mediation is the most commonly used ADR process. In contrast to litigation and arbitration, the mediation process is non-binding and often takes place before or in conjunction with arbitration or court proceedings in an effort to resolve matters before proceedings are commenced or a final hearing takes place and to save costs. The mediator has no authority to make any binding decisions or impose a resolution, however if the process is successful, the parties will often enter into a settlement agreement, which is binding and enforceable. The role of the mediator is to help parties achieve their own resolution in a flexible and informal setting which is private and generally confidential. Typically, it is concluded expeditiously at moderate cost. The process tends to be far less adversarial than litigation or arbitration, and therefore less disruptive to business relationships. Since other options are not foreclosed if mediation should fail, entering into mediation presents few risks.

The principal pre-condition to a successful mediation is that the parties share a genuine desire to resolve the dispute promptly in an equitable manner. This desire allows them, with the assistance of a skilful mediator, to bridge gaps in their respective positions and develop creative, mutually advantageous solutions, rather than focusing on money or liability. One of the important features of mediation is that each party can discuss confidential information with the mediator that it will not disclose to the other party. Equipped with such information, a mediator might be able to identify hidden interests and settlement alternatives that would not have been considered in unassisted negotiations and that may help overcome barriers to settlement.

Twenty-five years of the Civil Procedure Rules (CPRs)

The English Court’s approach to mediation is governed by the CPRs and the relevant pre-action protocol, Practice Direction – Pre-Action Conduct and Protocols (PD), which were published in April 1999. The PD was substantially amended to its current form on 6 April 2015 and further updated in August 2021. Since its inception, the PD has encouraged mediation and other forms of ADR in the pre-action stages of litigation. Paragraph 8 states that ‘litigation should be a last resort’ and that ‘parties should consider whether negotiation or some other form of ADR might enable them to settle their dispute without commencing proceedings’. At paragraph 10, parties are encouraged to negotiate to settle a dispute or use a form of ADR including mediation, arbitration, early neutral evaluation and Ombudsmen schemes. Importantly at paragraph 14, ‘the court may decide that there has been failure of compliance when a party has […] unreasonably refused to use a form of ADR, or failed to respond at all to an invitation to do so’ and may order sanctions (specifically cost sanctions) or that the ‘proceedings are stayed while particular steps are taken to comply’.

In April 2002, in the Court of Appeal case of Dunnett v Railtrack Plc [2002] 1 W.L.R. 2434, the Court refused to award Railtrack their costs, despite having a good legal defence and successfully defending the claim, because it had refused to engage in ADR. The Court said “it is hoped that any publicity given to this part of the judgment of the court will draw the attention of lawyers […] to the possibility that, if they turn down out of hand the chance of [ADR …] they may have to face uncomfortable costs consequence”.

Halsey

This was followed by the seminal Court of Appeal cases of Halsey v Milton Keynes General NHS Trust and Steel v Joy and another [2004] 1 W.L.R. 3002, which were held concurrently. The cases concerned a claim against an NHS Trust under the Fatal Accidents Act 1976, and a personal injury claim where the defendants refused to engage in mediation. The Court of Appeal decided that an unreasonable refusal to mediate would result in costs sanctions and went on to elaborate what might amount to an unreasonable refusal. These so-called ‘Halsey criteria’ include: (i) the nature of the dispute, (ii) the cost of the mediation, (iii) delays in organising a mediation, (iv) the strength of the merits of the case, and (v) whether there was any reasonable prospect of success in a mediation. However, the Court determined that neither the claimant in the Fatal Accidents Act claim, nor the first defendant in the personal injury claim, had “acted unreasonably in refusing to mediate”.

More importantly for mediation, Lord Justice Dyson (as he then was) said that “it is one thing to encourage the parties to agree to mediation, even to encourage on the strongest terms. It is another to order them to do so. It seems to us 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 Court also stated that the European Court of Human Rights had said that the right of access to the courts under Article 6 of the European Convention on Human Rights could only be waived after being subjected to a “particularly careful review”. Since 2004, Halsey has been used by any party who did not wish to mediate as an excuse not to do so, despite the requirements set out in the PD.

Churchill

Churchill debated the principle in Halsey, that to compel unwillingly parties to mediate was to pose an unacceptable obstruction on their right of access to the court. The facts of the case were simple, the council allowed Japanese knotweed to enter Mr Churchill’s garden causing damage to his property and a reduction in value and loss of enjoyment. Mr Churchill’s solicitors sent the council a letter of claim on 29 October 2020, to which the council responded querying why Mr Churchill had not made use of its Corporate Complaints Procedure. It said that, if Mr Churchill were to issue proceedings without doing so, the council would apply to the court for a stay and for costs. Mr Churchill issued proceedings despite this warning, and the council subsequently issued an application seeking a stay until Mr Churchill fulfilled the internal complaints procedure.

The County Court dismissed the application for a stay on 12 May 2022, with the judge stating that he was bound to follow Dyson LJ’s statement in Halsey. However, the council was granted leave to appeal to allow the Court of Appeal to consider whether a claimant is obliged to engage in ADR before bringing proceedings or whether it should be precluded from bringing or advancing a claim if it has not engaged in ADR. The appeal was granted on the basis that it raised an important point of principle and practice.

Appeal

On 27 June 2023, the Civil Mediation Counsel (CMC) published a press release, announcing that the CMC, the Chartered Institute of Arbitrators (CIArb) and the Centre for Effective Dispute Resolution (CEDR) would provide a written intervention in the appeal of Churchill. The CMC stated that the aim of the intervention was to see the Halsey judgment set aside which it considered has been ‘a thorn in the side of mediation in England and Wales, stopping parties from being referred to mediation in many cases’. The decision in Halsey was considered to be ‘bad law’ by many in the dispute resolution community, because even if parties were automatically referred to mediation, there would be limited impact on their right of access to the court because the stay for mediation is likely to only be temporary. Although subsequent case law on mediation had sought to moderate the Halsey decision, and despite public comments from English judges about the impact the case had on mediation, it remained accepted legal precedent. These three institutional bodies united in a joint intervention to push to overturn the decision in Halsey and the appeal was adjourned to allow them to participate. The Law Society and the Bar Council also provided interventions, as well as the Housing Law Practitioners Association and the Social Housing Law Association.

Judgment

Following a three-day hearing at the start of November 2023, the Court of Appeal gave its judgment later that month. The Court of Appeal, with Sir Geoffrey Vos, the Master of the Rolls, giving the leading judgment, found that Dyson LJ’s statement that to oblige truly unwilling parties to refer their disputes to mediation would be to pose an unacceptable obstruction on their right of access to the court was not part of the essential reasoning of the Halsey judgment (it was “obiter”) and therefore the County Court judge was not bound to follow it. The Churchill judgment has been hailed as a hugely significant moment for mediation in side-lining the decision in Halsey, confirming it is not a breach of human rights to integrate mediation into the court process and, where appropriate, stay proceedings and order parties to mediate.

At the appeal, the Bar Council had submitted that the following factors were relevant to the exercise of the court’s discretion: (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.

Although Sir Geoffrey Vos refused to lay down these factors as fixed principles – as to what would be relevant to determining whether proceedings should be stayed or whether to order the parties to engage in a non-court-based dispute resolution process – he noted that these were likely to have some relevance, as would other factors depending on the relevant circumstances. Ultimately, and while he said the criteria should be left to the discretion of the trial judge, he determined that the appropriate test as to whether a court may stay proceedings is to consider whether the stay of proceedings and ordering the parties to engage in a non-court-based dispute resolution process “impair[s] 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.”

In Churchill, the Court of Appeal remitted the question to the County Court to decide the merits of the defendant’s internal complaints procedure and whether it would be open or appropriate to compel the claimant to engage.

Future

It is predicted that ADR will increase as a result of Churchill, but it is unclear whether the increase in mediations and other forms of ADR being ordered by the courts will lead to an increased number of out of court settlements. There is currently a high level of success for settlements resulting from mediation, with CEDR recording an overall settlement rate of 92 per cent (with 72 per cent of disputes settling on the mediation day and 20 per cent settling shortly after). However, if the impact of Churchill is that more parties are required to mediate, including those that are reluctant to do so, it has been suggested that this could result in parties entering into the mediation process simply as a ‘tick-box’ exercise in order to avoid the court ordering a stay of proceedings and cost-related consequences.

As the Court of Appeal declined to lay down any fixed principles as to the circumstances in which the court may make an order for parties to engage in ADR, and did not set out what evidence is required to show that mediation has taken place, it is likely that mediation will continue to be an issue that is raised before the courts.

Overall, Churchill demonstrates the English judiciary’s commitment to promote alternative methods of dispute resolution which are equitable, expedient and cost effective. It coincides with two other recent announcements that will also see a rise in mediation both for small claims but also for international disputes. Firstly, in July 2023 the UK government announced that all small claims in the County Court issued under Part 7 of the CPRs would be referred to the HM Courts and Tribunals Service’s Small Claims Mediation Service. Secondly, the UK government is expected to ratify the Singapore Convention on Mediation in 2024. The Convention will allow international mediated commercial settlement agreements to be enforced across jurisdictions in a similar manner to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

The fact that these developments have come at the same time should help to increase parties’ confidence in mediation, and result in it again being an essential part of the procedure in the majority of cases and, where successful, reduce the number of cases that have to be determined by the courts.

Fiona Cain is counsel and Charlotte Mullis is an associate in the Dispute Resolution Team at Haynes Boone
haynesboone.com