Can parties to a commercial dispute be compelled to engage in Alternative Dispute Resolution (ADR)?
It has long been the case that where parties are in dispute, litigation is intended to be a last resort and they ought to be actively exploring if alternative dispute resolution (or ADR) processes are available to assist in resolving their dispute. This should happen before issuing court proceedings, or if that is not possible, without the need for the time and expense of trial.
This principle is firmly enshrined in the Practice Direction on Pre-action Conduct and Protocols (the Pre-Action Protocol), which sets outs the steps that parties are expected to take before commencing court proceedings, together with the other protocols for specific types of disputes. These include professional negligence and construction disputes, which not only require the parties to consider whether ADR is a suitable pre-action, but to continue to do so throughout the life of the dispute. Costs sanctions may follow if the parties fail to do so.
What is the ADR process?
There are numerous ADR processes available. These include; negotiation, mediation, early neutral evaluation and expert determination. Each has its advantages and disadvantages, but the common theme is that each offers the parties the opportunity to resolve their dispute without the need for court proceedings.
The English courts have given strong judicial encouragement to the use of ADR and have been prepared to make adverse cost orders against parties who have unreasonably refused to consider ADR or failed to properly engage in the process itself. It is not enough just to attend, the parties must actively engage in the process selected.
An early example of such encouragement was the case of Egan v Motor Services (Bath) [2007] EWCA Civ 1002 where Lord Justice Ward not only noted that in the large majority of cases the best time to mediate was before litigation had commenced, but said it was not a sign of weakness but a “hallmark of common sense.”
ADR not only offers the opportunity to come up with creative solutions to resolve disputes that it may not be possible to obtain from the court itself, but the costs, especially if ADR is undertaken before court proceedings are issued, are generally insignificant when compared to the cost of litigating.
Does that mean that ADR is compulsory?
Despite its clear advantages and the wording of the Pre-Action Protocol and the explicit encouragement given by the courts, the answer for the most part is no. However, there is a shifting of the sands which is likely to see an additional emphasis given to the importance of ADR in many cases.
On 25th July 2023, the Ministry of Justice (MoJ) published its response to the Government’s proposal that mediation should be made compulsory for all small claims track cases. These are for the most part claims with a value of up to £10,000.
The MoJ has confirmed that it intends to proceed with that proposal, although we do not currently have a firm date as to when the necessary rule changes will be made to implement it. The MoJ has however confirmed how the process will work as detailed below:
Once a defence has been filed defending the claim and the matter has been allocated to the small claims track, the parties will be advised that the next procedural step will be mediation. The parties will be required to provide dates of availability not only for the final hearing of the dispute, but also for mediation. The matter will then be referred on to the Small Claims Mediation Service (SCMS). It is envisaged that the SCMS will continue to offer parties a free one-hour mediation appointment with a trained mediator.
It is anticipated that this is only the beginning of the journey, not the final destination, and over time we will see the scheme expanded to all County Court claims, including claims with a value in excess of £10,000.
Prior to November 2023, there remained some doubt as to whether the English courts could compel parties to mediate. In the case of Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 Lord Justice Dyson found that the courts could encourage, but not compel, parties to mediate. The Judge noted that to oblige unwilling parties to mediate would constitute an unacceptable restriction on their right to access the courts and would potentially infringe Article 6 of the European Convention on Human Rights.
However, the Court of Appeal, in the case of Churchill v Merthyr Tydfill CBC [2023] EWCA Civ 1416, found that Lord Justice Dyson’s reasoning in Halsey was not binding and the English courts do have the power to stay court proceedings and order that the parties must “engage in a non-court based dispute resolution process.”
Sir Geoffrey Vos found that that this power is not unfettered and should only be exercised “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.” The Judge did not, however, consider it appropriate to lay down fixed principles as to what will be relevant in determining those questions. This means that the courts are unlikely to order the parties to participate in ADR in every case.
The decision will remain one for judicial discretion, but It would be surprising if we do not see an increase in the number of cases where such an order is made. What is clear is that the court’s power is not limited to staying proceedings simply for the purposes of mediation. The court can stay proceedings for “negotiation between the parties, mediation, early neutral evaluation or any other process that has a prospect of allowing the parties to resolve their dispute.”
So where does this leave us?
ADR remains non-compulsory in the majority of disputes. However, it is clear that ADR must be considered in all cases, both pre-action and throughout the proceedings, and parties will continue to be at risk of cost sanctions if they unreasonably refuse to consider ADR and/or fail to engage properly in the process.
Furthermore, it is now clear that the courts have the power to order that parties engage in ADR in appropriate cases. It will be interesting to see how often, and the types of cases where that power is exercised, but we expect to see these types of orders become increasingly common over time.
Will ADR ever become compulsory in all cases?
It is difficult to say with any certainty, but this is something which is likely to see continued development and we would not be at all surprised to see that this forms a feature of all cases in the County Court under £100,000 into the future.