Lendlease Construction Limited V AECOM Limited [2023] EWHC 2620

Introduction

On 29 November 2023, the long-awaited decision of the Court of Appeal in Churchill v. Merthyr Tydfil County Borough Council was published. The Court of Appeal has ruled that the Courts have the ability to stay proceedings for, or order, the parties to engage in alternative dispute resolution (“ADR”) process. This is a departure from the statements made almost two decades ago in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 and may have far-reaching implications for how parties approach mediation and other forms of ADR going forwards.

Background: The Halsey Principles

The judgment in Halsey set down the following general principles in respect of ADR (including mediation) that parties have had regard to for a number of years:

1. No Compulsion: The Court should not compel parties to engage in ADR;
2. Encouragement: The Court may encourage ADR in suitable cases, assertively if needed;
3. Cost Considerations: When departing from the standard rule in litigation of the unsuccessful party paying the successful party’s costs, the Court can assess conduct. Unreasonable refusal of ADR might result in cost consequences; and
4. Burden of Proof: The burden of proof rests on the unsuccessful party to demonstrate the other’s refusal to engage in ADR was unreasonable.

When considering whether a party had unreasonably refused ADR (such as mediation) and any cost consequences, the 7 guiding principles in Halsey on this issue have often been of assistance. Those principles include the nature of the dispute, the merits of the case, the extent to which settlement methods have been attempted, whether costs of the ADR would be disproportionately high, whether any delay in setting up and attending the ADR would have been prejudicial and whether the ADR had a reasonable prospect of success.

A New Landscape: The Judgement in Churchill

The case of Churchill concerns an owner’s claim in nuisance arising from an alleged failure by the Council to control the spread of Japanese knotweed on neighbouring land and subsequent alleged damage to the owner’s land.

Following the commencement of Court proceedings against the Council, the Council sought a stay of the proceedings to allow the Council’s formal complaints procedure to be followed.

The Decision at First Instance

The question that arose before the Court was whether the Court should grant a stay of proceedings to allow the complaints procedure to be followed.

On 12 May 2022, Deputy District Judge Kempton Rees dismissed the Council’s application. Importantly, the Judge held that he was bound to follow Dyson LJ’s statements in Halsey to the effect 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”. 

While the Judge at First Instance found that the owner and his solicitors had acted unreasonably by not engaging with the Council’s complaints procedure, and contrary to the pre-action protocol and Court’s overriding objective, the Council’s application for the stay of proceedings to be granted was dismissed.

On 4 August 2022, the Council was granted permission to appeal the decision, and the issue was brought before the Courts again between 8 and 10 November 2023.

The Court of Appeal Decision

The four key issues to be decided by the Court of Appeal were:

1. Was the Judge at First Instance correct to think that Dyson LJ’s statements in Halsey bound him to dismiss the Council’s application?
2. If not, may the Court lawfully stay proceedings for, or order, the parties to engage in an ADR process?
3. If so, how should the Court decide this; and
4. Should the Judge have allowed the stay for the owner to pursue a complaint via the internal complaint’s procedure?

Issue 1: Judicial Reliance on Halsey and the Obligation to Dismiss

The Court of Appeal held that, in Halsey, the question of whether the Court had the power to mandate ADR was not part of the best or preferred justification for the conclusions reached in this case. Instead, the Court was providing guidance as to the general approach in dealing with the cost issues and the factors that should be considered in deciding whether a refusal to agree to ADR was unreasonable. It was decided that the Dyson LJ’s comments in Halsey on whether the Court had the power to order the parties to mediate were not expressly or impliedly a necessary step in reaching the conclusions on the cost questions that were ultimately decided.

Issue 2: Lawful Authority of the Court to Stay Proceedings or Order ADR

The Court of Appeal decided that the Court can lawfully stay proceedings for, or order, the parties to engage in ADR. Crucially, the Court of Appeal emphasised that in exercising its discretion to make such an order, it will be necessary to ensure it does not impair the very essence of the claimant’s rights under Article 6 of the Human Rights Act 1996, in pursuit of a legitimate aim, and is proportionate to achieving the legitimate aim of settling the dispute fairly, quickly and at reasonable cost.

Issue 3: Decision-Making Process for Non-Court-Based Dispute Resolution

The Court of Appeal decided it would not lay down any fixed principles as to what will be relevant when determining the question of impairment of the claimant’s rights under Article 6. It suggested that the Court’s discretion will need to be exercised on a case-by-case basis.

However, the Court of Appeal did hint at what types of factors would be relevant to the exercise of the discretion as to whether to order the parties to engage in ADR or grant an order to facilitate ADR. These may include:

• The parties’ access to legal representation;
• The costs of ADR;
• Whether there is any realistic prospect of the claim being resolved through ADR;
• The urgency of the case and the reasonableness of the delay caused by ADR; and
• The characteristics of the particular method of ADR

Issue 4: Granting a Stay for Pursuing Internal Complaints Procedure

In this instance, the Court of Appeal did not order a stay or ADR given that matters had moved on since the First Instance decision which would likely make a stay inappropriate. However, the Court of Appeal did encourage the parties to consider whether they can agree to a temporary stay for mediation or some other form of non-court-based adjudication.

Concluding Remarks

It is well established that the Court has a right to control legal proceedings as it sees fit. The Civil Procedure Rules already allow the Court to grant a stay of proceedings even without the parties requesting it. Furthermore, as part of the usual case management process in litigation, parties can already be consulted on whether a short stay of proceedings would be appropriate in order to facilitate ADR. The Court of Appeal decision in Churchill does not alter the dynamic in this regard.

The potential significance of Churchill, however, is the clarification it provides following Halsey that the Court can, in appropriate circumstances, exercise its discretion to compel the parties to engage in ADR even where not all of the parties agree with the process. It is important to note that while Churchill determines that Dyson LJ’s statements in Halsey about whether parties can be compelled to engage in ADR were obiter dictum meaning that they ought not to create a binding precedent, the 7 guiding principles in Halsey pertaining to the cost consequences of a parties’ unreasonable refusal in engage in ADR will likely remain of assistance.

In the modern-day claims and disputes landscape, it generally standard practice for parties and their solicitors to have regard to appropriate forms of ADR at any stage. As such, it remains to be seen whether the Court of Appeal’s decision in Churchill will result in an influx of parties seeking a stay of proceedings to facilitate ADR, or seeking orders to compel other parties to engage in ADR. In such circumstances, it would likely be necessary to have regard to the impact of any stay or ADR process on the procedural timetable.

It is anticipated that the Court of Appeal’s decision in Churchill may, however, result in more and more parties seeking to include ADR in the procedural timetable when such matters are considered at the first case management hearing.

Whether or not the decision has any bearing on pre-action claims (i.e., claims that have not progressed to formal litigation) is currently unknown. The pre-action protocols already place strict requirements on parties to consider ADR before commencing proceedings and there can be cost consequences where parties fail to comply with the relevant requirements.

We will be monitoring the impact of the Court of Appeal decision in Churchill very closely.