The Court of Appeal has handed down its decision in the case of Churchill v Merthyr Tydfil County Borough Council  EWCA Civ 1416 which considers whether the Court can lawfully order proceedings to be stayed and for parties to engage in an Alternative Dispute Resolution (ADR) process.
What was the legal position before Churchill?
The case of Halsey v Milton Keynes General NHS Trust  EWCA Civ 576 set down the precedent that the Court can depart from the general rule on costs where it can be shown that the successful party has acted unreasonably in refusing to agree to ADR.
The Court held in Halsey that the question as to whether a party has acted unreasonably in refusing to mediate must be determined having regard to all the circumstances of the particular case and that the following considerations should be borne in mind:
- The nature of the dispute
- The merits of the case
- Other settlement methods have been attempted
- The costs of mediation would be disproportionately high
- Whether the mediation has a reasonable prospect of success
These factors have become known as the “Halsey principles”.
The Court held in Halsey that the successful party should not be deprived of any of its costs by reason of the fact that it refused to accept Halsey’s invitation to mediate, since the successful party had not acted unreasonably by refusing it.
What is the general rule on costs?
If the Court decides to make an order about costs, the general rule is that the unsuccessful party will be ordered to pay the cost of the successful party. However the Court may make a different order (see CPR 44.2(2)).
CPR 44.2(4) goes onto state that in deciding what order (if any) to make about costs, the Court must have regard to all the circumstances, including the conduct of the parties. The “conduct of the parties” includes conduct before, as well as during, the proceedings and in particular the extent to which the parties followed any relevant pre-action protocol (CPR 44.2(5)).
The Court in Halsey held that the fundamental principle was that a departure from this general rule was not justified unless it had been shown that the successful party had acted unreasonably in refusing to agree to ADR and that the burden would be on the unsuccessful party to show why there should be a departure from the general rule.
Churchill: Background of the Case
Mr Churchill claimed that Japanese knotweed had encroached from Council land onto his property causing damage to it, a reduction in its value and loss of enjoyment. Mr Churchill’s Solicitors sent a letter of claim to the Council on 29 October 2020. The Council responded in January 2021 and queried why Mr Churchill had not made use of the Council’s Corporate Complaints Procedure (the Complaints Procedure). The Council’s letter stated that if Mr Churchill were to issue proceedings without having engaged with the Complaints Procedure, it would apply to the Court for a stay and for costs. Mr Churchill proceeded to issue a formal claim against the Council and the Council subsequently issued an application for a stay in proceedings to enable the Complaints Procedure to take place.
Churchill: The First Instance Judgment
The Judge at first instance dismissed the stay application on the basis that Mr Churchill was not obliged to mediate. The Judge reasoned that he was bound to follow the statement set out in Halsey v Milton Keynes General NHS Trust  EWCA Civ 576 namely 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”.
Notably, although the Judge dismissed the application to stay, the Judge also held that the Claimant and his lawyers had acted unreasonably in failing to engage with the Complaints Procedure and that its conduct was contrary to the relevant pre-action protocol. Following the first instance decision in Churchill, the Council applied for permission to appeal the judgment which was granted.
Churchill: The Court of Appeal Judgment
The Court of Appeal considered four issues:
1. Was the Judge right to think that Halsey bound him to dismiss the Council’s application for a stay? Under this issue the question to be determined was whether the statement from Halsey which the judge relied on was the “ratio decidendi” i.e. a necessary part of the reasoning that led to the decision in that case or “obiter dictum” i.e. a comment or observation made by the judge in passing on a matter arising in the case before them which does not require a decision. The Court held that the statement the Judge had relied on in the first instance hearing was not a necessary part of the reasoning that led to the decision in the Halsey case. Therefore the Judge was not bound by the statement which he had relied on.
2. Can the Court lawfully stay proceedings for, or order, the parties to engage in an ADR process? The Court held that it did have the power to stay proceedings for, or order, the parties to engage in a non-court based dispute resolution process. The Court did not consider that directing the parties to engage in a non-court based dispute resolution process would be an unacceptable restraint on the right of access to the court.
3. How should the court decide whether to stay proceedings for, or order, the parties to engage in an ADR process? The Court held that it should only exercise its power to stay proceedings or order the parties to engage in a non-court based dispute resolution process if the order made “does not impair the very essence of the Claimant’s rights 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 Court did not believe that it can or should lay down fixed principles as to what will be relevant to determining those questions.
4. Should the Judge have granted the Council’s application for a stay? The Court noted that had the Judge at first instance not concluded that he was bound by Halsey to refuse the stay, he would have granted one. However, things had moved on considerably since then as Mr Churchill had refused to allow the Council to treat the knotweed in his garden, standing on his right to seek compensation costs from the Court. As such, whilst the Court considered that the Judge at first instance would have granted a stay back in May 2022, there was little point in granting the application now as given Mr Churchill’s position, nothing would be gained were a one month stay to be granted.
Implications going forwards
This judgment marks a significant development in relation to dispute resolution in the litigation process. Whilst the judgment reaffirms the essential right of parties to access the court system, it makes it clear that the Court does have the power to stay proceedings or order the parties to engage in a non-court based dispute resolution process. However, the Court’s reluctance to set fixed principles indicates that this will be assessed on a case-by-case basis.