The Case for Compulsory Alternative Dispute Resolution (ADR) in International Construction and Engineering Disputes

The English courts have long encouraged the use of alternative dispute resolution (ADR) as a solution to resolve disputes without parties resorting to litigation. Late last year, the court paved the way for compulsory ADR in Churchill v Merthyr Tydfil County Borough Council ¹. What might this mean for construction and engineering disputes particularly in an international context?

Background

In 2004, in Halsey v Milton Keynes General NHS Trust ², the Court of Appeal held it did not have power to compel parties to participate in ADR as to do so would violate Article 6 of the European Convention on Human Rights (ECHR): the right to a fair trial. The court confirmed that it could, however, impose significant cost consequences on a party refusing to engage in ADR to settle a dispute.

Since Halsey, a 2021 report by The Civil Justice Council concluded that compulsory ADR is lawful and should be encouraged. The report found there to be no incompatibility between compulsory ADR and Article 6 ECHR. 

In Churchill the Court of Appeal confirmed that ordering a stay of proceedings to compel parties to participate in ADR does not violate the ECHR. 

The court did, however, leave room to exercise discretion by providing a non-exhaustive list of factors it must consider before ordering a stay for parties to engage in ADR. It also emphasised that any such order must not prevent the right to a fair trial and must be proportionate to the legitimate aim of settling the dispute.

What does this mean for construction and engineering disputes? 

In construction and engineering disputes, some form of ADR (whether formal or otherwise) is already a key (but non-compulsory) means of resolving disputes, due to the savings in cost and time compared to litigation or arbitration. ADR also maintains relationships which can be key in the industry where parties are bidding for a limited number of projects and wish to continue working together. 

In a litigation context the Pre-action Protocol for Construction and Engineering Disputes already provides that the court expects parties to appropriately consider the use of ADR before issuing proceedings. If a party refuses to participate in ADR, the court may penalise that party by way of costs but a party willing to take that risk is not compelled to participate. 

In the UK, the prevalence of adjudication also means that cases that otherwise might head towards litigation or arbitration are resolved on an interim basis in any event. 

In an international context (where there is no statutory adjudication), ADR, whether formal such as mediation, or informal such as commercial negotiations, is already a key means of resolving construction and engineering disputes—particularly those that might not merit the costs and time investment required for international arbitration or litigation running to a final hearing or trial. Tiered dispute resolution clauses typically prescribe negotiations and some form of ADR. 

Even if ADR does not result in a settlement, it can narrow the issues or resolve certain heads of claim or parts of a case. In our experience ADR is usually ultimately successful, although more typically as an iterative process rather than a settlement ‘on the day’. 

Conclusion

Parties must consider appropriate ADR before taking their construction and engineering disputes to court. Should parties wish to litigate, they should be aware that the court is showing increasing support towards compulsory ADR. Particularly after Churchill, parties to litigation should expect a stay of proceedings to be ordered for ADR and recognise that there will be adverse cost consequences for a party refusing to participate in ADR. In our experience parties to litigation and arbitration should always be open to the prospect of settling the dispute through ADR although the direction of travel is now towards ADR becoming a mandatory step in litigation.  

References

¹ [2023] EWCA Civ 1416

² [2004] EWCA Civ 576