ADR – do we have to?

The Court of Appeal recently considered the Court’s power to compel parties to take part in an Early Neutral Evaluation (ENE) hearing. ENE is a form of Alternative Dispute Resolution (ADR) where an independent party is appointed to reach a non-binding decision on the merits of each party’s respective case.

Although not a construction case, the facts of Lomax v Lomax [EWCA Civ 1647] may have implications for court cases proceeding in the construction sector. Furthermore, it is yet another reminder that ADR can be a useful tool, often leading to early settlement of any kind of contractual dispute.

Background:

The dispute in Lomax was between a widow (Claimant) and her stepson (Defendant). The Claimant was asking for further maintenance from the estate of her late husband. It was suggested that an ENE hearing would help resolve the situation but, the Defendant did not want to proceed. Therefore, the High Court had to look at whether it had the power to order that an ENE hearing should take place where one of the parties to the dispute would not consent.

The Civil Procedure Rules 1998 (CPR) provides the Courts’ case management powers.

The High Court decided that, because the parts of the CPR that concern ADR were couched in terms of facilitation rather than compulsion, the Court was unable to force parties into a form of ADR that may not have the effect of resolving the dispute. It was then appealed……

Appeal:

The main appeal argument focused around the wording of CPR 3.1(2)(m), which states:

The Court may take any other step or make any other order for the purpose of managing the case and furthering the overriding objective, including hearing an Early Neutral Evaluation with the aim of helping the parties settle the case.

It was submitted by the Claimant that, because the rule does not mention anything about the need for the parties to consent to an ENE hearing, the need for the parties to consent should not be read into it. However, the Defendant argued that this went against previous decided cases, contrasted with the works of various authors in official court guides and, the fact that compelling parties to take part in an ENE could potentially restrict access to justice.

Decision:

The Court of Appeal held that consent should not be implied into CPR 3.1(2)(m). If it had been the intention that the consent of the parties should be required, it would have been easy to draft the rule in a way to reflect this. The Court further took the view that an ENE did not prevent parties from going to Court if the ENE was unsuccessful, because no binding decision is reached. Finally, the Court placed no importance on the court guides as they did not suspend or disapply any provisions of the CPR.

Therefore, the Court of Appeal concluded that the Courts do have the power to order a party to take part in an ENE hearing.

Would you benefit from an ENE hearing?

So, what does this all mean? The fact that the Court can now compel parties to take part in an ENE hearing emphasises the importance of considering ADR as early as possible in any dispute. This goes without saying.

However, there may be particular benefits to an ENE for the construction sector:

1. An impartial evaluator is appointed to test the strength of the evidence put forward by both sides. An authoritative view of the issues is gained and this can then be used as the starting point in settlement negotiations.
2. The process may lead to a narrowing of the issues in dispute. This will save time and costs for those involved if some points can be agreed before further action is pursued.
3. There is no limit on the questions to be answered at the hearing. The questions can be of a legal, technical or factual nature. This flexibility is a real plus point where the issues are complex, as a fresh set of eyes can shed light on any potential common ground.
4. Any ENE hearing is without prejudice. This means that everything can be discussed openly and cannot then be referred to later if a settlement is not reached and the parties end up in court.
5. The hearing is not public. This means that any settlement reached in the event of a successful ENE is confidential.
6. Time is always of the essence in disputes. ENE can be a much quicker way of reaching a settlement because of the flexibility of the process and appointment of an independent party.
7. The decision reached in an ENE is not binding on the parties. If there is still huge disparity between the parties’ positions, an ENE hearing does not prevent things proceeding to court or arbitration
8. An ENE hearing can be particularly useful if one side is entrenched in their position. Undertaking an ENE will test the parties’ positions and can lead to a change of heart when an independent party highlights the strengths and weaknesses of a position.
9. If a single issue is stalling negotiations, an ENE hearing can be very useful. An independent party’s view on what would happen if this issue went to trial or arbitration can really help parties readjust their position.
10. ENE can be incorporated into a tiered dispute resolution clause in any contract. The clause can be drafted in such a way where any unsuccessful ENE may be followed by mediation, adjudication or arbitration, or just used as a stand-alone process.

Conclusion:

An ENE might be a useful alternative to offer as opposed to something like Expert Determination (another form of ADR), where neither side wants to be bound by a decision. It may also be helpful when both parties are at an impasse and it seems like the only way forward is to issue proceedings. Undertaking an ENE at this stage could challenge a party’s stance and lead to a successful negotiation. It is worth pointing out that ENE may not necessarily require a hearing: it is arguably open to the parties to request that issues be considered on paper.

We know that the courts take a dim view of parties refusing ADR, such as mediation. The case law is clear. However, the fact that it is now definitely within the Court’s remit to order unwilling parties to take part in an ENE hearing, a form of ADR, illustrates a toughening stance being taken by the courts. Reject ADR at your peril.

Article by Mark James, partner in the Real Estate sector group at law firm Coffin Mew.

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