Alternative dispute resolution (ADR) in housing conditions claims — what does the future hold?
Any social housing landlord seeking to compel tenants to follow their ICP will need to give careful consideration to the issues raised in this case.
In Churchill v Merthyr Tydfil County Borough Council  EWCA Civ 1416 the Court of Appeal has ruled that the court has the authority to stay proceedings and order an unwilling party to enter into a non-court-based dispute resolution process against their will. This will no doubt be the subject of considerable debate, not least in the social housing sector, for the foreseeable future.
Mr Churchill pursued a claim against Merthyr Tydfil County Borough Council (Merthyr) for damages as a result of Japanese knotweed which he claimed had encroached onto his land from Merthyr’s neighbouring land, thereby reducing the value of his property.
In response to the letter of claim, Merthyr highlighted the Practice Direction - Pre-action Conduct and Protocols (Practice Direction) which, amongst other things, emphasises that the parties are encouraged to seek to settle their issues without proceedings. The Protocol also indicates that the parties must consider if some form of ADR is appropriate.
Merthyr invited Mr Churchill to explore ADR via their Corporate Complaints Procedure before formal proceedings were even contemplated. Merthyr warned that, should Mr Churchill ignore this invitation and issue proceedings, Merthyr would apply to stay the claim pending ADR via their preferred process. Mr Churchill ignored, issued his claim and Merthyr made their application to stay as promised.
At first instance, Merthyr’s application was dismissed. Merthyr appealed and the case garnered such public interest that it was joined by various interveners including the Law Society, the Bar Council, and a number of mediation and social housing law associations.
The decision in Churchill
The court undertook an analysis of the leading case of Halsey v Milton Keynes General NHS Trust  EWCA Civ 576 and, for reasons that don’t need to be set out here, concluded that Halsey did not prevent them from ruling that, in principle at least, the court is free to stay proceedings and order a party to explore non-court-based ADR against their will.
However, the court went on to emphasise that any power exercised by the court to stay proceedings and compel ADR must not impair the essence of the ECHR Article 6 right to a fair and public hearing, where that right is exercised in pursuit of a legitimate aim, and in a manner proportionate to achieving that legitimate aim.
Of note, the court did not say whether or not they considered Merthry’s proposed form of ADR was appropriate. This was based on the particular facts of the case and the manner in which the appeal was brought rather than an analysis of the complaints process itself.
The court also declined to lay down any fixed principles as to what will be relevant when determining whether to stay a claim and compel ADR, or not. The court stated that it did not believe the court could lay down any such fixed principles. Therefore the old adage “each case turns on its own facts” applies.
Within the social housing sector, which is currently the subject of large volumes of housing conditions claims (HDR) which are frequently brought by tenants represented by firms under conditional fee agreements (CFAs), there is scope to contend that tenants should first explore ADR via the landlord’s internal complaints procedure (ICP) before issuing proceedings, or risk those proceedings being stayed pending the same.
HDR claims have their own applicable pre-action protocol (HDR Protocol) which emphasises that proceedings are to be a last resort. It also encourages the parties to explore ADR. In fact, it goes further than the Practice Direction and states that ADR may include the landlord’s own complaints and/or arbitration processes. Therefore, in principle at least, it is arguable that a tenant should first explore ADR via this avenue before issuing proceedings, or run the risk of proceedings being stayed, being ordered to explore that form of ADR and pay the landlord’s costs of the application.
This may be an attractive proposition for social housing providers, whose budgets have been impacted significantly by this increase in HDR claims, many of which are later proven to be without any merit whatsoever. However, in order to disprove those claims, the landlord often has to incur thousands of pounds in legal and surveyor fees. Compelling tenants to first explore ADR via the landlord’s ICP may assist in filtering the unmeritorious claims at an earlier stage, reducing overall spend, and freeing up funds to be put to better use for the benefit of those tenants.
A well conducted ICP also benefit tenants. In a claim advanced by lawyers acting under a CFA there is always a litigation risk for the tenant and, despite what the tenant may believe, or even be incorrectly advised, if the tenant is unsuccessful they may be ordered to pay the landlord’s costs, and they may even have county court judgments entered against them. This would not be the case in a well conducted ICP.
Another benefit for tenants who elect to follow an ICP is that, if they are successful, they would receive the full compensation payment (minus any arrears and other tenancy charges lawfully owing). This may not be the case if represented by lawyers acting under a CFA who often charge fees, including success fees of up to 50% of damages.
Next steps for landlords
Prior to Churchill, this form of ADR was proposed by landlords in HDR claims regularly, and was invariably rejected for reasons including those given by Mr Churchill in his case, including:
- the process does not allow for representation by lawyers,
- it doesn’t allow for payment of the tenant’s legal costs; and
- it isn’t an independent process.
In Churchill the court did state that these were some of the factors that might be considered in any case where compulsory ADR was being applied for, and they might affect the outcome of that application.
Against this backdrop, any social housing landlord seeking to compel tenants to follow their ICP will need to give careful consideration to the issues raised in Churchill. They will need to be in a position to satisfy the court that by compelling ADR via their own ICP, this does not impair the essence of the tenant’s ECHR Article 6 right to a fair and public hearing, where that right is exercised in pursuit of a legitimate aim, and in a manner proportionate to achieving that legitimate aim. Careful consideration to the existing ICP presently in place is therefore essential to consider what, if any, amendments may need to be made, in order to satisfy the court that the ICP is fit for purpose in this context.
In principle, this case applies to every type of civil claim. No doubt there will be further litigation around this issue which may assist us all in understanding how the court approaches applications for compulsory ADR in practice.