Boosted court commitment to ADR continues to drive commercialism in construction dispute resolution

There is a sufficient volume of construction industry disputes to justify a high-quality specialist court in England and Wales – the Technology & Construction Court. While adjudication is the forum of first choice for much of UK construction dispute resolution, litigation remains an important tool too. That is so for several reasons.

First, some disputes cannot be referred to statutory adjudication – such as some development agreements, energy projects and PFI agreements. Second, even if adjudication is competent, the parties might consider that the scale, complexity and/or value of the dispute means that it is better suited to litigation. Third, there is also a relatively small, but certainly still material, proportion of adjudicated disputes that are litigated on post-adjudication.

If the parties are considering litigation, the potential benefits of ADR are well-documented, including cost savings, a wider range of outcomes, and the potential for relationship-protecting resolution.

Recent changes will enhance the accessibility and effectiveness of ADR and thus the overall experience of organisations involved in dispute resolution.

At around the same time as statutory adjudication came on-stream, the Woolf reforms were implemented through the Civil Procedure Rules (CPR) in 1998 and came into effect in 1999.  Those reforms encouraged ADR – and especially mediation – as part of the pre-action protocol, and under threat of adverse costs orders for unreasonably refusing mediation.

Until recently, ADR has been largely a voluntary process, as highlighted in the landmark case of Halsey v Milton Keynes General NHS Trust. This case underscored the importance of considering ADR but stopped short of compelling parties to mediate. The court emphasised that while it could encourage parties to mediate, it could not compel them to do so against their will.

An important landmark, just over a year ago, was the case of Churchill v Merthyr Tydfil Borough Council in which the Law Society intervened. The ruling in the case marked a significant departure: the Court of Appeal ruled that courts could lawfully order parties to engage in non-court-based dispute resolution processes, provided such orders did not impair the claimant's right to a judicial hearing and were proportionate to achieving a fair and cost-effective settlement.

This ruling paved the way for the recent amendments to the Civil Procedure Rules (CPR), which now include provisions for compulsory ADR in certain circumstances.

Since 1 May, mediation has been compulsory in small claims. While that of itself is unlikely to affect much construction litigation, the direction of travel was clear and continued later in 2024 in ways more directly relevant to construction litigation.

Effective since 1 October, amendments to the CPR signify a shift from merely encouraging ADR to actively ordering it. The new rules now empower courts to mandate ADR in litigation of a sort that will include most construction cases, elevating the importance of ADR within the CPR framework. As well as providing for ordering ADR, the CPR changes also provide for non-compliance with ADR orders: including striking out and adverse cost decisions.

In parallel, the updated CPR revised the wording of the overriding objective to "ordering or encouraging the parties to use, and facilitating the use of, alternative dispute resolution”.

While the CPR Committee did not define ADR, in practice that is likely to major on mediation.

So, mediation is set to be an even more common and important component of dispute resolution in UK construction. These changes herald an opportunity for willing, and now otherwise unwilling, parties to come together to reach solutions likely to be more mutually beneficial than engaging in court proceedings.

Successful mediation demands a front-loaded and objective appraisal of the merits of parties’ cases, and a highly strategic approach – albeit that gone are the days when people thought that offering mediation meant signing up to a half-way split.