12.11.6 Conjunctionen of contraries encore que = obgleich (with subjonctif)
Il n'est pas un pacifiste, encore qu' il soit préoccupé par l'accroissement de la violence.
  He is not a pacifist, although the increase of violence bothers him. au lieu que = instead of (with subjonctif)
C' est mieux que tu lui dises ce qui s' est passé au lieu qu' elle l' apprenne par d' autres.
  It is better you tell her, what happened instead of her hearing it from someone else.

Instead of refers always to something irreal, because it always offers an alternative to the actual thing/event. This is the reason, it is used with subjonctif. However, if the subject of the subordinate clause is the same as the one in the main clause the phrase is au lieu de with infinitif. (see also chapter 12.10.5)

Au lieu de parler avec eux, on parle d' eux.
  Instead of talking with them, they talk about her.
Au lieu de parler, il vaudrait mieux travailler.
  Instead of talking he would rather work.

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