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ADR Practitioner Update – Feb 2015

Date: January 24, 2015 Posted by No Comments

This Update mentions a few cases which raise some interesting practical points for those practising in the field of ADR.


The contractual framework underpinning a mediation

Mrs AB and Mr AB v CD Limited [2013] EWHC 1376 (TCC) concerned a settlement brokered through a mediator but subsequent to the day of mediation.  The claimants’ solicitors called the mediator to communicate acceptance of an offer made by the defendant.  The mediator communicated that acceptance to the defendant’s solicitors giving rise to the settlement.  During the course of documenting the settlement, a few wrinkles arose e.g. in relation to costs, scope and confidentiality and satellite litigation arose as to whether a binding settlement had come into existence as a result of the mediator’s continuing efforts.  The judge, not surprisingly, was taken to the terms of the mediation agreement, which provided (as is usual) that a settlement will not be legally enforceable until committed to writing and signed.  All well and good except that, on the judge’s interpretation of that particular mediation agreement, it was held that the mediation had come to an end by the time the defendant’s offer was accepted.  Accordingly, the mediation agreement (including the ‘subject to contract’ provisions) no longer governed dealings between the parties even though taking place through the good offices of the mediator doing what he was doing from the outset – mediating!

Just as those involved in mediation re-visited the wording of their mediation agreements following the decision in Farm Assist Limited (in liquidation) – v – The Secretary of State for the Environment, Food and Rural Affairs (No.2) [2009] EWHC 1102 (TCC), in which the provisions of a mediation agreement concerning the mediator giving evidence fell for analysis, it may again be time to review the paperwork. The issue in Farm Assist concerned a provision in the mediation agreement which provided that none of the parties could call the mediator as a witness in any litigation or arbitration ‘in relation to the Dispute’.  The judge decided that this was a restriction confined to the underlying dispute being mediated (the term ‘Dispute’ being defined as such), but that the dispute before him (in relation to which a witness summons had been issued against the mediator) concerned whether the settlement reached at the mediation (of the underlying dispute) had been entered into under duress.  That issue was quite separate and distinct from the issues in the original dispute.

It is now common for mediation agreements to seek to prohibit, not just evidence from the mediator in relation to the dispute being mediated, but also any dispute in relation to, or arising from the mediation itself.  And similarly, the issue in Mrs AB and Mr AB v CD Limited having arisen, parties should now ensure that there is clarity in their mediation agreements in relation to the basis of any post ‘day of mediation’ negotiation.


Escalation clauses re-visted

Emirates Trading Agency LLC v Prime Mineral Exports Private Limited [2014] EWHC 2104 (Comm), concerned the enforceability of a tiered dispute resolution clause, such clauses having had a mixed reception from the courts in terms of their enforceability.  Accordingly, before looking at this decision, it is perhaps helpful to mention a few of the earlier cases in this area.

In Cable & Wireless v IBM [2002] EWHC 2059 (Comm), the judge decided that the obligation to attempt in good faith to settle a dispute through ADR was sufficiently certain to be enforced, because the procedure to be followed was specified.  The judge also noted, however, that a mere obligation to attempt in good faith to settle a dispute would have been unenforceable given the lack of certainty – a court would lack objective criteria against which to measure compliance.  Following this line of reasoning, a number of decisions have gone the other way.

In Sul America v Enesa Engenharis [2012] 1 Lloyd’s Reports 671, the undertaking that, ‘prior to a reference to arbitration, they [the parties] will seek to have the Dispute resolved amicably by mediation’ fell for consideration.  The court was in no doubt that the parties intended that the clause should be enforceable.  However, it went on to say that to be enforceable, the clause must define the parties’ rights with sufficient certainty to enable it to be enforced.  In the circumstances, the clause, having not set out a defined mediation process or containing a reference to the services of a specific mediation provider, did not create an enforceable obligation to commence or participate in a mediation process.

A similar outcome (on similar reasoning) arose in the later case of Wah v Grant Thornton [2013] 1 Lloyd’s Law Reports 11.

Both Sul America and Wah concerned pre-arbitration procedures, as did Emirates, but in Emirates the judge took a refreshingly different approach to a clause which provided that, in the event of a dispute, the ‘Parties shall first seek to resolve the dispute or claim by friendly discussion’.  Such ‘friendly discussion’ was to take place within a limited period of time.  The judge said that ‘where commercial parties have agreed a dispute resolution clause which purports to prevent them from launching into an expensive arbitration without first seeking to resolve their dispute by friendly discussions the courts should seek to give effect to the parties’ bargain. Moreover, there is a public interest in giving effect to dispute resolution clauses which require the parties to seek to resolve disputes before engaging in arbitration or litigation’.  The judge also went on to say that the obligation to resolve disputes by friendly discussions must import an obligation to do so in good faith.  Echoing the reasoning in the Australian decision of United Group Rail Services v Rail Corporation New South Wales, (2009) 127 Con LR 202, the judge found that the clause in issue was not incomplete nor uncertain and that ‘an obligation to seek to resolve a dispute by friendly discussions in good faith has an identifiable standard, namely, fair, honest and genuine discussions aimed at resolving a dispute. Difficulty of proving a breach in some cases should not be confused with a suggestion that the clause lacks certainty’.  The judge also went on to say that ‘Enforcement of such an agreement when found as part of a dispute resolution clause is in the public interest, first, because commercial men expect the court to enforce obligations which they have freely undertaken and, second, because the object of the agreement is to avoid what might otherwise be an expensive and time consuming arbitration’.

Whilst representing perhaps a sea change in attitude, it would seem sensible to continue to draft tiered dispute resolution clauses with as much certainty as possible.  That does not mean that the parties, by later agreement, cannot substitute some other procedure more suited to the actual dispute that has arisen or use a different mediation service provider than that specified.  It will, however, mean that if a dispute arises and subsequent agreement (on anything) proves difficult, there is a greater likelihood of judicial enforcement of the pre-litigation or arbitration steps (the ‘condition precedent’ as the judge in Emirates termed it) that had been agreed and specified at the outset, prior to any buttons being pressed!


Unreasonable refusal to mediate – sanctions

And finally, no offering from a mediator can be complete without at least one reminder of the dangers of refusing a proposal of mediation.  In Phillip Garritt-Critchely & Ors v Andrew Ronnan and Solarpower PV Ltd, [2014] EWHC 1774 (Ch), the judge awarded indemnity costs in favour of the claimants following the defendants’ acceptance of a Part 36 offer (out of time), because he found that the failure to engage in mediation (or any other serious ADR) was unreasonable.  The defendants sought to justify their failure to mediate on various grounds.  For instance, it was submitted that there was no ‘middle ground’ (the dispute concerning whether a concluded agreement was reached), an argument that the judge thought misconceived.  It was also submitted that there was considerable dislike and mistrust between the parties, just the type of case, the judge seemed to suggest, which was suitable for mediation!

No other settlement attempts had taken place and the court had earlier suggested mediation in a pre-trail direction.

The defendants’ counsel also took the trial judge to PGF II SA – v – OMFS Company 1 Limited [2013] EWCA Civ 1288, referring in particular to paragraph 30 of the judgment, which deals with the ADR Handbook and the steps a mediation ‘refusnik’ should consider taking so as to avoid a costs sanction.  (In short, a party to whom a request to mediate is made should constructively engage rather than flatly reject or remain silent).  Briggs LJ, delivering the judgment of the Court of Appeal in PGF, concluded by saying that ‘…this case sends out an important message to civil litigants, requiring them to engage with a serious invitation to participate in ADR, even if they have reasons which might justify a refusal, or the undertaking of some other form of ADR, or ADR at some other time in the litigation’.

The defendants’ counsel (in Phillip Garritt-Critchely & Ors) said that his clients had engaged with the claimants’ requests to mediate.  That argument also received short shrift from the judge who said ‘None of that assists the defendants here. They did respond, they gave reasons but they were misconceived. So the fact that they responded promptly each time a letter was written is neither here nor there’.

In summary, a party refusing to mediate must have good reason to do so.  But however sound their position might be, unless articulated, they will be at risk of sanction.


Jon Lang
February 2015