Hexagon Mediation | How enforceable is a contractual dispute resolution process? | Hexagon Mediation
In our latest blog post, we focus on the contractual dispute process and how enforceable it is. We look at the recent case of Ohpen Operations UK Limited v Invesco Managers Limited and the three questions the Court will consider.
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How enforceable is a contractual dispute resolution process?

How enforceable is a contractual dispute resolution process?

In this blog post we look at how enforceable is a contractual dispute resolution process is.The recent case of Ohpen Operations UK Limited v Invesco Managers Limited provided further guidance on the (increasingly) common issue of the effect of a commercial contract imposing an obligation on parties to exhaust contractual dispute resolution processes before any court or arbitration proceedings can be pursued.

Many modern commercial contracts contain a tiered dispute resolution provision. Typically, this provides for a dispute to be initially discussed between relevant personnel, followed by senior managers, before progressing to mediation and ultimately court or arbitration proceedings if an agreement has not been reached. The purpose of such a provision is to provide a structure to create an opportunity for agreement – before the last resort of a third party imposing a decision.

Of course, in practice, many disputes are resolved by discussion and negotiation between organisations, and a tiered provision provides a useful route map.  From time to time a more serious issue arises that cannot be resolved by initial discussion, or is of such seriousness that a party would prefer to bypass the mediation provision and pursue litigation straight away.

The Cable & Wireless v IBM case in 2002 established the principle that a sufficiently well drafted ADR clause is capable of creating a condition that needs to be fulfilled before court proceedings can be pursued. Consequently, if a party takes the point that court proceedings are premature and that mediation should be pursued first, it can threaten to apply to the Court to exercise its discretion to stay such proceedings to enable mediation to be pursued.

The Ohpen case outlines the three questions the Court will consider:

First, does the clause create an enforceable obligation requiring the parties to engage in ADR? This will be clear from a reading of the relevant clause itself.

Second, is the obligation clearly expressed as a condition precedent to court proceedings or arbitration? This again depends on a reading of the clause and typically would need to contain a provision along the lines of ‘if a dispute is not resolved in accordance with the procedure then its can be submitted to the exclusive jurisdiction of the English & Welsh courts’ for example. If the clause does not provide for a tiered or escalating process where the next step is conditional on having pursued the previous step then this requirement may not be met.

Third, is the process sufficiently clear by reference to objective criteria? This question may cause the most doubt. A reference to a model mediation procedure containing a process that does not require further agreement in order for a mediation to proceed would be helpful, or if not a process needs to be set out, providing for the default appointment of a mediator if the parties cannot agree, and relevant timescales. If there is an absence of such provisions then, again, this requirement may not be met.

If the requirements are met, the Court has a discretion to stay proceedings while mediation is pursued. The court would take into account any delay by the party seeking the stay and would consider the ‘public interest’ in enforcing such a clause. This consideration usually includes upholding contractual provisions that parties have agreed, and that the object of the clause is to try and avoid time consuming and expensive litigation.

In Ohpen, the judge decided that she would exercise discretion to stay the proceedings, and given the direction of travel in the courts to encourage mediation as a dispute resolution process, it is more likely than not that the courts will uphold these provisions when applications come before them.

Parties and their advisers should always be mindful therefore of the dispute resolution provisions in a commercial contract when considering next steps as, if the point is taken, the court is likely to uphold the provision where the requirements are met.

Does forcing an unwilling party to mediation in such circumstances mean that mediation is bound to fail? Not necessarily, provided that by the time the mediation is held the parties attend in good faith to try and find a solution and that the recalcitrant party is not just ‘going through the motions’. It may be that there are very different expectations between the parties that prove difficult to bridge, but the high success rate means that mediation can still bear fruit.

Nick Parker