Case Note: AGREEMENTS TO MEDIATE

Citation(2004) 16 SAcLJ 530
Published date01 December 2004
Date01 December 2004

The Impact of Cable & Wireless plc v IBM United Kingdom Ltd[2003] BLR 89

In the commercial world, mediation is now an accepted form of dispute resolution. Many commercial contracts today have dispute resolution clauses that require the parties to attempt mediation before resorting to arbitration or litigation. The law has lagged someway behind commercial practice, and the enforceability of such “mediation clauses” has always been in doubt. This note discusses recent developments in English law which suggest mediation clauses are now enforceable.

I. Introduction

1 Mediation has entered the commercial mainstream as a form of dispute resolution. Once seen as more suitable to family or quasi family type disputes, mediation is now routinely used even for pure commercial disputes between business entities.

2 Many commercial contracts today provide that in the event of a dispute, the parties attempt mediation before resorting to arbitration or litigation. This article discusses whether such mediation clauses are enforceable under English law. In particular, this article will discuss the impact of the recent case Cable & Wireless plc v IBM United Kingdom Ltd1 (“Cable & Wireless”) on this area of law.

3 Before delving into the law, it is helpful to define mediation, and to distinguish it from arbitration and litigation. In arbitration and in litigation, the disputing parties submit their dispute to a neutral third party. That third party is tasked with deciding the dispute, and the parties are bound by that decision. The hallmark of mediation is that the neutral third party cannot impose a decision on the parties. In mediation, the neutral third party (the mediator), has no power to

decide the dispute, nor does the mediator normally offer his own views on the merits of each parties’ case. Instead, the mediator acts as a facilitator to help the parties achieve an agreed settlement. No settlement can take place unless both disputing parties agree to it.

A. Tiered dispute resolution clauses

4 An agreement to mediate often appears in commercial contracts as part of a tiered dispute resolution clause. Such a clause specifies that in the event of a dispute, the parties have to undergo sequential dispute resolution procedures. In commercial contracts, a three-tiered dispute resolution clause is often inserted.

5 The three main types of alternative dispute resolution (“ADR”) procedures are negotiation, mediation and arbitration. A typical threetiered dispute resolution clause requires that in case of a dispute, the parties first meet in an attempt to resolve the dispute (negotiation). If this fails, that the parties meet for structured negotiations with the assistance of a neutral third party to try to reach agreement (mediation) and only after that, to refer the dispute to arbitration.

B. Practical problems

6 It sometimes happens that a party subject to a three-tiered dispute resolution clause begins arbitration without first attempting to settle the dispute via negotiation and mediation. This tends to happen if a time bar is looming and the party does not have the time to complete negotiation and mediation before the time bar sets in.

7 In such cases, two questions arise:

(a) First, whether an agreement to mediate is enforceable in law.

(b) Second, if an agreement to mediate is enforceable, whether an arbitration begun in breach of the requirement to first attempt mediation is void and thus ineffective for the purpose of preserving a time bar.

II. Whether an agreement to mediate is enforceable in law
A. Position pre- Cable & Wireless

8 Until recently, English courts have consistently refused to enforce agreements to mediate.2 In 2002, a first instance decision was made in England which suggested agreements to mediate were enforceable. This was the case of Cable & Wireless.

9 Before examining Cable & Wireless in detail, it is instructive to examine the reasons for the historical reluctance of English courts to enforce agreements to mediate.

10 The root reason for this historical reluctance is that courts have viewed agreements to mediate as too uncertain to be enforced. Three main causes of uncertainty have been advanced by the English courts.

11 First, the agreement to mediate may be too uncertain to enforce because of a lack of provisions on practical matters. These include questions such as who is to bear the cost of the mediation, the length of the mediation, the location of the mediation proceedings, the language and procedure of the mediation and the procedure for appointing the mediator.3

12 Second, the agreement to mediate is a species of an agreement to negotiate, and amounts to an agreement to agree.4 It is trite law that an agreement to agree is unenforceable for reasons of uncertainty of terms.5

13 Third, an agreement to mediate is in effect a commitment to attend mediation proceedings in a proper state of mind (for example, in good faith, with an intention to genuinely attempt a settlement etc).

Since the court deems it impossible to read minds, the court deems it impossible to ascertain whether a party has complied with an obligation to mediate. Consequently, the court deems agreements to mediate as too uncertain to enforce.6

14 Notwithstanding these historical objections, there has been a recent change in the English legal attitude to mediation. Mediation was given a prominent role in the administration of justice when England radically overhauled its rules of civil procedure in April 1999. The new Civil Procedure Rules (which replaced the existing Rules of Court) provide for court-ordered mediation, and use cost measures to punish parties that unreasonably resist mediation.7

15 This conflict between the historical objections to enforcing an obligation to mediate and the recent recognition of the value of mediation in the administration of justice provides the context in which Cable & Wireless was decided.

B. Cable & Wireless

16 The case was decided by Colman J in the Queen’s Bench Division (Commercial Court) in October 2002. In a decision which

potentially changes English law, the court enforced an agreement to mediate.

17 In this case, a dispute over an agreement arose between the parties to a contract. The terms of the contract were that the parties would first attempt to resolve any dispute through negotiation, and then, “If the matter is not resolved through negotiation, the Parties shall attempt in good faith to resolve the dispute or claim through an Alternative Dispute Resolution (ADR) procedure as recommended to the Parties by the Centre for Dispute Resolution.”8 The ADR procedure recommended by the Centre for Dispute Resolution was mediation. The Centre of Dispute Resolution had detailed rules for the conduct of the mediation. The terms of the contract also stated that this procedure did not prevent parties from issuing proceedings.

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