THE ENFORCEABILITY OF ALTERNATIVE DISPUTE RESOLUTION AGREEMENTS

• Citation: (2013) 25 SAcLJ 455
• Published date: 01 December 2013
• Date: 01 December 2013

Emerging Problems and Issues

The popularity of alternative dispute resolution (“ADR”) is undoubtedly on the rise. Foremost of these mechanisms, negotiation and mediation, are increasingly resorted to as the first step to resolving disputes. In the realm of alternative dispute solutions, although the law on agreements to negotiate and mediate is developing rapidly, it is still in its infancy stage relative to the more substantial body of law that governs arbitrations. This paper thus seeks to highlight the emerging issues surrounding the enforceability of agreements to resolve disputes through amicable ADR processes.

I. Introduction

1 While commercial disputes are inevitable, the way they are handled can have a profound impact on the profitability and viability of the business.1 Full-blown disputes are said to always be bad news for a company. It may frighten investors, divert resources and, in some cases, paralyse a company..2 These adverse consequences may be driving a nascent surge in ADR mechanisms. 3 In a study conducted by Herbert

Smith LLP in 2007, 4 general and in-house counsel from organisations such as Royal Bank of Scotland, Merrill Lynch and General Electric selected mediation as the most favoured ADR process.5 In the US, approximately 800 organisations, including Time Warner, United Parcel Service and Coca-Cola, have pledged to explore ADR processes before litigation. 6 In Singapore, ADR mechanisms have flourished since the early 1990s when mediation was first promoted by the judiciary. 7 Today, the Singapore Mediation Centre, which was set up in 1997, provides numerous types of ADR services. It has administered more than 2,000 mediations alone.8

2 Despite the growing number of adopters of amicable ADR mechanisms, the law governing agreements to resolve disputes amicably is still relatively underdeveloped. On a global scale, at its 52nd plenary meeting on 19 November 2002, the United Nations General Assembly adopted the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on International Commercial Conciliation9 Model Law on Conciliation”). Amongst the reasons for adopting the Model Law on Conciliation are the recognition of the value and benefits of amicable dispute settlement for international trade and the increasing trend of recourse to such amicable dispute resolution mechanisms.10 Yet, the number of States which have adopted the Model Law on Conciliation is a paltry 23.11 In contrast, 95 States have adopted the 1985 UNCITRAL Model Law on International Commercial Arbitration (“Model Law on Arbitration”).12 Even States which have not adopted the Model Law on Arbitration have enacted some form of national legislation to regulate arbitrations within their territory.13 In addition, 147 States are party to the 1958 Convention on the Recognition and

Enforcement of Foreign Arbitral Awards,14 more commonly referred to as the New York Convention.,15 Evidently, in contrast to arbitration, there is significantly less concentration on and harmonisation of non-arbitration ADR practices internationally.

3 The law relating to ADR agreements is presently behind the curve; it has not caught up with the advancement of ADR as a primary means of dispute resolution. This is not entirely surprising, given that the rise of the use of ADR processes in its present manifestation, as an alternative to litigation, is a fairly recent trend.16 This paper therefore attempts to highlight key aspects of negotiation and mediation agreements which are potentially problematic, with particular focus on the issues relating to the enforceability of such agreements. As a summary, the paper argues that there is a growing trend towards promoting ADR mechanisms such as negotiation and mediation, as there is towards arbitration. The law governing negotiation and mediation is undoubtedly rough at the edges and lacking in core principles. Unfortunately, as was and remains the case with arbitration law, core principles applicable to non-arbitration ADR agreements will only concretise with the passage of time, as one would expect with a common law system. Nevertheless, we venture two submissions. First, in the context of enforceability of ADR agreements, first principles of domestic contract law are relevant and must remain the starting point. An ADR agreement is, at minimum, a contract; hence, for it to be given effect, it must satisfy the minimum requirements of an enforceable contract under the applicable contract law. Second, although negotiation and mediation agreements are both broadly ADR agreements, they must each be treated differently as the negotiation and mediation processes are intrinsically different. The criteria for enforceability are not interchangeable.

II. Characteristics of negotiation and mediation

4 We begin with a brief exposition of the characteristics of and key difference between negotiation and mediation. At the expense of under-simplification and over-generalisation, we posit that negotiation and mediation are substantially different in one crucial aspect, even if they may sometimes be equated by parties to mean one and the same

thing.17 The ecosystem in most negotiations is dyadic as negotiations typically involve only representatives from the parties in dispute. Mediation, however, usually involves a neutral disinterested third party whose job is to encourage the disputing parties to bridge their differences.18 The mediation procedure therefore involves more than just the parties in dispute. Although it is not inaccurate to describe mediation in general terms as a “problem-solving negotiation process”,19 this would be too basic for the purposes of assessing the nature and effects of negotiation and mediation agreements.

5 The major difference between our characterisation of negotiation and mediation is the existence of the mediator in the latter process. 20 In this regard, the mediator's rights and duties are crucial to the entire process. For instance, the mediator needs to know whether he or she (hereinafter referred to as “she” or “her”) has wide discretion 21 in relation to the administrative aspects of the mediation such as scheduling of meetings and disclosure of documents. The mediator would also need to know the quantum of her remuneration and whether she is to bear her own costs. Conversely, the mediator needs to know the ambit and scope of her duties in relation to the parties in the mediation. Hence, for reasons which will be apparent later, this added dimension of a third party in the ecosystem introduces additional considerations when determining the enforceability of a mediation agreement. Thus, as a general proposition,22 mediation is a far more complex procedure than negotiation.

6 Obviously, it goes without saying that form must yield to substance. A process which is labelled as a negotiation and has a neutral third party acting as a “negotiator” would not be any different from a mediation with a mediator, regardless of what may be said about the inherently different purposes or starting premises of negotiation and mediation.23 The label given to the process by parties in their

agreements, while helpful as an indicator of what they had objectively intended, cannot be determinative. The court should be careful in distinguishing a negotiation agreement from a mediation agreement as the criteria for the enforceability of one is not necessarily identical to the other.24 Being aware of and understanding the procedural distinction between negotiation and mediation is critical to appreciating how this procedural distinction affects the enforceability and enforcement of negotiation and mediation agreements.

III. Certainty

A. General rule

7 It is trite law that for contracts to be enforceable, they must be certain.25 A contract will be void for uncertainty if it is not possible to prescribe meaning to an essential term.26 The essential term must not only be capable of bearing meaning; the meaning must be attributable to the parties.27 This general rule for contractual formation was recently confirmed by the English Court of Appeal in Sulamérica Cia Nacional de Seguros SA v Enesa Engenharia SA (“Sulamérica”) as being applicable to negotiation and mediation agreements.28 There can be no real dispute that negotiation and mediation agreements are a species of contracts, and it is therefore uncontroversial that the general rule of contract formation applies to them. Indeed, in the majority of disputes concerning the enforceability of negotiation and mediation agreements, it is the uncertainty over the exact procedure which constitutes the focal point of the dispute. The type of uncertainty in any given procedure straddles a wide spectrum, including the quantum and apportionment of remuneration and costs of the mediator,29 identification of a specific mediation service provider,30 concept of “friendly consultation”31 and the existence of a termination procedure.32

8 Although certainty is a prerequisite for an enforceable ADR agreement, the degree of certainty required is not entirely crystal clear. What is clear, however, is that it is not necessary for an ADR agreement to be overly structured for it to be enforceable.33 One must be careful not to pay too high a price in the effort to attain certainty.34Verba ita sunt intelligenda ut res magis valeat quam pereat— the contract should be interpreted so that it is valid rather than ineffective.35 The counterargument to a microscopic examination of the terms of a contract can be found in Lord Wright's famous words in Hillas & Co v Arcos Ltd where he said:36

Business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or...