Abstract
This article shows that the English case law on the enforceability of mediation clauses presents a number of flaws. First, and most importantly, English courts generally fail to distinguish between the positive and the negative obligations created by such clauses. As a result, they wrongly apply the certainty requirement to the former, rather than the latter, which leads to frequent refusals to enforce mediation clauses in situations where enforcement should be granted. These decisions discourage parties from agreeing to multi-tier dispute resolution clauses providing for preliminary mediation, thus undermining the general policy favouring the use of alternative dispute resolution (ADR) mechanisms. Moreover, judicial discretion in deciding whether to give effect to a valid mediation agreement is unjustified and exercised on the basis of questionable considerations.
Keywords
Introduction
With the increasing popularity of mediation, a growing number of parties to international commercial contracts conclude multi-tier dispute resolution clauses providing for mandatory recourse to mediation prior to the commencement of arbitration or court proceedings (Alexander, 2009: 171; Pryles, 2001: 159). When a party disregards such a requirement and initiates judicial or arbitral proceedings without first seeking a settlement through mediation, the question arises as to whether the court or arbitral tribunal should decline to hear the case. In other words, the question is whether the mediation agreement is legally enforceable.
In the UK, after some initial hesitation (see the ‘Mediation clauses are not necessarily too uncertain’ section), courts have come to recognise the enforceability of mediation clauses. However, they subject such enforceability to two limitations. Firstly, courts do not enforce mediation clauses that are insufficiently clear and certain, i.e. those that do not meet the so-called ‘certainty’ requirement of English contract law (see the ‘Certainty requirements applied by English courts’ section). Secondly, courts have discretionary powers when deciding whether to enforce mediation clauses and may thus choose not to give effect to such contractual provisions, even if they meet the requirement of certainty (see the ‘Judicial discretion to stay proceedings’ section).
To date, case law on this subject – especially more recent decisions – has not yet been the subject of any meaningful scholarly discussion or evaluation. 1 This article seeks to fill this gap, offering a comprehensive analysis of the decisions concerned. It shows that English courts often wrongly apply the certainty requirement, largely ignoring the distinction between the positive and the negative obligations created by mediation clauses (see the ‘Failure to distinguish between the negative and positive obligations created by mediation clauses’ section), a distinction that will be explored in detail in this contribution. This article also discusses various detrimental consequences of the current judicial approach, including its incompatibility with the general pro-mediation policy (see the ‘Undesirable consequences of the current approach’ section). As far as judicial discretion is concerned, this article not only highlights that such discretion is per se undesirable, but also demonstrates that the considerations relied upon by courts in their exercise of such discretion are problematic (see the ‘Judicial discretion’ section).
This study is divided into four main sections. The ‘Key concepts: Scope of article’ section defines and elaborates on some of the key concepts used in this article, while at the same time clarifying its scope. The ‘Enforceability of mediation clauses under English case law’ section provides a detailed discussion of the principal English decisions addressing the enforceability of mediation clauses. The ‘Critical analysis’ section offers a critical analysis of this case law, highlighting the flaws of both the application of the certainty requirement and judicial discretion. Based on the findings provided in the ‘Enforceability of mediation clauses under English case law’ and ‘Critical analysis’ sections, the ‘Implications for the drafting of mediation clauses’ section offers a few recommendations for the drafting of mediation clauses.
Key concepts: Scope of article
Mediation clause
Two clarifications are necessary with regard to the concept of the mediation clause. First of all, it must be stressed that not all mediation clauses provide for compulsory mediation. As the International Chamber of Commerce (ICC) model mediation clauses 2 suggest, it is possible for such provisions to be merely optional or to provide for a limited obligation to ‘consider’, rather than to actually use, mediation (e.g. ICC mediation clauses A and B). This article is only concerned with provisions that make recourse to mediation mandatory. In fact, where that is not the case (i.e. where recourse to mediation is not mandatory), the question of the enforceability of the mediation clause does obviously not arise, given that there is no obligation to be enforced.
Second, it should be pointed out that most mediation clauses are embedded in broader, multi-tier dispute resolution clauses. In practice, the majority of these clauses require a preliminary mediation attempt prior to the parties being authorised to submit the dispute to a court or arbitral tribunal, i.e. resort to mediation is a condition precedent for the initiation of court or arbitral proceedings (e.g. ICC mediation clause D). However, some mediation clauses, while requiring the use of mediation, allow for court or arbitration proceedings to be conducted in parallel (to mediation) (e.g. ICC mediation clause C). The focus of this article is on the former category of clauses since the enforcement issue examined in it (i.e. whether a court or arbitral tribunal should decline to hear a case that is covered by a mandatory mediation clause) assumes that mediation constitutes a condition precedent.
Enforcement of mediation clauses
Generally speaking, enforcement of a mediation clause means that a court or arbitral tribunal gives effect to that clause, i.e. that it grants the party seeking its enforcement a legal remedy. There are, at least in theory, several ways in which mediation clauses could be enforced. It would in principle be possible to award compensation for the violation of such a clause (Alexander, 2009: 208–209). It would also be conceivable to order a reluctant party to take part in the mediation (i.e. to agree on a mediator, to participate in mediation meetings, etc.) (Alexander, 2009: 201–202).
In this article, as has already been explained, the focus is on what is sometimes termed ‘indirect’ enforcement of mediation clauses, i.e. enforcement through a decision whereby a court or arbitral tribunal refuses to hear a claim that is brought in violation of an agreement providing for preliminary mediation (Alexander, 2009: 203). The specific procedural remedy may vary from jurisdiction to jurisdiction. In some countries, courts will hold that they lack jurisdiction; in others they will consider the claim inadmissible; in others again, courts may simply stay legal proceedings pending the mediation attempt (Alexander, 2009: 208). This latter approach is followed in the UK (see the ‘Mediation clause’ and ‘Certainty requirements applied by English courts’ sections).
English case law
This article deals exclusively with English case law. The reason for this focus is twofold. First of all, English case law presents a number of flaws that ought to be highlighted. Second, an examination of English case law is particularly appropriate in light of (a) the importance of the UK (and, more particularly, London) as a forum for the resolution of international commercial disputes, (b) the existence of a comparatively large number of relevant judicial precedents, and (c) the influence that English case law is likely to exercise at the international level.
The focus on English case law (and English law, more generally) does not mean that the analysis performed in this article is not relevant for other jurisdictions. In fact, it may be directly relevant for other common law jurisdictions in which English precedents have either binding or persuasive force. It is also relevant for many other countries, given that most jurisdictions apply rules similar to the certainty requirement of English contract law (Alexander, 2009: 191–197) and the issue of the possible uncertainty of mediation clauses therefore also arises in those jurisdictions.
Enforceability of mediation clauses under English case law
The requirement of certainty
Meaning of the requirement of certainty
According to authoritative writers, ‘[a]n agreement may lack contractual force because it is so vague or uncertain that no definite meaning can be given to it…’ (Chitty and Beale, 2019: section 2-148). Although this definition does not specify what type of vagueness or uncertainty renders a contract unenforceable, it is reasonable to hold that the requirement of certainty attaches to the parties’ respective obligations under the contract. In other words, in order for a contract to be valid and enforceable, it has to be clear what the parties’ respective obligations are. Under a contract for the sale of goods, for example, the nature, quantity and quality of the goods sold, as well as the purchase price must be sufficiently certain.
Generally speaking, a lack of clarity or certainty of the obligations of parties to a contract may arise either from the absence of a (fundamental) term or from the ambiguity of such a term. A sales contract that does not contain a price term, for example, is not in principle sufficiently certain. Likewise, a contract between a US and an Australian party mentioning a purchase price stated in dollars, without specifying whether the US dollar or the Australian dollar is meant, would also lack certainty. In addition, there may even be cases where the very nature of the contract is uncertain (e.g. it may be unclear whether the contract is a contract for the sale, or rather the lease, of real estate).
It is important to highlight that, in line with a general policy favouring the validity of contracts (Chitty and Beale, 2019: section 2-149 3 ), English courts frequently ‘remedy’ insufficient certainty of contractual terms by implying terms based on custom and trade usage, or reasonableness. For example, it has been held that an undertaking to grant a lease for a shop ‘in prime position’ was not too uncertain because the meaning of this expression could be established on the basis of industry usage (Ashburn Anstalt v. WJ Arnold & Co [1989] Ch. 1, 27). Similarly, a contract for the sale of timber ‘of fair specification’ has been found not to lack certainty due to the fact that this rather vague standard could be clarified based on the principle of reasonableness (WN Hillas & Co Ltd v. Arcos Ltd [1932] UKHL 2).
Mediation clauses are not necessarily too uncertain
In the past, English courts viewed the enforceability of mediation clauses with considerable scepticism. This was in large part due to the fact that such clauses were assimilated to agreements to negotiate, which had been held not to be enforceable. In Courtney & Fairbairn Ltd v. Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297, for example, the English Court of Appeal held that an agreement to negotiate the price for building works was ‘too uncertain to have any binding force’ (Courtney & Fairbairn Ltd v. Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297, 301). Courts (and litigants) apparently accepted that such an analysis also applied to negotiation clauses found in multi-tier dispute resolution provisions.
One of the first decisions indirectly acknowledging the possibility for mediation clauses to be sufficiently certain and thus enforceable is the decision of the House of Lords in Channel Tunnel Group Ltd v. Balfour Beatty Construction Ltd [1993] AC 334. This case involved the well-known channel tunnel contract under which the defendants (a consortium of French and English companies) agreed to build a tunnel under the English Channel and to construct a cooling system for the plaintiffs, who were concessionaires under a concession granted by the English and French governments for the construction and the operation of such a tunnel. The contract contained a dispute resolution clause providing for expert determination, followed by arbitration in specified scenarios, notably in the event that one of the parties failed to agree with the decision of the expert panel.
A dispute arose between the parties regarding the price to be paid for certain works to be performed by the defendants. Rather than requesting an expert determination, the plaintiffs initiated proceedings in the English courts, seeking an injunction restraining the defendants from suspending the relevant work. The defendants applied for a stay of the proceedings on the basis of the arbitration agreement contained in the contract. Objecting to such a stay, the plaintiffs notably challenged the characterisation of the agreement as an arbitration agreement, arguing that it provided for a possibility to appeal from the expert determination, rather than arbitration proceedings.
For reasons which are not directly relevant to the topic discussed in this article, the House of Lords rejected this argument, holding that it was entitled to order a stay of the proceedings under Section 1 of the Arbitration Act 1975. However, the House of Lords also ruled that even if the clause did not constitute an arbitration agreement, it would nevertheless have jurisdiction to order such a stay. The House of Lords observed that it would be legitimate to use the Court's inherent power to stay proceedings to ‘enforce a dispute-resolution agreement which is nearly an immediately effective agreement to arbitrate’. 4 Although it is debatable whether a mediation clause constitutes ‘nearly an immediately effective agreement to arbitrate’, the House of Lords decision nevertheless suggests that dispute resolution clauses providing for mechanisms other than arbitration may be enforced by means of a stay of judicial proceedings.
While the House of Lords’ decision in Channel Tunnel merely suggested the possibility for mediation clauses to be enforceable, the Commercial Court in its decision in Cable & Wireless Plc v. IBM United Kingdom Ltd [2002] CLC 1319 actually enforced the mediation clause contained in the parties’ contract, expressly holding that it met the requirement of certainty. This case involved a multi-tier dispute resolution clause providing for negotiation, mediation, and litigation as three consecutive levels of dispute settlement. When Cable & Wireless brought proceedings in the English courts without having first resorted to mediation, IBM applied for a stay. In its analysis of IBM's application, the court held that the mediation clause contained in the contract could not be regarded as an agreement to negotiate and was not, therefore, necessarily unenforceable for lack of certainty. It then proceeded to analyse the mediation clause in detail and found that the reference to the Centre for Effective Dispute Resolution (CEDR) as the administering institution and the application of the CEDR's procedural rules ensured certainty of the obligations arising under this clause. Specifically, the court highlighted that the CEDR's rules addressed (a) the functions of the mediator, (b) the duties of the participants, (c) confidentiality and, importantly, (d) the circumstances under which mediation can be terminated. 5 It concluded that the mediation clause was sufficiently certain and thus granted the stay requested by IBM. 6
Certainty requirements applied by English courts
Four principal decisions usefully illustrate the current approach adopted by English courts: Neil Holloway, Samantha Holloway v. Chancery Mead Limited [2007] EWHC 2495 (TCC), Sulamerica Cia Nacional de Seguros SA and others v. Enesa Engelharia SA and others [2013] 1 WLR 102, Tang Chung Wah (Aka Alan Tang) and others v. Grant Thornton International Limited and others [2012] EWHC 3198 (Ch) and Ohpen Operations UK Limited v. Invesco Fund Managers Limited [2019] EWHC 2246 (TCC).
Holloway involved a contract for the sale and purchase of property between the claimants (buyers) and the defendant (seller). The contract's dispute resolution clause provided for disputes to be referred to conciliation by the National House Building Council (NHBC) (clause 24(1)), further specifying that a ‘determination by an NHBC investigator shall not prevent a party from subsequently referring the same dispute or part thereof to arbitration’ (clause 24(5)) and that ‘[t]he making of a determination by an NHBC investigator shall be a condition precedent to any right to refer the matter to arbitration’ (clause 24(6)). 7 When the claimants initiated arbitration proceedings without prior resort to conciliation, the defendants, while agreeing to appoint an arbitrator, argued that the requirement of prior conciliation needed to be complied with first. Since the parties failed to reach an agreement on this issue, the claimants ultimately referred the matter to the English High Court, seeking, amongst others, a declaration that they were immediately entitled to refer the dispute to arbitration.
In its ruling, the court first decided that, as a matter of contract interpretation, the relevant provisions of the contract did not give rise to an obligation to refer disputes to conciliation by the NHBC since those provisions were only applicable to disputes between the buyers and the builder, and not to those that arise between the buyers and the seller. Inasmuch as this holding constitutes an interpretative ruling based on the specific facts of the case, it is not directly relevant for present purposes and does not, therefore, require any further analysis.
In a second step, the court examined whether two other provisions contained in the contract referring to the NHBC's dispute resolution scheme (clauses 24(3) and (4)) created an enforceable obligation to resort to conciliation prior to the initiation of arbitral proceedings. It is in the context of this analysis that the court examined and applied the relevant certainty requirements of English law. After reviewing applicable precedents (more specifically, Courtney & Fairburn [1975] 1 WLR 297, Halifax Financial Services Ltd v. Intuitive Systems Ltd [2000] 2 TCLR 35, and Cable & Wireless [2002] CLC 1319), the court held that an alternative dispute resolution (ADR) clause is sufficiently certain and thus enforceable if it meets three requirements: (a) ‘the process must be sufficiently certain in that there should not be the need for an agreement at any stage before matters can proceed’, (b) ‘the administrative processes for selecting a party to resolve the dispute and to pay that person should… be defined’ and (c) ‘the process or at least a model of the process should be set out so that the detail of the process is sufficiently certain’. 8 On the specific facts of the case, the court held that those requirements were met. 9 However, as a result of its earlier conclusion that the parties had not agreed on conciliation being a precondition for the resort to arbitration, it decided that the claimants were entitled to refer the dispute immediately to arbitration.
In Sulamerica, the parties had concluded two insurance policies covering various risks arising in connection with the construction of a hydroelectric power plant in Brazil. Somewhat contradictorily, the policies provided for both litigation in the Brazilian courts and arbitration in London, UK, under the rules of AIDA Reinsurance and Insurance Arbitration Society (ARIAS). They also contained a clause providing for pre-arbitral mediation. When a dispute arose between the parties, the insurers commenced arbitration proceedings in conformity with the arbitration clause. In response, the insured sought and obtained an injunction from a Brazilian court prohibiting the insurers from pursuing arbitration proceedings and the insurers thereafter obtained a similar injunction (i.e. on order prohibiting the pursuit of proceedings in Brazil) from the English High Court. The insured appealed from this ruling, relying on various grounds. One of these grounds consisted of the insured's objection that the insurers were not entitled to initiate arbitral proceedings, without having first attempted to resolve the dispute through mediation.
The mediation clause contained in the insurance policies was comparatively detailed and complex. Significantly, its wording rather unambiguously suggested that pre-arbitral mediation was a mandatory requirement (it provided, in relevant part, that ‘the parties undertake that, prior to a reference to arbitration, they will seek to have the dispute resolved amicably by mediation’). 10 The clause addressed various procedural matters such as confidentiality and the payment of the mediator's fees. Importantly, it also dealt with the parties’ right to terminate the mediation and, more generally, set forth the different scenarios in which the parties were authorised to initiate arbitration proceedings.
In its decision, the Court of Appeal acknowledged that the parties had intended to create a legally binding obligation to refer disputes to mediation prior to resorting to arbitration. However, according to the court, they failed to achieve the intended outcome because the mediation clause did not meet the applicable certainty requirements. The court refrained from providing any explanation of the applicable threshold or relevant criteria, observing that ‘[e]ach case must be decided on its own terms’. 11 The court's application of the certainty requirement nonetheless provides some (very rough) indication as to what the ‘minimum ingredients’ of an enforceable mediation clause are. In fact, when denying the enforceability of the clause contained in the insurance policies, the court emphasised that it did ‘not set out any defined mediation process’ and that it failed to ‘refer to the procedure of a specific mediation [service] provider’. 12
Wah involved a member firm agreement (MFA) setting out the terms of membership in an international group of accountancy firms (the umbrella entity). The MFA contained a dispute resolution clause providing for two levels of conciliation (first, conciliation by the Chief Executive of the umbrella entity and, failing a resolution of the dispute within 1 month from its referral to the Chief Executive, conciliation by a panel consisting of three members of the Board of the umbrella entity), followed by arbitration in London under the rules of the London Court of International Arbitration (LCIA).
When a dispute arose between the parties, the claimants sought conciliation by the Chief Executive, as required under the MFA. However, the Chief Executive declined to serve as conciliator on the grounds of a conflict of interest, recommending that the claimants seek the constitution of a three-member panel by the Chairman of the Board. However, none of the members of the Board expressed their willingness to act as conciliators, again as a result of conflicts of interest. It was apparently due to the impossibility to appoint a conciliation panel that the claimants ultimately brought arbitration proceedings under the arbitration clause contained in the MFA. The respondents objected, arguing that the arbitral tribunal had no jurisdiction to hear the claimants’ claim, given that the requirement of prior conciliation had not been complied with. The arbitral tribunal dismissed the respondents’ objection, ruling that the conciliation processes described in the dispute resolution clause were not ‘sufficiently certain to be legally enforceable’. 13
After the arbitral tribunal rendered its award, the respondents brought an action to have the award set aside for lack of jurisdiction under Section 67 of the English Arbitration Act. Thus, unlike in the two cases discussed above, the issue of the enforceability of the mediation (conciliation) clause arose in the context of an annulment claim directed against an arbitral award, rather than in connection with a jurisdictional objection raised in the original proceedings.
In its analysis, the court distinguished between two obligations created by mediation clauses: the positive obligation ‘to attempt to resolve a dispute or difference amicably’ and the negative obligation ‘preventing a reference or proceedings until a given event [has occurred]’. 14 According to the court, the enforceability of the former requires ‘(a) a sufficiently certain and unequivocal commitment to commence a process (b) from which may be discerned what steps each party is required to take to put the process in place and which is (c) sufficiently clearly defined to enable the Court to determine objectively (i) what under that process is the minimum required of the parties to the dispute in terms of their participation in it and (ii) when or how the process will be exhausted or properly terminable without breach’. 15 As far as negative obligations are concerned, the court held that those are enforceable if the event (which triggers the right to commence proceedings) is ‘sufficiently defined and its happening objectively ascertainable to enable the court to determine whether and when the event has occurred’. 16
Applying these standards, the court focused primarily on whether the positive obligation met the requirement of certainty, ultimately concluding that the relevant provision was ‘too equivocal in terms of the process required and too nebulous in terms of the content of the parties’ respective obligations to be given legal effect as an enforceable condition precedent to arbitration’. 17 It also examined the negative obligation, i.e. the obligation to refrain from commencing arbitration proceedings. However, rather than assessing whether such obligation was sufficiently certain to be enforced, the court ruled that, as a matter of construction, each party was entitled to initiate arbitration proceedings 2 months after the referral of the dispute to the Chief Executive, regardless of whether a conciliation panel had been constituted or not. Thus, the court's conclusion was not that the negative obligation created by the conciliation clause lacked effectiveness (or certainty); it merely held that this obligation had actually been complied with in the case at hand.
In Ohpen, the parties entered into a contract whereby the plaintiff undertook to develop and implement a digital online platform for the defendant. The contract contained a rather complex dispute resolution clause providing, in essence, for three consecutive dispute settlement mechanisms: negotiations to be conducted by designated organs of each party, mediation under the Model Mediation Procedure of the CEDR, and judicial proceedings in the English courts.
When a dispute arose between the parties and the plaintiff commenced proceedings in the English High Court without first referring to the dispute to mediation, the defendant challenged the jurisdiction of the court. Ruling on the defendant's objection, the court first stated what it perceived to be the applicable rules, as established in the relevant case law. The first two rules referred to by the court appear to relate to the mandatory nature of the mediation requirement (i.e. the idea that recourse to mediation is not optional, but compulsory) and the fact that mediation constitutes a condition precedent (i.e. the clause does not allow for court or arbitral proceedings to be initiated pending mediation). The third rule pertains to the requirement of certainty which the court defined as meaning that the dispute resolution process ‘must be sufficiently clear and certain by reference to objective criteria, including machinery to appoint a mediator or determine any other necessary step in the procedure without the requirement for any further agreement by the parties’. 18 The fourth and last rule stated by the court concerns the courts’ discretionary powers in deciding whether to stay proceedings, an issue that will be discussed in more detail below (see the ‘Judicial discretion to stay proceedings’ section).
Applying those principles, the court first held that resort to mediation was indeed mandatory (and not optional) and that it constituted a condition precedent for the referral of the case to the English courts. As to the certainty requirement, the court decided that it was met because the reference in the mediation clause to the CEDR's Model Mediation Procedure meant that no further agreement between the parties was required in order for the mediation to proceed. 19 The court also emphasised the fact that the CEDR Model Mediation Procedure contained rules dealing with the appointment of the mediator and the conduct of the mediation. Making use of its discretionary powers, the court ultimately decided to enforce the mediation clause and to stay the proceedings.
Judicial discretion to stay proceedings
Whether enforcement of a mediation clause by means of a decision staying the proceedings is merely discretionary (rather than automatic) and what considerations courts should take into account in the exercise of such discretion, if any, are issues that do not always arise in litigation regarding the enforcement of such clauses. This is due, first of all, to the fact that in many cases the courts conclude that the mediation clause at issue is not enforceable, either because it does not meet the applicable certainty requirement (e.g. as in Wah and Sulamerica) or because mediation was held not to constitute a condition precedent for the commencement of court or arbitration proceedings (e.g. as in Holloway). It is also due to the fact that in a number of cases the courts ultimately find that the mediation requirement has been complied with (as in Wah with regard to the negative obligation) (see also Emirates Trading Agency LLC v. Prime Mineral Exports Private Ltd [2014] EWHC 2104 (Comm)). In both scenarios, the question of whether the court should exercise its discretion to grant a stay does obviously not arise.
The discretionary nature of decisions to stay proceedings on the basis of a contractual duty to refer disputes to preliminary mediation is uncontroversial. Those decisions that have addressed the issue (such as the decisions in Cable & Wireless and Ohpen) suggest that a stay of proceedings is, by its nature, an equitable remedy and, therefore, discretionary. As the court in Cable & Wireless noted, such discretion is statutorily recognised in rule 26.4 of the Civil Procedure Rules under which courts have the authority to grant a stay of proceedings to allow the parties to settle their dispute, whether through ADR or otherwise. An additional (or alternative) statutory basis is provided by Section 49(3) of the Senior Court Act 1981 under which English courts have a general power to stay judicial proceedings whenever they deem such a stay to be appropriate. 20
The guiding principle informing the exercise of judicial discretion appears to be a strong pro-enforcement bias based on the underlying policy favouring recourse to alternative dispute resolution mechanisms such as mediation. Drawing an analogy between the enforcement of arbitration and mediation clauses, the Cable & Wireless Court observed that, as a general rule, ‘strong cause would have to be shown before a court could be justified in declining to enforce such an agreement [an agreement to mediate]’. 21 Similarly, in Ohpen, the court noted that there was ‘a clear and strong policy in favour of enforcing alternative dispute resolution provisions’ and that, ‘where a contract contain[ed] valid machinery for resolving potential disputes between the parties, it w[ould] usually be necessary for the parties to follow that machinery…’. 22
Both the Cable & Wireless and the Ohpen decisions provide useful insights as to the considerations or factors that might, in individual cases, justify a refusal to enforce an otherwise valid mediation clause. In Cable & Wireless, the court referred to, and examined, two such factors: (a) the very limited likelihood of ‘a productive mediation taking place’, rendering a reference to mediation ‘obviously futile’ and (b) unreasonable delay on the part of the respondent in applying for a stay of the proceedings. 23 In the case before it, the court found none of these factors to be present.
In Ohpen, the court's discussion of what would justify a refusal to grant a stay of legal proceedings was more limited. At the outset, and in line with the general pro-enforcement policy, the court observed – without any further elaboration – that the enforcement of mediation clauses serves the interests of justice. However, the court also added that the overriding objective proclaimed in the Civil Procedure Rules, namely the objective of ‘enabling the court to deal with cases justly and at proportionate cost’, also had to be taken into account. 24 It was apparently the pursuit of this overriding objective that prompted the court to supplement its decision to stay the proceedings with an order requesting the parties to file written submissions (which would allow clarification of the substantive issues prior to the mediation), noting that ‘the prospects of a settlement will be improved if the parties are clear as to the ambit and basis of the claims and defences relied on…’. 25
Critical analysis
Application of the certainty requirement
Failure to distinguish between the negative and positive obligations created by mediation clauses
With the exception of the Wah court, English courts assessing the enforceability of mediation clauses have failed to correctly analyse the legal effects created by such clauses. In particular, they have overlooked the fact that mediation clauses give rise to two obligations (a positive obligation to attempt mediation and a negative obligation not to initiate court or arbitral proceedings pending mediation) and that the only relevant obligation in the context of applications for a stay is the negative one. This section explains the importance of the distinction between the two obligations concerned and highlights the English courts’ failure to draw, or correctly implement, this distinction.
Existence of separate positive and negative obligations: To better grasp the distinction between the positive and the negative obligations generated by mediation clauses, it is helpful to analyse the effect of these clauses by analogy to arbitration agreements. It is a well-established principle of arbitration law that such agreements have both a positive and a negative effect (Born, 2014: 1253). These effects are, first of all, jurisdictional, i.e. an arbitration agreement confers jurisdiction on an arbitral tribunal and, simultaneously, removes the jurisdiction of the court(s) that would otherwise have jurisdiction over the disputes covered by the arbitration agreement (Born, 2014). On the level of the parties, these effects take the form of a positive obligation to refer specified categories of disputes to arbitration and a negative obligation not to submit any such disputes to a domestic court (Born, 2014).
Mediation clauses similarly have a positive and a negative effect. The former consists of the creation of a positive obligation for the parties to attempt to resolve disputes by mediation. The latter, which is specific to clauses under which mediation is a condition precedent, is that courts or arbitral tribunals cannot hear disputes pending the mediation attempt, whether on jurisdictional, admissibility or other grounds. For the parties, this negative effect entails an obligation not to refer disputes to arbitration/litigation pending mediation.
Exclusive relevance, for enforcement purposes, of the negative obligation: It is important to understand that where a party seeks a stay of judicial or arbitral proceedings (or a similar remedy) on the grounds of non-compliance with a preliminary mediation requirement, the obligation that the party concerned seeks to enforce is the negative, not the positive, one. Indeed, the effect of a stay of proceedings (or of similar remedies such as a denial of jurisdiction or a declaration of inadmissibility of the claim) is that the court or tribunal will not (or not yet) hear the case, thus giving effect to the negative obligation not to refer disputes to a court or arbitral tribunal. A stay of proceedings (or similar remedy) does not in any way give effect to the positive obligation to attempt mediation (as would, e.g. an order to mediate or a measure assisting the parties in the conduct of the mediation such as, e.g. the appointment of a mediator).
It follows that, as far as the enforcement question examined in this contribution is concerned, courts should apply the certainty requirement not to the mediation clause as a whole, or to the positive obligation to mediate, but only to the negative obligation not to commence legal or arbitral proceedings. Since, in essence, the negative obligation prevents a party from referring a dispute to a court or arbitral tribunal prior to a preliminary resort to mediation, the central question is when such a preliminary mediation requirement is met and what specific event(s) trigger(s) the parties’ right to bring legal or arbitral proceedings. If this question receives a clear answer in the mediation clause, or if the answer can be found in the applicable mediation rules or law, then it would be appropriate to conclude that the negative obligation is sufficiently certain to be enforceable.
Application of the certainty rule to the negative obligation created by mediation clauses: As has been explained above, clauses that would meet the certainty requirement include all those provisions under which it is clear under what circumstances the parties have the right to initiate court or arbitral proceedings. Where a clause provides that none of the parties may refer a dispute to arbitration prior to the expiry of a particular time limit from the request for mediation, this would be sufficiently certain because it is clear that such right arises upon the expiry of the relevant term. Also, clauses providing for alternative triggering events (e.g. the expiry of a particular time limit or a declaration of one of the parties terminating the mediation) would in principle meet the applicable certainty requirement.
Two types of problems may arise, however. First of all, the mediation clause may not specify the particular event or events triggering the parties’ right to commence court or arbitral proceedings. For example, a clause may merely provide that ‘the parties shall, prior to commencing arbitration under clause X, seek to resolve their dispute through mediation’. Is such a clause sufficiently certain to be enforceable? Since the clause itself fails to specify the triggering event, the answer may be in the negative. However, if the applicable mediation legislation or institutional mediation rules provide an answer to this question (because they clarify how and when mediation terminates), 26 then the clause could be considered as sufficiently certain.
Secondly, a mediation clause may specify a particular triggering event, but the very occurrence of that event may be uncertain, notably because one of the parties may be able to prevent it from taking place. If, for example, a mediation clause provides that the parties may commence court proceedings where any of the parties has notified the mediator of its intent to terminate the mediation, then this triggering event may never occur if there is an obstacle to the selection or appointment of a mediator (e.g. where one party refuses to take part in the selection process or to accept the mediator proposed by the other side). Like in the previous example, the question of the clause's enforceability cannot be answered abstractly; it is necessary to examine the applicable mediation legislation and rules, if any, to determine whether legal mechanisms exist whereby the appointment of a mediator can be secured (e.g. a designation by a court or other authority). 27
Independence of the negative obligation: As has been explained above, this article argues that the exclusive focus of courts deciding jurisdictional (or similar) objections based on pre-litigation/arbitration mediation requirements should be the negative obligation set forth in the mediation clause. Accordingly, any obstacle to the enforcement of its positive obligation (whether on grounds of insufficient certainty or other grounds) should not have any impact on the decision. Hence, even a mediation clause providing no details whatsoever regarding the mediation process (the appointment of the mediator, the initiation of the mediation proceedings, etc.) and not referring to any mediation service provider should be enforced as long as the negative obligation created by it is sufficiently certain (e.g. because it establishes a specific time period during which the parties cannot refer the case to a court or arbitral tribunal).
Although this issue has not (yet) been discussed by scholarly writers, objections could be raised against the notion of the independence of the negative obligation created by mediation clauses. Opponents of this idea may argue that, while the negative obligation may indeed be separate (i.e. distinguishable) from the positive one, the two obligations form part of a single provision that pursues one single objective, namely to encourage the resolution of a possible dispute via mediation, rather than litigation or arbitration. What is more, what sense does it make to enforce an obligation not to initiate court or arbitral proceedings, if the positive obligation to mediate itself cannot be enforced?
While these objections may at first sight appear founded, they are in reality not compelling. First of all, they overlook the fact that the parties’ inability to commence court or arbitral proceedings (e.g. during a specified time period from the commencement of mediation proceedings) will inevitably encourage them to seek to settle their dispute via mediation, regardless of whether the positive duty is sufficiently certain for enforcement purposes. 28 Second, even if the positive obligation to attempt mediation is sufficiently certain to warrant its enforcement, such enforcement encounters other practical obstacles that make it entirely unsuitable for an order of specific performance (Salehijam, 2019: 622–623). In fact, given that mediation constitutes a non-binding process requiring voluntary cooperation between the parties, it is very difficult to actually compel participation in the process, i.e. to enforce the positive obligation to mediate.
Erroneous focus by English courts on the positive obligation: As the above discussion of English case law has shown, English courts hearing procedural objections based on clauses providing for preliminary mediation wrongly focus on the positive, rather than the negative, obligations created by such clauses. This is obviously true for those decisions that do not at all distinguish between these two obligations (such as the decisions in Holloway, Sulamerica and Ohpen). It is also true for the decision of the English High Court in Wah because that court's decision wrongly implies that the enforceability of a mediation clause requires both the positive and the negative obligation generated by such a clause to be sufficiently certain.
In Holloway, as has already been explained, the court examined the enforceability of a clause providing for pre-arbitral mediation. In its analysis of the certainty requirement, the court focused on the ‘process’ of mediation and, more specifically, on (a) the ability of the process to ensure that ‘matters can proceed’ without the need for any additional agreement between the parties and (b) the certainty of the process of selection or appointment of the mediator. 29 While it is not entirely clear what specific ‘matters’ the court had in mind, both factors referred to by the court concern the actual conduct of the mediation, i.e. the positive obligation to attempt mediation.
In Sulamerica, the court's conclusion that the mediation clause was not sufficiently certain to be enforceable was based on two main grounds: first, that the clause did not set out ‘any defined mediation process’ and, second, that it failed to refer to the ‘procedure of a specific mediation provider’. 30 While it is not entirely clear under what circumstances a provision would be considered to lay down a ‘defined mediation process’, and while there appears to be a conceptual overlap between the two grounds relied upon by the court (a mediation clause may be said to provide for a defined mediation process if it refers to the rules of a mediation institution), the crucial point is that both grounds relate to the positive obligation created by the mediation clause (the obligation to mediate the dispute).
If the court had applied the certainty rule to the negative obligation, then it would most probably have reached a different conclusion, i.e. it would have held that the mediation clause was enforceable. In fact, the clause set forth three alternative events which triggered the parties’ right to refer a given dispute to arbitration. Admittedly, these triggering events were not drafted very sensibly because the least demanding such event (failure or refusal of a party to participate in the mediation) deprived the others and, more particularly, the one pertaining to the expiry of a 90-day time limit from the notice of mediation, of their usefulness. Nonetheless, they were defined with clarity in the mediation provision and, on the facts of the case, it was established that none of the three events had occurred.
In Ohpen, the court's reasoning was very similar to the one adopted by the Holloway court. In its decision affirming the enforceability of the mediation clause at issue, the court placed emphasis on the fact that the parties had selected a mediation service provider (the CEDR) whose rules laid down ‘a process that [did] not require any further agreement by the parties to enable a mediation to proceed’ and that both the selection of a mediator and the conduct of the mediation were governed by those rules. 31 Again, the court only looked at the positive obligation created by the mediation clause, although it should have examined the enforceability of the negative obligation not to refer disputes to the courts.
Lastly, even the Wah Court wrongly held that the enforceability of the mediation clause depended on whether the clause's positive obligation was sufficiently certain. As has already been explained, the court very rightly drew a distinction between the positive and the negative obligation generated by mediation agreements. However, rather than applying the certainty rule merely to the latter, it applied this requirement to both obligations, concluding – with regard to the positive obligation to mediate – that it was ‘too equivocal in terms of the process and too nebulous in terms of the content of the parties’ respective obligations to be given legal effect…’. 32 This decision thus wrongly suggests that a stay of proceedings can only be granted where both the positive and the negative obligation set forth in a given mediation agreement meet the requirement of certainty.
Undesirable consequences of the current approach
The approach currently followed by English courts is not only incorrect from a legal point of view (i.e. based on an inaccurate analysis of the effects of mediation clauses and, as a result, on an erroneous application of the certainty rule), it also has two undesirable consequences. First, it stands in contrast to the English policy promoting the use of mediation to settle disputes (for judicial discussion of this policy, see Halsey v. Milton Keynes General NHS Trust [2004] 1 WLR 3002, 3005–3007). This policy, which is based on the various benefits that mediation presents for the parties to a dispute (in particular, cost and time savings), 33 as well as the alleviating effect on the English court system, is notably reflected in legislative rules ensuring the effectiveness of mediation, the right of judges to encourage parties to mediate, 34 and various specific mediation incentives, such as cost sanctions for unreasonable refusals to accept an invitation to mediate. 35
The case law of the English courts is hardly compatible with this pro-mediation policy. In fact, the approach adopted by those courts frequently has the effect of denying the enforceability of mediation agreements that should, following a correct legal analysis, be held to be enforceable. As a result, the existing case law unduly deprives certain categories of mediation clauses of their effectiveness, undermines the attractiveness of such clauses, and creates disincentives for parties to international business contracts to agree multi-tier dispute resolution clauses providing for preliminary mediation.
Second, the current approach leads to an unjustified differentiation between clauses referring to a mediation service provider or institution (clauses providing for institutional mediation) and clauses that do not contain such a reference (clauses providing for ad-hoc mediation). As has been shown, a number of courts (notably the Sulamerica and Ohpen courts) have attached crucial importance to the reference to an institution and the applicability of institutional rules when examining whether the mediation process complies with the applicable certainty standards. As the decision in Ohpen shows, such references are generally considered to render the mediation clauses concerned sufficiently certain for enforcement. On the contrary, as the decision in Sulamerica illustrates, clauses providing for ad-hoc arbitration are very unlikely to satisfy the relevant certainty requirement.
This differentiation is undesirable for two reasons. First of all, there appears to be no valid justification for such a distinction, i.e. it is largely arbitrary. In the field of international arbitration, for instance, no such distinction is drawn and clauses providing for ad-hoc arbitration are, in principle, enforceable in the same manner and to the same extent as clauses providing for institutional arbitration. Second, there may be scenarios where the parties have a valid preference for ad-hoc mediation. This may notably be the case where the parties are particularly concerned with the confidentiality of their dispute (they may not want sensitive information to be disclosed to employees of the mediation institution) or where the parties are unwilling to bear the additional cost of the institutional fee. The case law of the English courts discourages parties from opting for ad-hoc mediation, although such a choice may be based on legitimate reasons.
Judicial discretion
Both the principle of judicial discretion and the specific considerations taken into account by English courts in the exercise of such discretion are objectionable. As regards the former, there appears to be no compelling justification for refusing to give effect to an agreement that is legally valid and enforceable (and that notably meets the applicable certainty requirement), simply because a court may find that certain general considerations of policy or appropriateness militate against its enforcement. In addition, judicial discretion in the granting of stays based on mediation clauses undermines the predictability of judicial rulings, encourages the parties to challenge the validity of mediation clauses and discourages them from concluding multi-tier dispute resolution clauses providing for a preliminary mediation attempt. Moreover, judicial discretion generates discrimination, given that some parties to contracts containing mediation clauses will be ordered to comply with these clauses (i.e. with the negative obligations contained in them), while others will not.
The considerations relied upon by English courts are also unconvincing. In fact, some of these are inherently vague and prone to arbitrary application. The reference to the interests of justice in Ohpen, 36 for instance, may be construed both as supporting the enforcement of mediation clauses (as was suggested by the court) and as justifying a refusal to enforce such clauses (e.g. where the court fears that one party may unduly exploit its stronger bargaining powers in the mediation). Similarly, the cost considerations that are part of the overriding objective of the Civil Procedure Rules may also lead to opposing outcomes: the enforcement of the mediation clause (on the grounds that mediation is less costly than arbitration or litigation) and its non-enforcement (on the grounds that mediation generates additional costs for the parties, despite the inherent uncertainty of the outcome).
The likelihood of ‘a productive mediation taking place’ (Cable & Wireless Plc v. IBM United Kingdom Ltd [2002] CLC 1319, 1328) or, put differently, the likelihood of success of the mediation, is also a problematic criterion. For one, it is highly doubtful that a court (or anyone else, for that matter) will be in a position to make a realistic assessment of the likelihood of the parties agreeing to a mediated settlement. The mere circumstance that the parties have failed to settle their dispute through private negotiations cannot possibly be viewed as suggesting that mediation cannot be successful. Similarly, the fact that one of the parties has initiated court or arbitral proceedings cannot either be regarded as implying that mediation cannot result in a settlement. To hold otherwise would lead to a systematic refusal to enforce mediation clauses because, by definition, the enforceability issue arises where one party brings arbitration or judicial proceedings in violation of a contractual duty to mediate. In addition, the view that the perceived likelihood of a successful mediation should guide courts in deciding whether to enforce a mediation clause overlooks that the enforcement decision itself (i.e. the stay of proceedings) is conducive to a settlement. In fact, where a party is unable to resort to a court or arbitral tribunal during a particular time period, this inability provides an incentive for the party concerned to pursue a settlement through mediation instead.
Lastly, the approach taking account of the timeliness of the respondent's jurisdictional objection is also uncompelling. In fact, the respondent's failure to raise a jurisdictional objection at an early stage of the proceedings should be analysed as raising the question of whether the respondent has waived such a right, including the preliminary question of whether such a right is at all waivable. Where the answer to these two questions is in the affirmative, a respondent should be entirely precluded from raising any jurisdictional objection, i.e. the court should not grant a stay of the proceedings. In such situations, a conferral of discretionary powers upon courts is inappropriate.
Implications for the drafting of mediation clauses
As long as English courts apply the certainty requirement to the positive obligation created by mediation clauses, contract drafters will need to ensure that this obligation is addressed in sufficient detail in order to satisfy the judicial threshold of certainty. Specifically, mediation clauses should, directly or indirectly, deal with the appointment/selection of a mediator (or mediators) and the conduct of the mediation proceedings, thus ensuring that mediation proceedings can be initiated and, at least to some extent, conducted, 37 in spite of a party's reluctance to take part in the process. The simplest way to achieve this objective is to opt for institutional mediation governed by the rules of a specific mediation service provider. Alternatively, detailed provisions addressing the commencement and conduct of the mediation should be included in the contract.
Given that some English courts may apply the certainty requirement not only to the positive, but also to the negative obligation generated by mediation clauses, that obligation should similarly be spelled out with sufficient precision. In other words, the clause should specify what particular event triggers the parties’ right to refer a dispute to litigation or arbitration. This may be the expiry of a specific time period from the commencement of the mediation (an event that should also be defined in the clause) or the termination of the mediation process. Where the latter occurrence is chosen as the triggering event, the clause should specify in what way or ways mediation is or can be terminated.
Conclusion
This article has shown that the English case law on the enforceability of mediation clauses presents a number of flaws. First, and most importantly, English courts generally fail to distinguish between the positive and the negative obligation created by such clauses. As a result, they wrongly apply the certainty requirement to the former, rather than the latter, which leads to frequent refusals to enforce mediation clauses in situations where enforcement should be granted. These decisions discourage parties from agreeing to multi-tier dispute resolution clauses providing for preliminary mediation, thus undermining the general policy favouring the use of ADR mechanisms. Second, judicial discretion in deciding whether to give effect to a valid mediation agreement is unjustified and exercised on the basis of questionable considerations.
Footnotes
Declaration of conflicting interests
The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The author received no financial support for the research, authorship and/or publication of this article.
