Monday, September 2, 2019

Ohpen Operations UK Ltd v Invesco Fund Managers Ltd

[2019] EWHC 2246 (TCC) 

Mrs Justice O’Farrell had to consider here whether the claim had been issued in breach of a contractually agreed tiered dispute resolution procedure and, if so, whether the proceedings should be stayed, pending referral of the dispute to mediation. The dispute related to a framework agreement for the development and implementation of a digital online platform. Clause 11 provided for the following:

  • Internal Escalation: where the parties agreed to use reasonable efforts to resolve any dispute amicably through ordinary negotiations and then by reference to Contract Managers.
  • Escalation to the respective executive committees.
  • CEDR mediation.
  • If the mediation was unsuccessful, then either party may commence court proceedings. 

The Judge referred to a number of cases which recognised that a contractual agreement to refer a dispute to ADR could be enforceable by a stay of proceedings, including Holloway v Chancery Mead (see Dispatch Issue 90) where Mr Justice Ramsey said:

“the ADR clause must meet at least the following three requirements: First, that the process must be sufficiently certain in that there should not be the need for an agreement at any stage before matters can proceed. Secondly, the administrative processes for selecting a party to resolve the dispute and to pay that person should also be defined. Thirdly, the process or at least a model of the process should be set out so that the detail of the process is sufficiently certain.” 

Mrs Justice O’Farrell set out the following principles for where a party seeks to enforce an ADR provision: 

“i) The agreement must create an enforceable obligation requiring the parties to engage in alternative dispute resolution.

ii) The obligation must be expressed clearly as a condition precedent to court proceedings or arbitration.

iii) The dispute resolution process to be followed does not have to be formal but 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. 

iv) The court has a discretion to stay proceedings commenced in breach of an enforceable dispute resolution agreement. In exercising its discretion, the court will have regard to the public policy interest in upholding the parties’ commercial agreement and furthering the overriding objective in assisting the parties to resolve their disputes.” 

The Judge noted that here, clause 11 set out different procedures for the resolution of disputes during different phases of the agreement. The parties consciously decided to put in place separate and distinct dispute resolution procedures that would apply at different stages of the project. And the Judge found that the agreement contained a dispute resolution provision that was applicable to the dispute between the parties and created an enforceable obligation requiring the parties to engage in mediation. There was a mandatory requirement to operate the dispute resolution procedure in clause 11 before the parties became entitled to institute proceedings. Although the term “condition precedent” was not used, the words used were clear that the right to begin proceedings was subject to the failure of the dispute resolution procedure, including the mediation process. 

The parties had referred the dispute to their executives and held a “without prejudice” meeting. The dispute remained unresolved. The next step was for the parties to use the CEDR Model Mediation Procedure. This was a sufficiently clear and certain mechanism to be enforceable. Mediating under the CEDR model procedure produced a process that does not require any further agreement by the parties to enable a mediation to proceed. For example, the rules for selection of the mediator and conduct of the mediation were set out in the CEDR rules. Finally, the Judge noted that there was a:

“‘clear and strong policy’ in favour of enforcing alternative dispute resolution provisions and in encouraging parties to attempt to resolve disputes prior to litigation. Where a contract contains valid machinery for resolving potential disputes between the parties, it will usually be necessary for the parties to follow that machinery, and the court will not permit an action to be brought in breach of such agreement.”

Accordingly, it was appropriate for the court to stay the proceedings to enable a mediation to take place. However, the Judge noted that the prospects of a settlement would be improved if the parties’ positions were made clear and she ordered that pleadings be served so that the substantive issues may be clarified before the mediation took place. 

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