PUBLICATIONS
Alternative Dispute Resolution clauses are clauses that provide for the referral of a dispute arising under the contract to an alternative dispute resolution process. These clauses exist to help the parties resolve their differences quickly and with a greater chance of success, thereby reducing costs. Where the contracts contain valid mechanisms to resolve disputes, the Court will not allow an action to be brought in the event of a breach of such a clause.
1. ALTERNATIVE DISPUTE RESOLUTION CLAUSES
Alternative Dispute Resolution clauses are clauses that provide for the referral of a dispute arising under the contract to an alternative dispute resolution process. Such procedure may be negotiation and/or mediation and/or arbitration. The purpose of such clauses – and clauses that incorporate more than one way to resolve the dispute (i.e. escalation clauses) – is to help the parties resolve the dispute faster, with a greater chance of success and also to reduce the costs for the parties.
2. GENERAL RULE OF APPLICATION
In the case Emirates Trading Agency LLC v Prime Mineral Exports Pte Ltd. [2014] EWHC 2104 (Comm) there was an escalation clause whereby the parties, in case of a dispute, had to negotiate amicably and in good faith within four weeks to resolve their dispute and only then they could refer the matter to arbitration. The first party said that the clause was breached and therefore the matter could not be referred to arbitration. The second party said that the term relating to the negotiations, was void and therefore the matter could be referred to arbitration. Alternatively, the second party said that the clause was not breached. The court addressed the issue of whether the clause was void. Although there is a decision of the House of Lords in Walford v Miles (1992) 2 AC 128 that a clause which provides for an amicable dispute resolution is an agreement to negotiate and thereby void, it was held by the Court that such a clause was enforceable. That was the case because there was a time period of 4 weeks. Justice Teare J, stated the following:
“Enforcement of such an agreement when found as part of a dispute resolution clause is in the public interest, first, because commercial men expect the court to enforce obligations which they have freely undertaken and, second, because the object of the agreement is to avoid what might otherwise be an expensive and time-consuming arbitration.”
It is therefore the rule that such clauses are usually enforced. In the case Ohpen Operations UK Limited v. Invesco Fund Managers Limited [2019] EWHC 2246 (TCC) stated that:
“There is 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.”
3. STAY OF PROCEEDINGS BROUGHT IN VIOLATION OF AN ALTERNATIVE DISPUTE RESOLUTION CLAUSE
As with arbitration clauses, alternative dispute resolution clauses must be adhered to. In the case of Port Jacks Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty [1981] 1 WLR 138 (PC) Lord Wilberforce stated that such clauses (as in the case of arbitration clauses) survive a repudiatory breach of contract.
Therefore, where there is a breach of such clauses (e.g. through the initiation of proceedings n the Court), the innocent party, may request from the court a stay of the proceedings. In relation to arbitration, the possibility of stay stems from article 8 of Arbitration Law (Cap. 8) and article 8 of the Law on International Commercial Arbitration (Law 101/1987). With reference to other Alternative Dispute Resolution Clauses (e.g. mediation) this possibility of stay stems from the principles of equity. In the case of Cable & Wireless Plc v IBM United Kingdom Ltd [2002] EWHC 2059 (Comm) the following was stated by Colman J:
“[32] …In principle … where there is an unqualified reference to ADR, a sufficiently certain and definable minimum duty of participation should not be hard to find…
[34] The reference to ADR is analogous to an agreement to arbitrate. As such, it represents a free-standing agreement ancillary to the main contract and capable of being enforced by a stay of the proceedings or by injunction absent any pending proceedings. The jurisdiction to stay, although introduced by statute in the field of arbitration agreement, is in origin an equitable remedy.«
