Enforcing ADR Agreements

Sun, 03 Feb 2013

By Kevin Barrett
The high cost of traditional dispute resolution is widely regarded as prohibitive. One consequence is the modern tendency to engage in alternative dispute resolution procedures either on an ad hoc basis or as a result of pre-agreed contractual terms. 
 
The use of pre-agreed ADR procedures begs the question: how, if at all, is an agreed ADR procedure to be enforced? 
 
The powers of the court - in particular by way of case management, declaratory relief and costs - provide the answer.
 
A. Case management
 
The court has jurisdiction under CPR Part 1.1 to encourage the use of ADR where appropriate and to facilitate the use of such procedures. The court also has wide powers of case management under CPR Part 3 including a power to stay the whole or part of any proceedings either generally or until a specified date or event. 
 
These wide powers of case management were commented upon by Colman J. in Cable and Wireless Plc v IBM [2002] 2 All ER (Comm) 1041 where one of the parties applied for a stay of proceedings brought in contravention of an agreed ADR procedure. The procedure in question stipulated that any dispute should be resolved through negotiation but, if unsuccessful, an attempt in good faith should be made to resolve the dispute through ADR by adopting a procedure as recommended by the Centre for Dispute Resolution (CEDR). Negotiations failed to resolve the dispute so C&W commenced proceedings instead of referring it to CEDR. IBM then applied for a stay of the proceedings so that the dispute could be referred to CEDR in accordance with the agreed procedure.
 
Colman J. concluded that the obligation to engage in ADR was sufficiently certain to be enforceable. Further, he considered that the court should not, as a matter of policy, accentuate uncertainty and therefore enforceability in the field of dispute resolution references. Finally, he concluded that the court had a discretion to stay, adjourn or adopt some other case management remedy and should exercise its power based on equitable principles. Applying this approach, Colman J. found that there were strong case management considerations for an adjournment to allow the reference to ADR to proceed. 
 
Despite the conclusion that the court should not as a matter of policy accentuate uncertainty and enforceability there have nevertheless been instances since where the courts have concluded that the ADR process was insufficiently certain to be enforceable. In Sulamerica Cia Nacional De Seguros SA v. Enesa Engenharia SA [2013] 1 WLR 102 the Court of Appeal upheld a refusal to stay by Cook J. which distinguished Cable and Wireless in relation to a mediation agreement which did not contain a clearly defined mediation process nor refer to the procedures of a specific mediation provider. 
 
Subsequently, in Tang Chung Wah v. Grant Thornton [2012] EWHC 3198 (Ch) Hildyard J. followed the Sulamerica decision and concluded that the court should only seek to enforce compliance with an ADR procedure where the relevant provision, without the need for further agreement, provided: (a) a sufficiently certain and unequivocal commitment to commence a process; (b) a means of discerning the steps each party was required to take to start the process; (c) sufficient clarity and definition to enable the court to make an objective determination of the minimum participatory requirements for each party; and (d) an indication of how the process would be exhausted or properly terminable without breach.
 
It does not inevitably follow from a finding that a valid and enforceable ADR procedure exists that the court will grant relief. In this respect in Nepean Highway v Leigh Mardon [2009] VSC 226, the Victorian Supreme Court adopted a nuanced approach when it upheld a stay of proceedings commenced in the absence of prior compliance with an agreed ADR procedure. In this case the court concluded that only strong countervailing circumstances would justify ignoring the agreed ADR procedure. Futility and unwillingness are unlikely to fall into this category. In this respect, in Downer EDI Mining Pty Ltd v. Wambo Coal Pty Ltd [2012] QSC 290, the Queensland Supreme Court upheld the stay in an action which had been commenced in contravention of an ADR procedure and, in so doing, rejected arguments that the procedure was futile. Further, in Shirayama v Danovo Ltd [2004] BLR 207 (Ch) the court found that the power under CPR Part 1.1 may be exercised even though one of the parties may be unwilling to embark on an ADR process.
 
B. Declaratory relief
 
It may be open to the court to declare steps taken in contravention of an ADR procedure to be invalid but that depends on the proper construction of the ADR procedure, as demonstrated by Ericsson AB v EADS Defence and Security Systems Ltd [2010] BLR 131 (TCC). In this case the ADR provision of a contract allowed for the parties to mediate or adjudicate if a dispute arose. When a qualifying dispute arose, one of the parties gave notice to mediate in accordance with the ADR procedure but then subsequently gave notice to adjudicate in relation to the same dispute before the mediation had commenced. The other party then applied to the court for a declaration that the adjudication was invalid as the first party had elected to mediate the dispute. Akenhead J. refused to grant the proposed declaration because the ADR provision did not require an election to use one or the other of the prescribed ADR procedures but instead left it open to the parties to choose either, or to use both, as they wished.
 
C. Costs
 
There is a clear line of authorities confirming that the court has power to make adverse costs orders in the event of a failure to mediate or negotiate. The leading authority is Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002 which confirms that an unreasonable failure to mediate may result in adverse costs consequences. The Halsey case was concerned with a refusal to engage in an ad hoc arrangement after proceedings had commenced rather than non-compliance with a pre-agreed ADR procedure. The Court of Appeal approved the imposition of adverse costs consequences due to the unreasonable failure to mediate. Analogously, a refusal to undertake a pre-agreed ADR procedure smacks even more of unreasonableness. Given that in Brookfield v Mott MacDonald [2010] EWHC 659 (TCC) the court indicated that the willingness to participate in ADR would be an important element in deliberations on costs it seems safe to posit that the court is likely to regard a failure to engage in a contractually pre-agreed procedure to be a factor to take into account when dealing with costs. 
 
The possible adverse costs consequences of a failure to comply with a pre-agreed ADR procedure are starkly illustrated by the decision of Ramsay J. in Charles Church Developments Ltd v. Stent Foundations Ltd [2007] EWHC 855 (TCC) which concerned a failure to follow the TCC pre-action protocol. The action was stayed for mediation at an advanced stage. Ramsey J. was then asked to consider the costs consequences of the failure to follow the protocol. Ramsay J. concluded that (1) there was no excuse for non-compliance with the protocol and that there were reasonable prospects that the dispute would have been settled during the protocol process had it been undertaken; and (2) the defendant ought not to be put in the disadvantageous position of mediating against the backdrop of the much higher costs incurred as a result of the legal proceedings in circumstances where the protocol meeting would likely have served the same function as the proposed mediation and might well have resulted in settlement of the dispute at a time when a much lower level of costs would have been incurred. As a result of these conclusions Ramsay J. ordered that the claimant should in any event bear 50% of the costs incurred by each party up to the date of the stay on the basis that this proportion represented the costs that would likely have been avoided if the case had settled during the protocol process. 
 
In principle there is nothing to preclude the court adopting a similar approach to that adopted in the Charles Church decision if it is asked to deal with the costs consequences of a failure to comply with a pre-agreed ADR procedure rather than the protocol. 
 
Conclusion
 
The courts have eagerly embraced ADR and have sought to facilitate its use both under the rules of court and its protocols. The subsequent case law indicates a practical, but pragmatic, willingness to support the rules and agreements to engage in ADR. The potential for the court impose adverse costs consequences of the kind indicated in the Charles Church decision is likely to operate as a powerful incentive to engage in any ADR procedure as may have been agreed to in advance.
 
The result, as can be seen, is that in future only the incautious will disregard an ADR agreement and proceed straight to the courts or to arbitration. The authorities indicate that they will do so at their peril.
 

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