It was always thought that a clause in a contract that says parties will mediate before they litigate wasn't that enforceable. After the following case, we know different
Recently I wrote about the changing judicial environment in relation to alternative dispute resolution, especially mediation (8 November, page 58). Further evidence of that change came to light in the case of Cable & Wireless plc vs IBM United Kingdom Ltd (October 2002). His Honour Judge Colman held that before coming to the court to seek an award Cable & Wireless was obliged to follow the ADR procedure set out in the contract.

Judge Colman said: "For the courts now to decline to enforce contractual references to ADR on the grounds of intrinsic uncertainty would be to fly in the face of public policy as expressed in the Civil Procedure Rules and as reflected in the judgment of the Court of Appeal in Dunnett vs Railtrack."

This is an important development for everyone who has signed a construction contract that contain an ADR provisions.

In Cable & Wireless, the proceedings arose in connection with an agreement by which IBM would supply C&W with IT services throughout the world. A dispute arose as to how a benchmarking procedure should be used to determine the price of those services. C&W then went to court to ask for a declaration as to how the procedure should operate. IBM successfully applied for a stay of those proceedings while the dispute was referred to ADR, as provided for in the contract.

The agreement provided that the parties should attempt to resolve any dispute or claim through negotiations between senior executives with authority to settle the dispute. If that failed, the parties would "attempt in good faith to resolve the dispute or claim through an ADR procedure as recommended to the parties by the Centre for Dispute Resolution. However, an ADR procedure which is being followed shall not prevent any party … from issuing proceedings".

C&W did not want a stay. It wanted to be able to go straight to court and obtain a judgment that would force IBM to pay without delay. It put forward three arguments as to why it should not be forced to go through a mediation process before it got its money.

First, it argued that the clause referring disputes to mediation before they went to litigation was unenforceable because it amounted to no more than an agreement to agree.

I suspect that a claimant’s only chance of avoiding ADR would be to show that the delay would cause it real harm

Judge Colman did not agree. He drew a distinction between agreements to agree, and agreements to follow a specific procedure for the resolution of disputes. Even though a party could withdraw from the mediation after a mediator had been appointed and position statements exchanged, Judge Colman held that the agreement to mediate was valid to that extent.

Second, C&W turned on the wording of the mediation clause. This expressly contemplated the issue of proceedings even though an ADR procedure was being followed. Therefore C&W contended that a stay of court proceedings was not appropriate. Judge Colman disagreed and held that the clause indicated that litigation was a last resort to be used only if mediation failed.

C&W's last argument was that IBM had not behaved very well and did not deserve to be granted an equitable remedy. Judge Colman rejected this argument and, importantly, he relied on the court's power to stay proceedings to allow for ADR.

If a contract says that in the event of a dispute a particular ADR procedure is to be followed, a claimant must follow that procedure. A simple reference to mediation without a prescribed set of rules may not be sufficient to bind the parties. However, do not assume that the absence of prescribed rules will make the provision unenforceable. The C&W mediation clause expressly required the parties to attempt to resolve disputes "in good faith". This would, at least, suggest a genuine attempt to agree a set of rules and a mediator.

I suspect that a claimant's only chance of avoiding ADR would be if it could show that the resulting delay would cause it real harm. The courts do not generally regard a mere delay in being paid as amounting to real harm.