For many years there have been clauses in contracts that have obliged parties to enter into mediation or other forms of alternative dispute resolution when a dispute arises. However, such clauses have been seen as representing agreements to agree, and therefore unenforceable. So, whether or not the "agreement" was followed in practice depended very much on the nature of the dispute that arose and the relationship of the parties to the contract. More often than not, such clauses were ignored without fear of penalty.
Such an agreement was considered in the recent case of Cable & Wireless vs IBM United Kingdom. The court found that the dispute resolution clause, which obliged the parties to resolve disputes by ADR as recommended by the Centre for Dispute Resolution, was enforceable. The judge stayed proceedings issued by Cable & Wireless on the grounds that there was a difference between an agreement to negotiate (which would be unenforceable as the result would be too uncertain) and an agreement to follow a particular course of action – that is, ADR, which was enforceable.
The courts' determination to encourage parties to consider ADR has already been evident from the widely reported decision in Dunnett vs Railtrack (2002). In that case Railtrack failed to recover its costs as it had refused to contemplate ADR.
These two decisions have had a major impact on the way parties conduct litigation. Offers to mediate disputes should now be considered carefully since a party that rejects such an offer may well be penalised, even if it wins the case. Further, if the obligation to mediate is written into the contract (usually as a step that must be taken before proceedings are issued), it is wise to take that step, otherwise the other side may force you to do so, if only to stall or delay the litigation process.
Meanwhile the relentless crusade of the courts to promote ADR continues unabated. Even statements made about ADR outside of any contractual setting may now be used against you – as demonstrated by the case of Royal Bank of Canada vs Secretary of State for Defence. Here the defence secretary won the case, but, having refused an offer from the other side to mediate, did not recover its legal costs. The court's attention was drawn to a government pledge, made in a press release in March 2001, that "where the other side agrees, the government is now formally pledged to resolve legal disputes by ADR". The judge penalised the government for preaching one thing, but practising another.
The relentless crusade of the courts to promote ADR continues unabated. Even statements made about ADR outside of any contractual setting may now be used against you
This is a rather remarkable judgment. It was not a construction case but it has serious implications on the construction industry, since so many contracts are placed by government agencies. Those contractors working for the government should take note of the promise. Next time a dispute arises with the government or any of its agencies, remember that they are all committed to ADR by virtue of the pledge.
So there we have it. If mediation is written into the contract, then it is probably enforceable and therefore parties should mediate.
If it is not written into the contract, parties should still mediate because otherwise they might be penalised in costs.
Further, if you are in dispute with the government or its agencies, then they are bound to mediate anyway by virtue of the pledge, whatever the contract may say.
A failure to mediate will undoubtedly be construed more harshly against government agencies in future as such a failure would run contrary to their stated intent.
Nick Henchie is a partner in the construction and engineering group at Mayer, Brown, Rowe & Maw, firstname.lastname@example.org.