It’s good to talk!

As we all know, from time to time, contracts between parties do not always run smoothly with some often irretrievably breaking down without a compromise being found. When this happens, at this stage parties may agree to mutually part company or they may still try to work together to complete the contract. However, with mediation becoming more frequent, an increase of an Alternative Dispute Resolution (ADR) clause is now being seen more and more in an effort to resolve the differences before litigation is commenced.

 

Background:

In this instance, the matter of Ohpen Operations UK Ltd v Invesco Fund Managers Ltd. [2019] EWHC 2246 (TCC) the ADR Clause within the contract was profound.

The initial dispute between parties arose from when the Claimant agreed to develop and implement an online digital platform for the Defendant so that the Defendants retail customers could buy and sell investment in funds offered. The initial term of the agreement was for a period of eight years.

Subject to any agreed extensions, the initial date for launch of the platform was to be 1 March 2017, following which the Defendant would be responsible for ongoing maintenance and development of the platform.

However, on 11th October 2018 and due to delays, which prevented the launch date, the Defendant issued a notice of termination on the grounds of material breach and/or repudiatory breach. This was met with a counter-notice from the Claimant alleging that the Defendants attempt to terminate the contract wrongly constituted a repudiatory breach. Both parties had common ground to end that agreement which then came to an end by November 2018.

Once an exchange of notices of termination took place, in July 2019, the parties attended a without prejudice meeting but failed to reach a mutual settlement.

Earlier in April 2019, the Claimant commenced proceedings claiming damages of just short of £5m with the Defendant intimating a counterclaim in the sum of near £6m. The Defendant also applied to the Court shortly thereafter to restrain the Court from continuing with the case until the parties had followed the agreed dispute resolution which was in the contract.

Outcome:

Having considered the authorities available to her, Mrs Justice O’Farrell identified the following principles and summarised as follows:

(1)        the agreement must create an enforceable obligation requiring the parties to engage in Alternative Dispute Resolution;

(2)        the obligation must be expressed clearly as a condition precedent to court proceedings or arbitration;

(3)        the ADR process to be followed does not have to be formal but must be sufficiently clear and certain by reference to objective criteria (including the appointment procedure without the requirement for any further agreement by the parties);

(4)        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.

Mrs Justice O’Farrell had noted that both parties had consciously decided to put in place a dispute resolution procedure that would apply at the difference stages of the project, and as such further noted a requirement to engage in the dispute resolution before court proceedings were issued.

The Claimant had resisted the Defendants attempt to stay proceedings on the basis that Clause 11 was not applicable with the agreement being terminated and in doing so, relied on the clause which referred to disputes arising ‘during’ the contract. They further argued the purpose of ADR was to assist in the ongoing operation of the contract which was only then complicated by the termination of the agreement.

Mrs Justice O’Farrell rejected these arguments, finding that on construction of the agreement, all that was required was that the dispute had arisen during the course of the agreement for the relevant dispute to be captured by the ADR clause. Mrs Justice O’Farrell also stated “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.”

Accordingly, the Court granted an order that the proceedings be stayed but as potential settlement would be aided by exchange of proceedings, then a so a two-month stay would only commence after this had taken place.

Conclusion:

With more and more parties choosing mediation, the benefits of applying ADR clauses clearly have benefit. Although it is not clear at this time whether those clauses provide any enforceability within the contract, those dealing with ADR clauses will now need to consider those principles as set out by Mrs Justice O’Farrell and making sure that the clause is set out in clear and mandatory terms.

ADR could easily be dismissed by one party as a nonsense or a waste of time, however with this recent judgement, perhaps those parties will now consider the valuable opportunity ADR can offer and should not be in any way underestimated… by any party.

Contact PIC today by clicking here if you have any queries resulting from this article or if you would like to arrange a training session at your firm.

Jason Green – Costs Consultant – Partners in Costs

21.11.2019

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