Contracts to mediate have been held to be valid where they describe clearly the steps which the parties are required to take or they incorporate a structure for a mediation.
A clause which required the parties to attempt in good faith to resolve a dispute or claim through ADR procedure recommended by a mediation centre was regarded as enforceable.
A clause was held uncertain where it simply stated that a dispute shall be submitted to a 'Third Party Mediation procedure'.
A mediation clauses has also been held uncertain where it does not state the person who is to nominate an expert failing the agreement of the disputing parties or where it does not provide who is to bear the costs of a mediator.
5.1 Extract of issue resolution clause from AMPLA Joint Venture Agreement
16 Issue Resolution
16.1 Limitation on proceedings
The parties agree that it is a condition precedent to the commencement of any litigation proceedings by a party in respect of a dispute under, or in relation to, this agreement (Issue ) that the party has complied fully with the agreed process of resolving an Issue (Issue Resolution Process) under this clause (regardless of the level or levels on which the Issue has previously been considered) except where the Issue is the non-payment of monies due or:
- if the party seeks urgent interlocutory, injective or declaratory relief ; or
- if the other party has failed to observe the requirements of this clause and the party seeks to enforce compliance with the Issue Resolution Process,
in respect of the Issue.
16.2 Issue Resolution Process
The Issue Resolution Process for this agreement is set out in Schedule 5.
Issue Resolution Process [Example only]
1.1 Issue Resolution Process
- Where an Issue arises between the parties, a party may give
notice to the other parties initiating an Issue Resolution Process
in respect of the Issue (Issue Notice) which Issue
- state that the notice is given under this subclause;
- describe the nature of the issue; and
- nominate a representative of the party who is authorised to negotiate and settle the Issue on the party's behalf.
- (Representative of other parties) Each other party must within 7 days after receipt of an Issue Notice nominate in writing to the other parties a representative authorised to negotiate and settle the Issue on its behalf.
- (Negotiation by Representatives) The parties' representatives must negotiate in good faith with a view to resolving the Issue within 21 days after the receipt of the Issue Notice, (or such longer period as those representatives agree), failing which the Issue must be immediately referred to the Chief Executive Officers of the parties.
- (Chief Executive Officers) The Chief Executive Officers must negotiate in good faith with a view to resolving the Issue within 14 days of the Issue being referred to them (or such longer period as the Chief Executive Officers agree) failing which, the Issue may be immediately referred by a party by notice to mediation or Expert determination under this agreement.
Mediation of an Issue must:
- be conducted in the Nominated State by the person or body agreed to by the parties or, failing agreement within 35 days after receipt of the Issue Notice, as nominated by the President for the time being of the Law Society of the Nominated State on request by either party;
- be conducted in accordance with such rules as may be agreed to by the parties or, failing agreement within 35 days after receipt of the Issue Notice, in accordance with the rules nominated by the person or body agreed or nominated to conduct the mediation;
- be at the cost and expense of the parties equally (expect that each party must pay its own advisers, consultants and legal fees and expenses) unless the parties otherwise agree;
- if not earlier resolved, be continued for a period expiring on the date being 14 days after the nomination of the mediator (or such other period as the parties may agree) after which either party may at any time after that date seek Expert determination in accordance with this agreement or commence litigation proceedings in respect of the Issue.
1.3 Issue Resolution Process not to interrupt Joint Venture Activities
The parties must ensure that neither the commencement nor conduct of any Issue Resolution Process, including mediation, or Expert determination, causes any interruption to Joint Venture Activities or to the performance by the parties of their respective obligations under this agreement, nor will It affect any of the Activities or a party under this agreement is materially affected by the submission of the matter in dispute of arbitration, litigation or by the result of the litigation or arbitration.
1.4 Clause does not apply to matters where consent required
If this agreement refers to the parties reaching agreement on a matter or the consent of any party being given then, except where this agreement requires that consent or agreement is not to be unreasonably withheld, the Issue Resolution Process cannot be used to resolve a dispute between the parties in relation to the reaching of that agreement or the giving of that consent.
Many commercial contracts provide that disputes between the contracting parties shall be resolved outside the courts, or at least that the parties shall attempt to resolve their disputes outside the courts before they litigate with each other.
An arbitration clause often sets out the manner of appointment of the arbitrator and of proceedings. Often the clause provides that if arbitration is not acceded to, any claims will be treated as waived and absolutely barred.
The ability of a court to enforce compliance with the arbitration process depends on whether the clause providing for arbitration is sufficiently certain, whether the dispute is within the scope of the arbitration clause, and the circumstances in which a court will exercise discretion to enforce compliance with a prescribed arbitration process.
An arbitration clause which purports to finally and exclusively prescribe the method in which disputes may be resolved will be void for attempting to oust the jurisdiction of the courts altogether. A clause which provided that a dispute cannot be litigated, but must only be submitted to arbitration, was held to be unenforceable.
Careful attention must also be paid to drafting arbitration clauses where third parties are involved or ancillary agreements would unintentionally escape the arbitration process agreed in the principal contract. Failure to provide for related project documents to be brought within the same dispute resolution process could result in a forum fragmentation.
6.1 Short form arbitration clause
In the event of a dispute arising out of, relating to or in connection with this agreement or its validity, the dispute must be determined by arbitration in accordance with the Commercial Arbitration Act 1985 (WA).
- Appointment of arbitrator The parties agree to appoint an arbitrator from XXXX. If the parties do not agree on the arbitrator to be appointed, either party may request the President of XXXX to appoint an arbitrator. XXXX: refer to appropriate appointing body.
- Legal Representation
Each party may be represented by a legal practitioner [or any other representative]
- Negotiation If a dispute between the parties arises out of, relates to or is in connection with any aspect of this agreement, or the validity of this agreement, the parties undertake with each other to use all reasonable endeavours, in good faith, to settle the dispute by negotiation.
- Dispute Notice and Representatives
For the purpose of facilitating the process of negotiation referred to in clause XX:
- the party claiming that the dispute has arisen is to give
notice to that effect to the other party which:
- briefly identifies the subject matter of the dispute; and
- designates a representative for the negotiation who will have authority to settle the dispute on behalf of that party; and
- the other party is then to promptly designate by notice to the party giving the Dispute Notice, its representative for the negotiation who will have authority to settle the dispute on behalf of the other party.
- the party claiming that the dispute has arisen is to give notice to that effect to the other party which:
- Procedure All evidence and submissions to the arbitrator are to be in writing unless the arbitrator otherwise directs or the parties otherwise agree.
- Arbitrator's authority
The arbitrator is to have authority to give a party any relief which could be ordered by a court having the appropriate jurisdiction.
- Related Disputes
The arbitrator may, in the arbitrator's discretion, determine any dispute raised by either party in the course of the arbitration additional to that or those referred to in the Dispute Notice, subject to:
- the additional dispute being capable of being referred to arbitration in terms of this clause; and
- any conditions as to costs or otherwise which the arbitrator may propose.
- Privacy The Arbitration proceedings are to be conducted in private, and information disclosed by any party in the course of the proceedings is to be kept confidential by the parties and their advisers, except as otherwise agreed by the parties or directed by a court.
- Obligations continue Pending and during the arbitration, the parties are to continue to perform their obligations under this agreement.
- If an international element, add the following words: "The International Arbitration Act 1974 and the Uncitral Model Law set out in schedule 2 of that Act do not apply to this agreement."
- Insert a relevant industry organisation or a general nominating body such as the Institute of Arbitrators & Mediators, Australia, the Law Society of WA, The Institute of Chartered Accountants or possibly the International Chamber of Commerce in an international situation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.