This is a significant case in a line of recent authorities which considered the question of what effect should the courts give to agreements between parties to refer disputes to ADR.

In short, C&W applied for summary judgment against IBM on the construction of a clause in an IT outsourcing contract. IBM cross-applied for an order that the claimant be stayed on the basis that disputes were to be referred to ADR.

In this case, the relevant clause was contained in a Global Framework Agreement between the parties. This provided that the parties were to attempt in good faith to resolve any dispute arising out of the agreement through negotiations with senior executives with authority to settle. If those negotiations failed then the parties were to attempt in good faith to resolve the dispute through ADR as recommended to the parties by the centre for dispute resolution ("CEDR"). The dispute resolution clause further went on to provide that the fact that an ADR procedure was being followed would not prevent any party from issuing proceedings.

C&W argued that this clause was unenforceable for lack of certainty because it constituted merely an agreement to negotiate which is unenforceable in English law. Furthermore, they argued that an ability to bring proceedings where an ADR process is being followed was inconsistent with a mandatory obligation to submit to an ADR procedure.

It was considered that an approach to ADR clauses could be analogous to that regarding the enforcement of an arbitration agreement as it would provide a means of enforcement of contractual obligations. It was clear to the court that the dispute raised between the parties was within the scope of this particular ADR clause.

Having analysed the clause, the court held that it was clearly the intention of the parties that litigation should be used as a last resort. In answer to C&W’s point relating to the ability to issue proceedings notwithstanding an ADR procedure being followed, the court held that this was aimed at preserving a party’s right of action by way of injunctive or interim relief in urgent cases that could not await the outcome of the negotiation. The mere issue of proceedings was not held to be inconsistent with the simultaneous conduct of ADR or with the mutual intention of the parties to have the dispute finally decided by the courts if ADR were to be unsuccessful.

To counter C&W’s argument in relation to the clause merely comprising an agreement to negotiate, the court held that this clause was not uncertain because it referred to the participation of the parties in a specific procedure to be recommended by CEDR. It was further held that in any event, to not enforce this would fly in the face of public policy and the overriding objective of the Civil Procedure Rules. It was argued that in a sense, such an ADR clause was a free-standing agreement and ancillary to the main contract in a similar way as with an arbitration agreement.

This case serves to reinforce the increasing weight that the courts are giving to the ADR process. As illustrated by the case of Dunnett v Railtrack (2002 CILL 1892) the sanctions can be quite severe. In this case, Dunnett’s claim against Railtrack failed at first instance and the court encouraged the parties to participate in mediation rather than go through an appeal process. Railtrack ignored this and went to appeal. The Court of Appeal criticised Railtrack for failing to follow the suggestion of the judge at first instance advocating mediation. As a result, the Court of Appeal refused to award Railtrack its costs even though Railtrack was actually successful in its appeal.

These recent cases should prompt the parties to give serious consideration at the outset to the drafting of their dispute resolution clauses rather than merely inserting them as boilerplate clauses. Certainly, if parties wish to use ADR, consideration should be given as to whether this should be made optional or mandatory bearing in mind the increasing weight the courts are giving to the ADR procedure contemplated by the parties in their contractual agreements.

© Herbert Smith 2003

The information contained in this article is of a general nature. and should not be relied on in that way. Specific advice should be sought about your specific circumstances.