It is common for arbitration or jurisdiction clauses in commercial contracts to include a requirement that the parties should first attempt to resolve their dispute amicably, and only seek to arbitrate or litigate should those attempts fail. Some provisions will specify mediation as part of this process; others may be less prescriptive as to the form of alternative dispute resolution ("ADR").
What are the consequences if the parties do not engage in ADR as so required? Would this mean that an arbitral tribunal would not have jurisdiction to hear the dispute, or that court proceedings cannot be commenced? These were the issues which the English High Court addressed in NWA and another v. NVF and others  EWHC 2666 (Comm). This Update summarises the key points of this decision and considers its implications.
In 2007, the parties entered into an agreement relating to certain intellectual property rights. In that agreement, the parties agreed to settle any disputes by mediation in accordance with the London Court of International Arbitration Mediation Procedure or, if the dispute was not settled within 30 days of that mediation, by arbitration under LCIA Rules (the "arbitration agreement").
The terms of the arbitration agreement were as follows:
(a) In the event of a dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity, termination, interpretation or effect, the relevant parties to the dispute shall first seek settlement of that dispute by mediation in accordance with the London Court of International Arbitration ("LCIA") Mediation Procedure, which Procedure is deemed to be incorporated by reference into this clause insofar as they do not conflict with its express provisions. Any mediation shall take place in London.
(b) If the dispute is not settled by mediation within 30 days of the commencement of the mediation or such further period as the relevant parties to the dispute shall agree in writing, the dispute shall be referred to and finally resolved by arbitration under the LCIA Rules from time to time in force ("the Rules"), which Rules are deemed to be incorporated by reference into this Agreement insofar as they do not conflict with its express provisions."
A dispute subsequently arose between the parties, and in August 2019 the Defendants (in this litigation) commenced an LCIA arbitration at the same time as requesting an LCIA mediation, proposing also that should the Claimants wish to mediate the arbitration be stayed in the meantime. The Claimants did not respond positively to this proposal, or subsequent proposals, of mediation. The arbitral tribunal was then constituted, and was required to rule on its own jurisdiction following a challenge raised by the Claimants on the basis that the mediation procedure had not been followed, and that the tribunal did not have jurisdiction unless and until the mediation procedure set out in the arbitration agreement had been completed. In a ruling in September 2020, the tribunal found that:
- the dispute resolution clause was not sufficiently clear and certain to be enforceable as a condition precedent to the arbitration agreement;
- the Defendants had in fact, since commencing the arbitration, made several attempts to mediate and were therefore arguably not in breach of the arbitration agreement anyway. The Claimants, by contrast, had refused to engage in any mediation; and
- to give "business efficacy" to the arbitration agreement, it should be interpreted such that it did not have the effect of preventing commencement of an arbitration until 30 days following commencement of the mediation. Even if it did purport to have such effect, it would have been unenforceable.
The Claimants challenged the tribunal's ruling as to its own substantive jurisdiction by commencing court proceedings in England (being the seat of the arbitration), pursuant to section 67 of the Arbitration Act 1996.
Jurisdiction and admissibility
Mr Justice Calver, giving the Court's judgment, distinguished the "admissibility" of a claim from the issue of whether or not an arbitral tribunal has "jurisdiction" to hear it. Whereas jurisdiction relates to whether a tribunal has the power to hear a dispute, admissibility relates to whether or not a dispute over which a tribunal had jurisdiction should be stayed on account of some procedural defect. In other words, should the dispute be "admitted" to arbitration yet? Questions of admissibility are procedural issues for the tribunal; questions of substantive jurisdiction may be determined by the tribunal itself, and/or the supervising courts of the seat of arbitration, depending on the circumstances.
The Court undertook an analysis of the competing arguments as to the precise meaning and effect of the arbitration agreement, by reference to the common intention of the parties. As a matter of interpretation of the arbitration agreement, the Court held that the parties had in essence agreed that any dispute arising out of or in connection with their agreement should be referred to arbitration, and resolved swiftly.
On this basis, and following a distillation of relevant case law and international arbitration commentary, the Court concluded that the alleged failure to mediate was a question of admissibility rather than jurisdiction. Mediation was not a condition precedent to commencement of arbitration. In particular:
- the Court rejected the Claimants' arguments, observing that their logical conclusion would be that where, as here, a party simply refused to mediate, the tribunal would never have jurisdiction over the dispute, notwithstanding the parties' clear agreement to arbitrate their disputes;
- the Court did not consider that there was any obligation imposed upon the Defendants pointlessly to continue to seek mediation of a dispute in circumstances where the other parties were refusing to mediate: "That would be absurd and would not give the clause business common sense; nor would it give it a construction that rational businessmen would have intended";
- the Court cited with approval passages from authorities and
commentary which (amongst other things) stated that, in general:
- "negotiation and mediation provisions should generally be regarded as unenforceable (like agreements to agree), imposing only limited, non-mandatory obligations";
- "in interpreting the parties' arbitration agreement, the better approach is to presume, absent contrary evidence, that pre-arbitration procedural requirements are not 'jurisdictional'";
- "the interpretation and application of pre-arbitration procedural requirements should be matters for arbitral tribunals, not national courts".
Although interpretation of this particular arbitration agreement was a key feature of this decision, as its wording appears to be based on the LCIA's own recommended pre-arbitration mediation clause, the decision may be of broader application. The Court's judgment upholds the arbitration agreement and reaffirms the position in relation to the presumed status of pre-arbitration procedural requirements: these concern admissibility, not jurisdiction, and are matters for the tribunal.
Further, although this decision concerns a pre-arbitration mediation provision, there is no reason to suppose that the same or similar principles would not also apply to a pre-litigation mediation provision. It would be surprising if, as a matter of jurisdiction, a Court would be precluded altogether from determining a dispute merely because an ADR provision had not been strictly followed; and even more so where the reason for this is one party's refusal to engage with the other. The fact that the Court might in appropriate circumstances order a stay of the proceedings until the ADR provision had been complied with does not affect the position as a matter of jurisdiction.
The outcome in this case may be unsurprising, given the "absurd" implications otherwise – that a party would be able to prevent another from commencing any arbitration simply by refusing to mediate. That was the Claimants' position here, which the Court described as "a highly unattractive stance to adopt". In this respect, the decision perhaps also reflects general judicial policy that parties should engage in ADR.
Although ADR provisions may be well-intentioned at the outset of an agreement, it may be worth cautioning against making those obligations too onerous, so that they do not introduce uncertainty around the dispute resolution clause, and do not unduly prevent or delay expeditious resolution of a dispute in the agreed forum.
Other Author Alanood Sinjab, Trainee Solicitor
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