This is a question which our Dispute Resolution team are frequently asked by commercial clients. They say:
“It may seem a little odd but sometimes a party to a dispute is too keen to issue legal proceedings. Further, that they ignore the terms of the contract which require the parties to follow a dispute resolution mechanism before going to Court. As a result, we are frequently asked by clients whether it is possible to put the proceedings on hold pending an attempt to resolve the dispute”.
It is now commonplace for commercial contracts to set out an alternative dispute resolution process but what are the considerations for businesses? In this article we set out 5 principles.
Principle 1 – the Court wants to find the dispute resolution process binding if it can
Wherever possible, the court will seek to ensure that an alternative dispute resolution clause is upheld and that an application to pause proceedings brought in breach of such a provision is granted. This is because the courts recognise the desirability of holding commercial parties to the terms of the deals they have struck and to the public interest in keeping disputes out of the court to relieve pressure on resources. However, there are certain criteria that need to be met in order for an alternative dispute resolution provision to be enforced.
Principle 2 – the Court will put a stop to legal proceedings issued too soon
The circumstances in which alternative dispute resolution clauses will generally be upheld were neatly stated in the case of Ohpen Operations UK Ltd v Invesco Fund Managers Ltd, which concerned a dispute about the validity of a termination notice served by Invesco to end a contract under which Ohpen had been commissioned to design, implement, maintain and develop a new online investment trading platform.
Under the terms of the contract, it had been agreed that before taking a dispute to court the parties were obliged to try to resolve matters between themselves first and to then refer the matter to mediation facilitated by the Centre for Effective Dispute Resolution.
In breach of the agreement, Ohpen attended one face-to-face meeting with Invesco and then moved straight to the instigation of court proceedings when this failed to yield a settlement.
Ruling that Ohpen should have followed the tiered dispute resolution process that had been agreed, the court confirmed that contractual provisions designed to keep disputes away from the court will usually be upheld and a pause in proceedings ordered, where:
Principle 3 – the dispute process to be followed must not be too ambiguous
For an alternative dispute resolution clause to be enforceable, it needs to oblige the parties to follow a process which is sufficiently clear that a court can determine, with relative ease, whether or not the process has been complied with.
Thus, a clause which requires the parties to submit their dispute to mediation adopting a named set of rules before court proceedings can be issued is likely to be upheld given the ease with which the court would be able to ascertain whether this obligation has been met.
This contrasts with a clause requiring the parties to use their best endeavours to resolve a dispute through good faith negotiations, which would almost certainly be unenforceable given the obvious difficulty the court would encounter in determining whether negotiations between the parties had been approached in such a way as to meet this obligation.
Principle 4 – take action quickly if the other party is ignoring the obligation to talk
Having obtained legal advice that the terms of the clause are sufficiently clear and mandatory it is important to bring the obligation to talk to the notice of your opponent first.
If they still ignore you and issue legal proceedings, you need to make an immediate application to have the proceedings paused (or ‘stayed’ to use the correct terminology) while the steps detailed in the clause are followed.
Where your application is successful (or the terms of your contract so provide), a request that your opponent cover your legal costs can also be made.
If you do not take these urgent steps and instead continue to defend the litigation, there is a very real risk that the Court will say the opportunity for discussions prior to proceedings have passed.
Principle 5 – a settlement may still be possible even if the dispute is not resolved in the early stages
If utilisation of the alternative dispute resolution process you have agreed to follow fails to result in a settlement, then it will be open to you or your opponent to apply to the court to have the stay lifted and for the proceedings to then continue and to be ultimately decided by a judge.
However, it is not an all or nothing opportunity. Legal proceedings usually take a number of months if not in excess of a year to be resolved. It is usual for the parties to re-evaluate their cases as the matter progresses. Consequently, offers can be made later and indeed settlement meetings or mediations can also be scheduled later in the process.
Published on 30 September 2021
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.