English Commercial Court enforces obligation to resolve disputes by friendly discussion prior to arbitration

By Chris Kidd

Multi-tiered dispute resolution clauses whereby parties are required to mediate prior to arbitration or litigation have been common currency for some time and the English courts have previously grappled with the extent to which such clauses are little more than unenforceable agreements to negotiate as a result of the decision in Walford v Miles (which held that an agreement by the owner of a business to terminate negotiations to sell the business to a third party in exchange for the claimant’s promise to continue negotiations to buy the business lacked the necessary certainty and was unenforceable), and mediation is a supervised negotiation. How would the court police such an agreement?

That line of thinking underpinned a number of cases. In Cable & Wireless v IBM, Colman J commented that an obligation to attempt in good faith to settle a dispute would have been unenforceable because of an obvious lack of certainty, but the contractual obligation to attempt in good faith to settle a dispute through alternative dispute resolution (ADR) was sufficiently certain to be enforced because the procedure to be followed was that recommended by CEDR.

In similar vein in Holloway v Chancery Mead Ltd, Ramsey J reviewed authorities concerning the enforceability of ADR agreements and agreements to agree concluding that to be enforceable they had to be sufficiently certain, administrative procedures for selecting a party to resolve the dispute should be defined and a process to be followed should be defined or sufficiently certain…

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