An Uneven Playing Field: Mediation Clauses and Arbitration Agreements

An Uneven Playing Field: Mediation Clauses and Arbitration Agreements

In a commercial context, a major source of mediations and arbitrations is contractual agreement. That is to say, the parties to a contract have agreed that any future dispute relating to the contract will be resolved outside court.

However, this is much more normal in arbitration than mediation. More often than not, there is no mention of mediation in the contract. Instead, the parties may later agree between themselves to mediate as part of settlement negotiations.

The problem with this of course is that parties are much less likely to agree to mediation once the dispute has arisen compared with when the contract is signed (back when everyone is best friends!). 

So why is this the case and is this how things should be? 

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The Enforceability of Arbitration Agreements 

First a word on the enforceability of arbitration agreements.

At first sight, it might seem strange that businesses are able to sign a contract excluding the jurisdiction of the court over their dispute. Yet this is exactly what an agreement to arbitrate does. 

Under Article II of the New York Convention, every contracting state must recognise and enforce an agreement in writing to arbitrate. With 157 contracting states at the time of writing, this means that an arbitration agreement will be upheld by courts virtually anywhere in the world. 

There are some protections in place. For example, under the New York Convention the agreement must be in writing (although some states have gone further so as to uphold oral agreements as well). 

Another reservation is that, according to the Convention, the agreement must not be 'null and void, inoperative or incapable of being performed.' This provides courts with some discretion to reserve jurisdiction where the arbitration is being used for some illegal purpose or where the agreement is otherwise against public policy.

Nevertheless, the law shows a remarkable willingness for courts to give up their jurisdiction to private, largely unregulated tribunals.

 

Why Do They Do This?

The reasons for this are manifold. First, provided there is no public interest at stake, the general principle in a commercial context is to give effect to what the parties have agreed. If they choose to give up the protections of the court procedure, then why not allow it? They know what they're getting into. 

Second, this system is very practical in an international context as it reduces the scope for conflicting court decisions and battles over jurisdiction. Indeed, the international enforceability of arbitral awards is one of the key advantages of arbitration for commercial parties.

The final point relates to purpose of the ADR movement in general, ie to relieve the growing burden of litigation on the court system. Many countries around the world have increasingly suffered from expensive public aid bills and congested court systems resulting from increasing amounts of litigation.

Supporting and encouraging arbitration helps to relieve these pressures. 

The position is quite different in the context of mediation. 

 

An Agreement to Agree? 

In the world of mediation, there is no equivalent to the New York Convention and so the position can vary significantly between countries.

In English law, and indeed in other common law countries, the orthodox position is that a mediation clause is unenforceable because it is considered to be 'an agreement to agree'. Such an agreement has long been held unenforceable by the courts (see e.g. Walford v Miles [1992]).  

This relates to the fact that English law does not support the concept of 'good faith' in negotations in the same way as its civil law friends. It is thought that this concept is too nebulous and uncertain to be legally enforceable. 

Is this fair? Why are agreements to arbitrate upheld while mediation clauses are often not? The reasons for supporting arbitration agreements apply equally to mediation.

Commercial parties know what a mediation agreement means. Furthermore, mediation brings many of the same benefits to parties and the courts as arbitration.  

 

The Turning Tide

It seems, however that the tide may be turning after a spate of court decisions suggesting greater willingness to enforce agreements to mediate. 

For example, in Cable & Wireless plc v IBM UK [2002], the Court held that an agreement to enter a mediation process was enforceable. The judge found it persuasive that the parties had referred specifically to the detailed mediation procedure provided for by the Centre for Dispute Resolution.

In 2012, in the well known (at least for arbitration lawyers) Sulamerica case, the Court did not uphold an agreement to mediate contained in an insurance policy. However, he did add some words of encouragement, stating that in principle, "where there is an unqualified reference to ADR, a sufficiently certain and definable minimum duty of participation should not be hard to find".

It seems then that the orthodoxy is changing, and mediation clauses today are likely to be enforceable provided they are drafted carefully.

 

Conclusion

Although times are changing, mediation clauses still don't occupy the status of arbitration clauses in law. 

Furthermore, in practice they are much less frequently used. This may be partly due to their weaker legal status, but is more likely due to wider perceptions of mediation.

Do you think mediation clauses should have the same status as agreements to arbitrate - supported anywhere in the world? Should commercial lawyers advise clients to include mediation clauses as standard practice? Share your thoughts in the comments below. 

If you'd like to learn more about mediation and arbitration agreements, try the Mediator Academy course on Multi-Tiered Dispute Resolution with Professor Nadja Alexander. Click the green button below to see more. 

  Learn all about Multi-Tiered Dispute Resolution

Topics: Arbitration

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