Mediation - Enforceability of ADR Clauses

© Daniel Atkinson 2002 13 October 2002

Practice Note

The fundamental principles which support ADR are consensus and confidentiality.  The contractual requirement to adopt ADR will not be successful unless there is consensus.  Such a contractual requirement will not be enforceable unless there is a timescale and structured process.

Fundamental Principles of ADR

There are two fundamental principles which are necessary for ADR to encourage the parties to resolve the dispute themselves:

1. Consensus
2. Confidentiality

ADR to be effective requires the agreement of all parties to the dispute. If ADR arises from the requirements of the contract or is a step mandatory before a coercive process or required by the Court, it will not be effective unless the parties have a will for it to succeed. In this regard the sanction of costs for the behaviour of the parties may be sufficient. Even if the process fails, it often gives the parties an opportunity to reflect on the strengths and weaknesses of their respective case and may offer an improved chance of subsequent settlement. In any event the costs of an unsuccessful attempt at ADR are not necessarily wasted the prior preparation will inevitably be useful in refining the issues.

ADR is often carried out against the background of potential or actual coercive process. If ADR is to succeed some measure of trust needs to be created to allow the parties to present and discuss matters without the possibility that the information so disclosed will be used in the coercive process. Trust is created by either confidentiality agreement or the knowledge that the information is privileged.

It is not essential to successful ADR that there should be a prospect of continuing business relations. Nonetheless ADR does allow further business relations to be considered in any settlement. In many cases the trust developed in the ADR process allows continuity of business relations and settlement to be achieved.

Enforceability of ADR Clauses

It is clear that an agreement to negotiate in good faith for an unspecified period is not enforceable for uncertainty Walford v Miles (1992) 1. All. Er 453. Many standard forms provide for ADR as a condition precedent to a coercive process. Although the jurisdiction of the courts cannot be ousted, it can be validly delayed Scott v Avery (1865) 10 ER 1121. It is for this reason and to avoid the effects of Walford that standard forms specify a period for ADR, after which the coercive process can commence.

In the Australian case of Hooper Bailie Associated Ltd v National Group Pty Ltd (unreported 12 April 1992) the Court distinguished an agreement to conciliate or mediate with an appropriate structure, from an agreement to negotiate. There may therefore be sufficient certainty in the process to allow the agreement to be enforced.

Mediation and Adjudication

An ADR clause written as a condition precedent to statutory adjudication, is not enforceable and will not prevent the right to adjudication at any time - R G Carter Ltd v Edmund Nuttall Ltd (2000) TCC

The two approaches of Mediation and Adjudication cannot be combined in the appointment of one person unless the differences in the two roles are identified and dealt with.  If a person does attempt the dual role, without safeguards then there may be problems in enforcing the subsequent adjudication decision. This happened in Glencot Development and Design Co Limited v Ben Barrett & Son (Contractors) Limited (2001).  

For a solution see the Med-Adjudication Agreement.