| Date | 24 May 2000 |
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| Judgment | Halifax Financial Services Limited -v- Intuitive Systems Limited QBD 21 December 1998 |
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| The Issue | Whether agreements to negotiate or mediate are enforceable. |
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| Implication |
Contractual dispute resolution procedures, which require no more than good faith negotiations or non-binding mediation, may be unenforceable. |
printPrior to the advent of adjudication, Alternative Dispute Resolution (ADR) processes had become widespread in their use in the UK construction industry. Dissatisfaction with the cost and delay involved in litigation and arbitration had led to a growing use of structured negotiation procedures, expert determination, conciliation and mediation as the means of choice for the resolution of construction disputes. Over the past two years adjudication has of course attracted more attention, but ADR provisions remain popular. If applied correctly they can bring considerable benefits. In some of the standard forms ADR provisions are retained to sit alongside adjudication. There is some doubt about the extent to which these mechanisms may be used as a pre-condition to statutory adjudication. The Institution of Civil Engineer's "matter of dissatisfaction" approach, for example, has yet to be examined by the courts. It is possible however, that such provisions will be deemed unenforceable on the basis that adjudication "at any time" should mean just that. Difficulties over the relationship between the court's jurisdiction to resolve disputes and agreements between the parties to attempt other means of resolution are not new. In 1856 the House of Lords decided in the case of Scott -v- Avery that an arbitration agreement which attempted to oust the court's jurisdiction would be contrary to public policy and therefore void. However, a provision making the arbitrator's award a condition precedent to the right to bring an action in the court was held to be enforceable. With such a clause the jurisdiction of the court is not ousted but deferred. Along the same lines in 1922 the Court of Appeal held in the case of Atlantic Shipping and Trading Company -v- Lewis Dreyfus and Co that a clause providing that arbitration must be commenced within a limited time, failing which the claim would be barred, was also enforceable. These matters were examined in a recent case involving Halifax Financial Services -v Intuitive Systems. Intuitive contracted to provide Halifax with software design services for a system called a "Point of Advice Service". Disputes arose and the parties ended up in court. Clause 33 of the contract between Halifax and Intuitive provided: "33.1 In the event of any dispute arising between the Parties in connection with this Agreement, senior representatives of the parties will, within 10 business days of a written notice from either Party to the other, meet in good faith and attempt to resolve the dispute without recourse to legal proceedings. 33.2 If the dispute is not resolved as a result of such meeting, either Party may, at such meeting (or within 10 business days of its conclusion) propose to the other in writing that structured negotiations be entered into with the assistance of a neutral adviser or mediator ('Neutral Adviser'). 33.6 If the Parties accept the Neutral Adviser's recommendations or otherwise reach agreement on the resolution of the dispute, such agreement will be recorded in writing and, once it is signed by their duly authorised representatives, will be binding on the Parties. 33.8 If the Parties fail to reach agreement in the structured negotiations within 45 business days of the Neutral Adviser being appointed then any dispute between them may be referred to the Court unless within a further period of 25 business days the parties agree to arbitration in accordance with the procedure set out below." This clause 33 is not a one-off clause, but a clause approved by the Centre for Dispute Resolution, and widely used in computer and construction contracts. It was Intuitive's case that the clause 33 procedures were a complete contractual code for the resolution of disputes between the parties. They argued that this code should be enforced by the court. They sought a declaration from the court that since the clause 33 procedures had not been followed, the claim should be dismissed or the action stayed (placed on hold) until the contract processes had run their course. The court held that, looked at as a whole, the contractual procedures in clause 33 were not mandatory and did not have to be complied with before proceedings were issued. Moreover, doubt was expressed whether clause 33 was enforceable. The court contrasted 'determinative' and 'non-determinative' procedures. Determinative procedures are those that result in a binding decision, and include arbitration clauses, binding expert valuations and third party certifications. These are of a fundamentally different nature to clauses such as clause 33 which merely require negotiation in good faith. The court would generally enforce determinative provisions, such as occurred in the case of Channel Tunnel Group -v- Balfour Beatty Construction. In that case the parties had agreed to submit the dispute to a panel of experts, whose unanimous decision would be binding on the parties unless referred to formal arbitration. This was held to be "nearly an immediately effective agreement to arbitrate" which the court upheld. Non-determinative procedures include negotiation, conciliation, expert appraisal and a non-binding rulings from a mediator. These are quite a different matter. Whilst certain steps in such non-determinative procedures might be enforceable (such as requirements to appoint a mediator, or to postpone proceedings for a given period while mediation is attempted), ultimately agreements to agree or to negotiate are in themselves unenforceable.
CJ-0020
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