| Date | 26 March 2003 |
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| Judgment | Cable and Wireless Plc-v- IBM United Kingdom Ltd, QBD 11 October 2002 |
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| The Issue | The certainty of contract clauses providing for mediation. |
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| Implication |
Whilst a simple undertaking to negotiate a contract or to strive to settle a dispute amicably will not generally be enforceable, the courts will enforce an agreement to apply a recognised procedure for ADR. |
printThe recent case of Cable and Wireless -v- IBM United Kingdom gives an opportunity to examine the court's attitude towards alternative dispute resolution (ADR) clauses. IBM had entered into a 'Global Framework Agreement' with Cable for the provision of information technology services. An important feature of the agreement was a series of provisions designed to maximise and monitor the quality and price competitiveness of the services provided by IBM. The parties agreed to a method of comparing the quality of the service being provided by IBM, and the charges made for them, with the services and charges then being provided and raised by others in the market. This was known as the 'benchmarking' process and it was to be conducted by a qualified independent third party selected from an agreed list of suitable benchmarkers. The benchmarker was to gather data from the information technology industry and was to prepare a representative statistical sampling of a sufficient number of receivers of comparable services. If the benchmark results demonstrated that the parties' objectives were not being achieved, then IBM was obliged to develop a 'benchmark plan' acceptable to Cable to address any deviations. The agreement provided that if IBM failed to develop a benchmark plan, or if the benchmark plan failed to meet its criteria for success, Cable would be entitled to terminate the agreement or to require IBM to continue to deliver the services and compensate Cable for the actual loss which it suffered. In February 2002 a report was produced by the appointed benchmarker which in substance indicated that the IBM charges were above those of the comparators. IBM challenged the validity of this report and asserted that it was so fundamentally flawed that it did not amount to 'benchmark results' as defined by the agreement. They declined to produce a benchmark plan until that dispute had been determined. Cable however claimed compensation in the range of £45 million and commenced proceedings against IBM. It is at this point that the ADR provisions of the agreement came into play. Clause 41 of the agreement provided; 1) The parties shall attempt in good faith to resolve any dispute or claim arising out of or relating to this agreement . . . through negotiations between the respective senior executives of the parties who have authority to settle. 2) If the matter is not resolved through negotiations the parties shall attempt in good faith to resolve the dispute or claim through an alternative dispute resolution (ADR) procedure as recommended to the parties by the Centre for Dispute Resolution (CEDR). IBM applied to the court for a stay of the proceedings pending the dispute being referred to ADR in accordance with the agreement. IBM argued that the approach of the court should be similar to its approach to enforcement of an arbitration agreement. Cable, on the other hand, argued that clause 41 was effectively unenforceable because it lacked certainty. The clause imposed no more than agreement to negotiate, which was not enforceable under English law. Mr Justice Colman observed that the parties had not simply agreed to attempt in good faith to negotiate a settlement. In this case they had gone further than that by identifying a particular procedure, namely an ADR procedure as recommended to the parties by CEDR. Justice Colman further noted that CEDR had published recently its Model Mediation Procedure which identified the functions of a mediator, the duties of the participants, and the entitlement of each party to send in confidence to the mediator documents or information. Importantly, the model procedure further provided for the withdrawal of a party from the mediation only after the mediator had been appointed and mediation commenced. The judge considered that this envisaged a certain minimum participation in the procedure. Justice Colman acknowledged that there would be an obvious lack of certainty in a mere undertaking to negotiate a contract or settlement agreement just as there would be in an agreement to strive to settle a dispute amicably. However, the clause in the agreement between the parties went on to prescribe the means by which such attempt should be made. A resort to CEDR, and participation in its recommended procedure, were in his judgment engagements of sufficient certainty for a court readily to ascertain whether they had been complied with. Thus if one party simply failed to co-operate in the appointment of a mediator in accordance with the model procedure, or to send documents to such a mediator, or to attend upon the mediator when he had called for meeting, there would clearly be an ascertainable breach of the agreement. Whilst this might be regarded as a somewhat slender basis for distinguishing this type of reference from a promise to negotiate, it was nevertheless entirely in tune with the requirements of the Civil Procedure Rules that the court should encourage the parties to use ADR procedures when appropriate. For the courts now to decline to enforce contractual references to ADR on the grounds of intrinsic uncertainty would be to fly in face of public policy. Justice Colman concluded that there was a sufficiently defined mutual obligation upon the parties to go through the process of initiating a mediation, selecting a mediator, presenting that mediator with its case and attending any meeting called by the mediator. Since Cable had declined to participate in any such process it was in breach of the agreement and IBM was entitled to an order for the proceedings to be adjourned until the parties had referred all their outstanding disputes to ADR.
CJ-0311
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