The decision serves as a useful reminder for parties to consider at the commencement of a contract how best to structure an agreement to reduce the prospects of having to resort to the costly and time-consuming process of litigation.
The dispute between the parties arose in respect of a framework agreement agreed in July 2016 under which Ohpen had agreed to design and implement a new online platform for Invesco through which Invesco’s retail customers could buy and sell investments. The initial term of the agreement was eight years.
The initial date for launch of the platform was 1 March 2017, subject to any agreed extensions, after which Ohpen would be responsible for maintenance and ongoing development of the platform.
Invesco sought to terminate the agreement in October 2018, which was met with a counter-notice from Ohpen alleging that Invesco’s attempt to terminate the contract wrongly constituted a repudiatory breach and that breach was accepted as grounds for termination. It was therefore common ground that the agreement had come to an end by at least mid-November 2018.
After the exchange of notices of termination, the parties attended a without prejudice meeting in July 2019 but no settlement was reached.
Ohpen commenced proceedings in April 2019 and Invesco applied to court shortly thereafter to restrain the Court from continuing with the case until the parties had followed the agreed dispute resolution mechanism in the contract.
The relevant clause was a complex multi-phase and multi-tiered dispute resolution mechanism that was intended to avoid the parties turning to litigation before all ADR opportunities were pursued.
The intention was that the following steps must be taken by the parties in relation to any dispute.
Firstly, the parties were required to use reasonable efforts to resolve any dispute amicably between themselves within a reasonable time, or otherwise with the assistance of the Contract Managers.
Secondly, if the dispute had not been resolved, the dispute was to be escalated through the parties’ executive committee structures.
Thirdly, if still outstanding, the dispute was to be referred to CEDR mediation.
Finally, if no settlement was reached in the mediation, either party was then entitled to commence court proceedings.
Principles and findings
Having referred to previous authorities, Mrs Justice O’Farrell identified the following principles where a party seeks to enforce an ADR provision by seeking a stay of litigation:
“i) The agreement must create an enforceable obligation requiring the parties to engage in alternative dispute resolution.
ii) The obligation must be expressed clearly as a condition precedent to court proceedings or arbitration.
iii) The dispute resolution process to be followed does not have to be formal but must be sufficiently clear and certain by reference to objective criteria, including machinery to appoint a mediator or determine any other necessary step in the procedure without the requirement for any further agreement by the parties.
iv) The court has a discretion to stay proceedings commenced in breach of an enforceable dispute resolution agreement. In exercising its discretion, the court will have regard to the public policy interest in upholding the parties’ commercial agreement and furthering the overriding objective in assisting the parties to resolve their disputes.”
Ohpen resisted the attempt to obtain a stay on the basis that Clause 11 was not operative in circumstances where the agreement had been terminated. Ohpen relied upon the wording in clause 11 which referred to disputes arising “during” the contract. It further relied upon underlying purpose of the ADR clause which was to assist in the ongoing smooth operation of the framework agreement, which was frustrated by the termination of the agreement.
The Court rejected these arguments, finding that on a proper construction of the agreement all that was required was that the dispute had arisen during the course of the agreement for the relevant dispute to be captured by the ADR clause.
In a clear statement about the need to enforce parties’ commercial bargains, Mrs Justice O’Farrell stated as follows:
“There is a clear and strong policy in favour of enforcing alternative dispute resolution provisions and in encouraging parties to attempt to resolve disputes prior to litigation. Where a contract contains valid machinery for resolving potential disputes between the parties, it will usually be necessary for the parties to follow that machinery, and the court will not permit an action to be brought in breach of such agreement.”
Accordingly, the Court granted an order that the proceedings be stayed to allow for a mediation to take place. The Court did however note that the parties’ prospects of settlement would be aided by the exchange of pleadings, so the two-month stay would only commence after this had been undertaken.
It is encouraging to see that the Courts have reiterated that parties are free to agree upon enforceable obligations to pursue ADR before having recourse to litigation.
Those involved in drafting ADR clauses will need to ensure that they take account of the principles set out by O’Farrell J to ensure that the clause is enforceable against an unwilling counter-party, most importantly making sure that the clause is set out in clear and mandatory terms.
One can readily see the reasons for having staged dispute avoidance mechanisms during the currency of a project, but they become less relevant after termination in circumstances where the parties do not have mutual and ongoing responsibilities.
It could be argued that this staged approach may only constitute a time-wasting exercise by one party in an attempt to make it more trouble than it is worth to pursue claims if having to go through a lengthy and complex procedure before being able to enforce accrued rights and claims.
Parties should also therefore consider whether these multi-tiered approaches to dispute resolution will be appropriate upon termination of the agreement and carve out different procedures to enable a “clean break” if more desirable.