Commercial Court Enforces ADR Clause

A recent Commercial Court decision has enforced a clause requiring the parties to refer their disputes to ADR (Alternative Dispute Resolution). This decision of Colman J in Cable & Wireless Plc v IBM United Kingdom Ltd [2002] EWHC 2059 (Comm Ct) has confirmed the trend towards mediation as "a firmly established, significant and growing facet of English procedure".

Background

Cable & Wireless and IBM entered into a Global Framework Agreement in December 2000 for the supply of information technology throughout the world.

A dispute arose under the Agreement as a result of which proceedings were issued. An application was then made to stay these proceedings pending the dispute being referred to ADR on the basis of an ADR clause in the Agreement.

ADR clause

The relevant clause provided as follows:

"The Parties shall attempt in good faith to resolve any dispute or claim arising out of or relating to this Agreement or any Local Services Agreement promptly through negotiationsÖ

If the matter is not resolved through negotiation, 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. However, an ADR procedure which is being followed shall not prevent any Party or Local Party from issuing proceedings".

Issues

The application for a stay raised the important issue of the effect, if any, which the courts should give to agreements to refer disputes to ADR.

It was submitted by IBM that the dispute was within the scope of the ADR clause and therefore the court should stay the proceedings so that the ADR procedure could take its course. However, Cable & Wireless submitted that the clause was unenforceable because it lacked certainty and imposed no more than an agreement to negotiate which is not enforceable in English law (see also Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyd's Rep127 and Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297).

Decision

Colman J held that the ADR clause contained an enforceable obligation to participate in ADR procedures recommended by the Centre for Dispute Resolution (CEDR). He found that it was the mutual intention of the parties when negotiating the agreement that litigation was to be resorted to as a last resort in the event that negotiations or, failing that, ADR were unproductive.

He also held that the clause was more than an...