The following questions and answers address some of the practical issues that arise in this area.
Will the courts enforce an agreement to refer disputes to a specified ADR procedure?
In principle yes, although the agreement has to be specific. There is a legal principle that an agreement to negotiate is unenforceable but this is based on the uncertainty of such an agreement. Where the parties prescribe a precise means of attempting to reach resolution, such as identifying a particular and well known procedure from an experienced dispute resolution provider, there will be sufficient certainty for a court to determine whether or not it has been followed and it may enforce compliance.
However, this principle should not be taken as absolute. The court is not bound to refer every dispute to ADR in accordance with the parties’ agreement. The court recently exercised its discretion and refused to stay proceedings in favour of the parties’ chosen procedure (expert determination), notwithstanding that there was a dispute within the terms of the ADR clause. On the facts, the court considered the applicant’s claim was ill-founded and a stay would represent a duplication of effort and expense after what amounted to a trial.
Can the courts force the parties to use ADR in the absence of a contractual agreement to do so?
No, but the courts and the court rules encourage parties to agree to ADR. The Civil Procedure Rules have recently been amended to encourage parties more actively to consider ADR before commencing litigation. The court can require evidence of the parties’ conduct which can be taken into account when determining costs. If a party has unreasonably refused to participate in ADR, the court may impose costs sanctions.
Can you be held to an arbitration agreement?
Yes. The Arbitration Act 1996 requires the court to stay legal proceedings where the parties have entered into a valid arbitration agreement which covers the dispute.
Usually, the court has powers to intervene in arbitrations in some limited circumstances. However, the parties may exclude these powers by agreement and provide that the arbitrator’s decision will be final and binding and that there will be no right of appeal. Such an agreement can be incorporated by reference, without the need to spell out the terms of the exclusion in the body of the arbitration clause itself. In practice, however, it is preferable to insert the complete wording (including any exclusion agreement) into the contract to avoid any doubt.
Are arbitration agreements incompatible with the right to a fair trial under Article 6.1 of the European Convention on Human Rights?
Parties (including public authorities) can agree to waive their rights under Article 6.1, provided that such a waiver is voluntary, informed, unequivocal and is not inconsistent with public policy. Subject to these qualifications, neither the letter nor spirit of Article 6.1 prevents a party from voluntarily waiving its right of access to an ordinary court. Consequently, arbitration proceedings agreed by contract or in some other voluntary manner are generally regarded as compatible.
If a party admits liability and the due date of payment but fails to pay, can this constitute a "dispute" for the purposes of an arbitration clause?
Yes, in principle. The scope of the term "dispute" should be considered as a question of construction of the relevant arbitration clause in its context and in light of the facts of each case. In practice, this issue may be avoided by providing that a dispute shall be deemed to have arisen in the event of non-payment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
