Can I halt court proceedings against my business, if no attempt is made to resolve matters outside court first?
Where a dispute arises in business, it is always preferable if it can be resolved without the need to go to court. That is why an increasing number of commercial contracts include as a clause within them an alternative dispute resolution process that must be followed before court proceedings can be instigated. The parties in signing the contract are expected to comply with this term of the contract before instigating proceedings.
What happens however when an alternative dispute resolution clause is ignored and your business is sued without the agreed process having been used? Is there anything you can do to force compliance or to bring a halt to the proceedings which have been issued?
The answer depends on what the contract says and whether the alternative dispute resolution process that has been prescribed is clear enough to be followed.
Starting point
Wherever possible, the court will seek to ensure that an alternative dispute resolution clause is upheld and that an application to pause proceedings brought in breach of such a provision is granted. This is because the courts recognise the desirability of holding commercial parties to the terms of the contracts they have entered into and it is also in the public interest to keep expensive and protracted disputes out of the court arena, thus relieving pressure on limited resources. However, there are certain criteria that would need to be met in order for an alternative dispute resolution provision within a contract to be enforced.
Criteria for halting proceedings
The circumstances in which alternative dispute resolution clauses will generally be upheld were neatly stated in the case of Ohpen Operations UK Ltd v Invesco Fund Managers Ltd, which involved a dispute about the validity of a termination notice served by Invesco to end a contract under which Ohpen had been commissioned to design, implement, maintain and develop a new online investment trading platform.
Under the terms of the contract that had been entered into, it was agreed that before taking a dispute to court the parties were obliged to try to resolve matters between themselves first, thereafter referring the matter to mediation facilitated by the Centre for Effective Dispute Resolution.
In breach of the agreement, Ohpen attended one face-to-face meeting with Invesco and then moved straight to the commencement of court proceedings when this failed to yield a settlement.
Ruling that Ohpen should have followed the tiered dispute resolution process that had been agreed, the court confirmed that contractual provisions designed to keep disputes away from the court will usually be upheld and a pause in proceedings ordered, where:
- There is an enforceable obligation within the terms of the contract requiring the parties to follow an agreed alternative dispute resolution process;
- The obligation is clear in its requirements and expressed as being a ‘condition precedent’ to the making of a court claim – in other words, something the parties are compelled to do before proceedings can be issued; and
- The alternative dispute resolution process specified is capable of being understood and implemented without the need for the parties to reach any further agreement.
Alternative dispute resolution clauses that may be problematic
For an alternative dispute resolution clause to be enforceable, it needs to place an obligation on the parties to follow a process which is sufficiently clear. It also (when considered by the court) needs to be easily determined, whether or not the process has in fact been complied with.
Thus, a clause which requires the parties to submit their dispute to mediation adopting a named set of rules before court proceedings can be issued is likely to be upheld given the ease with which the court would be able to ascertain whether the obligation had been met.
This contrasts with a clause requiring the parties to use their best endeavours to resolve a dispute through good faith negotiations, which would almost certainly be unenforceable given the obvious difficulty the court would encounter in determining whether negotiations between the parties had been approached in such a way so as to have actually met this obligation.
Advice for businesses
In view of the guidance provided by the courts, the message for businesses faced with court proceedings issued in breach of an alternative dispute resolution clause is to:
- Seek immediate legal advice as to whether the terms of the clause are sufficiently clear and mandatory to make enforcement by the court likely; and, if they are
- To then make a swift application to have the proceedings paused (or ‘stayed’ to use the correct terminology) while the steps provided for within the clause are adhered to.
Where an application is successful (or the terms of your contract so provide), a request can also be made that the defaulting party covers the legal costs of the application, as if it were not for their actions, no such application would have had to have been made.
What if alternative dispute resolution fails
If utilisation of the alternative dispute resolution process provided for within the contract fails to resolve the issue or facilitate a settlement, then it will be open to you or your opponent to apply to the court to have the stay lifted and for the proceedings to then continue until such time as a settlement is agreed or the matter goes before a judge at trial for a formal determination.
If you require help halting court proceedings brought in breach of an alternative dispute resolution clause, please contact Helen Townsend on 01733 882800 or email [email protected].
Subscribe for Updates
