15 January 2020
English High Court Confirms Mediation Can Be Condition Precedent To Litigation
In Ohpen Operations UK Limited v Invesco Fund Managers Limited [2019 EWHC 2246] the English High Court recently held that mediation was a condition precedent to the commencement of litigation and therefore stayed the proceedings to enable mediation to take place.
Invesco Fund Managers Limited (“Invesco”) entered into an agreement with Ohpen Operations UK Limited (“Ohpen”) under which Ohpen was to develop a digital online platform through which Invesco’s customers could buy and sell investments (“the Agreement”). It was agreed that between the effective date of the Agreement and the launch of the platform, the parties would enter into a development and implementation phase and that Ohpen would then operate the platform post-launch.
Delays occurred and the agreed launch date was not met. Invesco issued a notice of termination on the grounds of material breach and/or repudiatory breach by Ohpen. Ohpen disputed that it had breached the Agreement and regarded the purported termination as Invesco’s repudiatory breach of the Agreement. Accordingly, the dispute centred on which party was in material and/or repudiatory breach of the Agreement.
The parties attended a “without prejudice” settlement meeting to resolve the dispute without any success.
Application for a Stay
Pursuant to the Agreement, if a dispute arose during the development and implementation phase, and if no resolution arose following negotiations between the parties, the dispute was to be referred to mediation under the Model Mediation Procedure of the Centre of Dispute Resolution (CEDR). The Agreement further provided that “if a Dispute is not resolved in accordance with the Dispute Procedure, then such a Dispute can be submitted by either party to the exclusive jurisdiction of the English Courts”.
As a result, following the commencement of litigation proceedings Invesco issued an application to court seeking a declaration that the court would not exercise jurisdiction over the claim filed by Ohpen and an order for a stay pending compliance with the agreed dispute resolution procedure.
The Court held that mediation was an enforceable condition precedent to litigation and accordingly stayed the litigation proceedings pending mediation.
In reaching this decision, the court considered some of the relevant authorities and summarised the key principles when a party seeks to enforce an alternative dispute resolution provision:
- The parties’ agreement must create an enforceable obligation that requires them to engage in alternative dispute resolution.
- The relevant obligation must be expressed clearly as a condition precedent to court proceedings or arbitration.
- The relevant alternative dispute resolution process does not have to be formal, but must be sufficiently certain by reference to objective criteria (including clear machinery to appoint a mediator or determine any other necessary step without the requirement for further agreement between the parties).
- The Court has discretion to stay proceedings that have been commenced in breach of an enforceable dispute resolution agreement: the court will have regard to the public policy interest in upholding the parties’ agreement and furthering the overriding objective in encouraging the parties to resolve disputes.
Applying these principles to the facts of the case, the court held that mediation was a mandatory requirement. Only if the dispute was not resolved following the prescribed procedures could a party submit the dispute to the exclusive jurisdiction of the courts. Although the phrase “condition precedent” was not used, the wording clarified that the right to commence proceedings was subject to the parties’ first engaging in mediation. The CEDR procedure was sufficiently clear and certain to be enforceable, as it does not require any further agreement by the parties to enable the mediation to proceed. The rules provide for the selection of a mediator and a court could determine by reference to objective criteria whether the parties had engaged in mediation and whether the dispute remained unresolved.
The court also considered Ohpens submission that the alternative dispute resolution requirements did not apply (i) outside the development and implementation phase or (ii) on termination of the Agreement. While the court accepted that the Agreement did have a separate procedure for disputes arising after the launch date (without a mediation requirement), there was no indication that the dispute resolution clause requiring mediation would only apply while the parties remained under obligations to perform the Agreement. In any event the court held that termination had occurred during the development and implementation phase. The court further held that the obligation to mediate survived termination of the Agreement. The termination clause in the Agreement provided that “those provisions necessary for…. enforcement of this Agreement follow termination”. While the termination clause did not expressly make reference to the dispute resolution clause, as a matter of principle, dispute resolution obligations ordinarily survive termination.
The decision serves as a useful reminder that parties wishing to commence litigation or arbitration should take care to comply with any enforceable conditions precedent before initiating proceedings. Failure to comply can have serious consequences, including challenges to the court’s jurisdiction and a stay of proceedings, which will inevitably increase the time and costs involved with resolving the dispute. To mitigate these risks parties should seek legal advice as soon as the dispute arises so that compliance is ensured.
Simcocks offer a full range of alternative dispute resolution services including mediation, as an effective way of resolving disputes without the need to go to court.
Author: Peter Maughan