Enforcing ADR Escalation Clauses in the UK: The latest developments
The introduction of the European Union Cross Border Mediation Directive (2008/52/EC) has helped to augment mediation’s status as a means of resolving international disputes in Europe.
The use of mediation can be enforced by inserting a “step-clause” or “escalation clause” into a contract. This requires parties to embark on mediation or other forms of Alternative Dispute Resolution (ADR) before resorting to arbitration or litigation.
In England and Wales, courts have demonstrated their willingness to enforce these provisions. Thus in Ohpen Operations UK Ltd v Invesco Fund Managers Ltd  EWHC 2246 (TCC),  1 All ER (Comm) 786, the High Court held that, on a plain and natural reading of the clause, the relevant contract contained an enforceable obligation to engage in ADR before starting proceedings. That obligation had survived the termination of the contract as a condition precedent. It was, therefore, appropriate to stay proceedings that had been commenced in breach of that obligation until mediation had taken place.
The Ohpen case, presented a set of tests for when a party can try to stay proceedings to ensure than an ADR clause is observed. Anyone planning to include such terms in a contact would do well to study this ruling.
Firstly, must require parties to use ADR in an enforceable manner. Secondly, if the parties reach litigation or arbitration, it must be made clear that this requirement is a condition precedent. Thirdly, they must be able to agree on a mediator and other required procedures without any additional negotiations or confusion, although the ADR process itself can be informal. Finally, the court noted that it approves of parties enforcing ADR provisions and avoiding litigation. Furthermore, it stressed that if proceedings were begun despite a dispute resolution agreement, it can force parties to first exhaust all other ADR avenues before returning to court.
Any agreement reached at mediation needs to be recorded carefully, and arrangements need to be made to implement the agreement in a manner that reflects the outcome intended to be agreed between the parties. This involves consideration of all aspects relating to implementation, such as the impact of any local taxation provisions that may arise during implementation or any local requirements for the form of written agreement.
 See also the authors’ article Have the Risks of ADR Escalation Clauses Reduced?”, Arbitration vol 82 no.1 p.16.
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