As discussed in relation to the Sulamerica case (see post), it is relatively common to have a tiered dispute resolution clause providing for conciliation or mediation before arbitration.  As the Sulamerica case demonstrated, a relatively significant degree of specificity is required (either through bespoke drafting or by importing the standard terms of an ADR institution) before such a clause will be rendered enforceable and not a mere agreement to negotiate under English law.

In Wah (aka Tang) v Grant Thornton International (GTIL) Ltd [2012] EWHC 3198 (Ch), the High Court provided helpful guidance as to the drafting requirements of a conciliation clause which was purported to be a precursor to arbitration in Grant Thornton’s Network Membership Agreement.

Background

The agreement required two stages of conciliation: first by GTIL’s chief executive and then by three of GTIL’s board members, to be appointed by the board.  If these procedures failed, arbitration could be commenced.  A one month time limit was imposed on each stage. 

On the facts, which concerned the expulsion of the claimants from the Hong Kong arm of Grant Thornton, GTIL’s chief executive refused to act as a conciliator as he had been involved in the decision to expel the claimants and therefore lacked neutrality.  Two months later, the chairman asked whether GTIL’s board members could serve on the independent three-member panel contemplated at the second stage of the conciliation process, but they also declined for the same reason. 

In the arbitration proceedings which followed, the Hong Kong partnership took the view that the tribunal did not have jurisdiction because the pre-arbitration conciliation procedures had not been complied with.  GTIL argued that the conciliation provisions were too uncertain to be enforceable and that the dispute had been properly referred to arbitration.  In its award, the arbitral tribunal determined that it had jurisdiction, finding that the conciliation clauses did indeed lack the essential qualities of a binding provision. 

High Court decision

The Hong Kong partnership applied to the English court to have the final award set aside.  The court confirmed the tribunal’s finding as to jurisdiction and upheld the award.  The judge took as a starting point the rule that agreements to agree and agreements to negotiate in good faith are generally unenforceable under English law.  An exception is where the provision in question can be construed as a commitment to agree a fair and reasonable price.  In relation to the conciliation clause, the judge commented that the question was whether it was sufficiently clear or certain to be given legal effect, without the need for further agreement.  The judge concluded that the conciliation clause did not make clear what form the conciliation process should take, who was to be involved (e.g. the parties to the dispute) and what was required of the parties.  In the alternative, the judge concluded that the clause did not prevent any party from commencing arbitration proceedings either two months after a request for conciliation had been made, or if a three member panel could not be established (as in this case) because no board members were willing to serve on it or had concluded that the dispute could not be resolved by such a panel.

Comment

The case highlights that a conciliation clause (like a mediation clause) should contain:

  • A clear procedure including what is required of the independent party and parties to the dispute and by when.
  • A process for appointment, including what to do in the event of deadlock.
  • A clear statement as to whether the procedure is mandatory or non-mandatory, ideally with a long stop date or event, which would signal escalation to the next forum (here arbitration).