The High Court has upheld a tiered dispute resolution clause in accordance with established principles of contractual interpretation. The court ordered a stay of proceedings for mediation, and in support of the mediation also ordered pleadings to be served in advance in order to optimise the prospects of a settlement.
Invesco, an investment manager, engaged Ohpen to develop and implement a digital online platform through which Invesco's retail customers could buy and sell investments in funds offered by Invesco.
The framework agreement (Agreement) governing the relationship imposed a range of obligations on the parties in the period between its effective date of 1 July 2016 and the launch of the platform (the Development and Implementation Phase). It included a tired dispute resolution clause (clause 11) that provided for the following staged process:
- Internal Escalation: where the parties agreed first to use their respective reasonable efforts to resolve any dispute amicably through ordinary negotiations.
- Escalation of the dispute to the respective executive committees of the parties.
- CEDR mediation.
- English court proceedings.
Delays occurred and the original platform launch date was not met. A revised date was agreed by the parties but there was a dispute as to where the responsibility for the delays lay.
Invesco purported to terminate the Agreement on the grounds of (incurable) material breach and/or repudiatory breach. Ohpen disputed any material and/or repudiatory breach on its part, disputed the validity of Invesco's purported termination and purported to accept Invesco's repudiatory breach.
Whilst the parties agreed that their primary obligations under the Agreement were terminated, there was a dispute as to which party was in material and/or repudiatory breach of contract. At the end of January 2019 the parties held a without prejudice meeting to attempt to resolve the dispute, but no agreement was reached.
The court proceedings
In April 2019, Ohpen issued proceedings, claiming damages of £4.7 million arising from what it said was Invesco's wrongful termination. Invesco counterclaimed for the sum of approximately £5.7 million.
In May 2019 Invesco applied for a declaration that the court would not hear Ohpen's claim pending compliance with the contractually agreed dispute resolution procedure. Invesco submitted that clause 11 of the Agreement was a valid, binding and applicable alternative dispute resolution clause, which prescribed a tiered process of mandatory escalation and mediation procedure prior to the commencement of proceedings.
Ohpen submitted that, as a matter of construction of the Agreement, the relevant dispute resolution provisions were not applicable outside the Development and Implementation Phase or following termination of the Agreement.
High Court analysis
The court found that the dispute resolution provision created an enforceable obligation requiring the parties to engage in mediation. Furthermore, the clear purpose of the English court proceedings provision was to create a mandatory requirement to pay heed to the dispute resolution procedure before a party could institute proceedings. As such, although the term "condition precedent" was not used, the words used made it clear that the right to commence proceedings could only arise if the dispute resolution procedure (including mediation) failed. The court referred to the public interest arguments in favour of enforcing agreed ADR provisions considered in Emirates Trading Agency LLC v Prime Mineral Exports Pte Ltd(1)
The commercial purpose of the dispute resolution procedure was for the parties to achieve swift resolution to any disputes and avoid litigation. Specifically, the purpose served by the clause in question was to avoid disruption to the development and implementation of the online platform. No commercial purpose would be served by curtailing the parties' right to use the dispute resolution process in respect of a dispute that had already arisen, or by halting an ongoing process, at the end of the relevant phase. This could lead to a situation where certain disputes in relation to the development of the platform were caught by the dispute resolution procedure and others not, even where such disputes were closely connected and arose at the same time. It is very unlikely that the parties would have intended an incomplete mechanism for resolving their disputes.
The court noted in this context that it was common ground that, as a matter of principle, dispute resolution obligations ordinarily survive the discharge of the parties' primary obligations under a contract: Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty(2).
Clause 11 was intended to apply to all disputes, and was indistinguishable from an arbitration clause which, on the authorities, would survive termination. In any event, on a plain and natural reading of clause 11.2, it encompassed disputes arising both prior to and after termination.
The court ordered a stay of the proceedings to enable a mediation to take place and, with a view to maximising the prospects of a settlement, that pleadings should be served and therefore substantive issues clarified before that mediation.
This decision continues the post-Sureterm union between commercial common sense and the plain and ordinary meaning of words, which happily coincided in this decision. The court's decision to stay these proceedings, whilst ordering pleadings to be filed, is a good example of the courts taking both a common sense and pragmatic view to dispute resolution clauses that the parties intended to be bound by when the original contract was signed.