English High Court stays litigation pending mediation.

In Ohpen Operations UK Limited v. Invesco Fund Managers Limited,[i] the English court held that mediation was a condition precedent to the commencement of litigation and, accordingly, stayed the proceedings to enable mediation to take place. The decision confirms that an alternative dispute resolution provision can be an enforceable condition precedent to formal proceedings.

Background

Invesco Fund Managers Limited (Invesco) entered into an agreement with Ohpen Operations UK Limited (Ohpen), under which Ohpen was to develop and implement a digital online platform through which Invesco’s customers could buy and sell investments (the Agreement). Pursuant to the Agreement, between the effective date of the Agreement and the launch of the platform, the parties would enter into a development and implementation phase. Post launch, Ohpen would operate the platform.

Delays occurred and the agreed commencement date was not achieved. 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, but 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.

The parties attended a without prejudice meeting to resolve the dispute, but no settlement was reached. Ohpen then commenced litigation claiming damages arising from Invesco’s alleged wrongful termination. Invesco counterclaimed.

Invesco’s Application

Pursuant to the Agreement, if a dispute arose during the development and implementation phase, and if no resolution of that dispute occurred 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 set out that “if a Dispute is not resolved in accordance with the Dispute Procedure, then such 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 the 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.

Judgment

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 key authorities[ii] and summarised the key principles that apply when a party seeks to enforce an alternative dispute resolution provision:

  1. The parties’ agreement must create an enforceable obligation that requires them to engage in alternative dispute resolution.
  2. The relevant obligation must be expressed clearly as a condition precedent to court proceedings or arbitration.
  3. 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).
  4. 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 parties to resolve their disputes.

Applying these principles to the facts in 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 the 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 Ohpen’s 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 commencement 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.

Comment

The decision serves as a useful reminder that parties wishing to commence formal dispute resolution proceedings through litigation or arbitration should take care to comply with any enforceable conditions precedent before commencing proceedings. Failure to comply can have serious consequences, including challenges to the court/tribunal’s jurisdiction and a stay of the proceedings (both of which increase the time and costs involved in resolving the dispute). To reduce these risks, parties should engage counsel as soon as dispute arises so that compliance is ensured and carefully documented.

The decision also provides useful and practical guidance to practitioners drafting multi-tier dispute resolution clauses. While in principle parties can create a condition precedent to the commencement of court or arbitration proceedings, in order to be enforceable, the relevant provisions need to be sufficiently certain by reference to objective criteria.