Mediation Clause Not Precise Enough to be Enforceable

Posted: 15th January 2013

In upholding the jurisdiction of arbitrators to resolve a commercial dispute, the High Court has ruled that a contractual clause that sought to require attempts at mediation and conciliation to be made prior to submission to formal arbitration was insufficiently precise to be enforceable.

The dispute arose as a result of the expulsion of a Hong Kong-based partnership from an international network of accountancy and audit firms. Two of the partners had disputed a final award reached by an arbitral tribunal on the basis that it was of no effect due to a lack of substantive jurisdiction.

They had argued that, under the terms of an agreement which formed the basis of the worldwide network, detailed procedures were laid down for the conciliation and mediation of disputes which had to be exhausted as a condition precedent prior to submission to arbitration. Under the agreement, disputes were to be referred to the network’s chief executive at first instance and, if that did not lead to amicable settlement, latterly to a panel of three members of the board.

However, the High Court ruled that the procedures laid down in the agreement for pre-arbitration conciliation, although doubtless intended to be enforceable, were not sufficiently precise or certain to be contractually binding. On a true construction of the agreement, any party to it was entitled to commence arbitration procedures after the expiry of two months from the first request for conciliation.

Upholding the arbitrators’ final award, the court noted that the arbitration was commenced well after any such time frame and that, in practice, no panel of three could be established because none of the members of the board considered that the dispute could be resolved by that means.