Mediation and Commercial Contract Law

Towards a Comprehensive Legal Framework

Maryam Salehijam

• Publisher: Routledge
• Year: 2020
• Print ISBN: 9780367484453
• eBook ISBN: 9781000262469
• Edition: 1
• Topic: Law
• Subtopic: Arbitration, Negotiation & Mediation in Law
• Index: Law

There is an urgent need to better understand the legal issues pertaining to alternative dispute resolution (ADR), particularly in relation to mediation clauses. Despite the promotion of mediation by dispute resolution providers, policy makers, and judges, use of mediation remains low. In particular, problems arise when parties lack certainty regarding the legal effect of a mediation clause, and the potential uncertainty regarding the binding nature of agreements to pursue mediation is problematic and threatens the growth of ADR.

This book closely examines the importance and complexity of mediation clauses in commercial contracts to remedy this persistent uncertainty. Using comparative law methods and detailed empirical research, it explores the creation of a comprehensive framework for the mediation clause.

Providing valuable insight into the process of ADR and mediation, this book will be of interest to academics, law makers, law students, in-house council, lawyers, as well as parties interesting in drafting enforceable mediation clauses.

II Binding mediation agreements and their enforcement

Contents

1 Introduction

1.1 Separability

2 Binding mediation agreements

2.1 Public policy, mandatory rules, and unconscionability

2.2 Contractual certainty

2.2.1 What constitutes mandatory language?

2.2.2 The challenge of certainty in mediation agreements

2.3 Drafting guidelines

3 Desirability of enforcing mediation agreements

3.1 Access to justice and the rise of ADR

3.2 Voluntary nature of mediation

3.3 Futility of enforcing agreements to mediate

3.4 Public interest in enforcing mediation agreements

3.5 Aim of mediation of commercial disputes

3.6 Legitimate grounds for refusing enforcement

4 Remedies to a breach of a mediation agreement

4.1 Legal nature of mediation agreements

4.2 The toolbox of remedies available to enforce mediation agreements

4.2.1 Financial remedies (deterrent and restorative)

4.2.2 Specific performance (compelling)

4.2.3 Stays and dismissals (deterrent and compelling)

4.2.4 Injunctive relief (deterrent and compelling)

4.2.5 Refusal to enforce and compel binding proceedings (deterrent)

4.3 A preferred remedy

Concluding remarks

1 Introduction

A private mediation mechanism – as opposed to court-annexed – can only begin and continue on the basis of the parties’ voluntary participation. Therefore, it is important to have clarity regarding the parties’ desire to submit their dispute to mediation.¹ Consent to pursue mediation can be contained in an individually negotiated contract or in a mediation clause within a commercial contract.² These agreements tend to require the parties to submit their dispute to mediation, and at the same time, prohibit the parties from engaging in arbitration/litigation while mediation is pending.³ This chapter will provide a comprehensive overview of the current approaches to mediation agreements in order to test for best practices.⁴ This work draws on a substantial body of case law from Common Law jurisdictions due to a lack thereof from Civil Law countries.

1 C. Esplugues, “General Report: New Developments in Civil and Commercial Mediation – Global Comparative Perspectives” in C. Esplugues and L. Marquis (eds.), New Developments in Civil and Commercial Mediation: Global Comparative Perspectives, New York, Springer, 2015, 28.

2 M. Piers, “Europe’s Role in Alternative Dispute Resolution: Off to a Good Start?” Journal of Dispute Resolution 2014, afl. 2, 283.

3 C. Esplugues, “General Report: New Developments in Civil and Commercial Mediation – Global Comparative Perspectives” in C. Esplugues and L. Marquis (eds.), New Developments in Civil and Commercial Mediation: Global Comparative Perspectives, New York, Springer, 2015, 33.

4 P.G. Mayr and N. Kristin, “Regulation of Dispute Resolution in Austria: A Traditional Litigation Culture Slowly Embraces ADR” in F. Steffek and H. Unberath (eds.), Regulating Dispute Resolution: ADR and Access to Justice at the Crossroads, Oxford, Hart Publishing Ltd., 2013, 65. B. Hess and N. Pelzer, “Regulation of Dispute Resolution in Germany: Cautious Steps towards the Construction of an ADR System” in F. Steffek and H. Unberath (eds.), Regulating Dispute Resolution: ADR and Access to Justice at the Crossroads, Oxford, Hart Publishing Ltd., 2013, 212; A. Trossen, “Practical issues and Shortcomings of the New 2012 German Mediation Act” in F. Diedrich (ed.), The Status Quo of Mediation in Europe and Overseas: Options for Countries in Transition, Hamburg, Verlga Dr. Kovač, 2014, 118. C. Hodges et al. (eds.), Consumer ADR in Europe Civil Justice Systems, Oxford, Hart Publishing Ltd, 2012, 73.

To provide an in-depth analysis of mediation agreements, it is important to understand the issues related to these agreements. There is a growing number of disputes relating to parties’ mediation agreements. According to a study by Cole, “in the seven-year period from 1999 to 2005, the number of reported opinions on Westlaw that addressed mediation issues increased from 172 in 1999 to 521 in 2005, a 303% increase.”⁵ Mediation agreements give rise to three points of discussion: When are these agreements binding on the parties (Section 1); should these agreements be enforced (Section 2); and how should breaches of these agreements be remedied (Section 3)? Before this chapter can delve into the above questions, it is important to note that in line with the principle of separability, a mediation agreement ought to be viewed as an agreement that is separate from the main commercial contract. The doctrine of separability is supported on the basis of party autonomy, legal certainty, international comity, and the policy to give effect to dispute resolution clauses.⁶

5 S.R. Cole, C.A. Mcewen, N.H. Rogers, J.R. Coben and P.N. Thompson, Mediation: Law, Policy & Practice, US, Thomson Reuters, 2017, 203. J.R. Coben and P.N. Thompson, “Disputing Irony: A Systematic Look at Litigation About Mediation,” Harvard Negotiation Law Review 2006, afl. 43, 105.

6 Z.S. Tang, Jurisdiction and Arbitration Agreements in International Commercial Law, New York, Routledge, 2014, 74. E. Van Beukering-Rosmuller and P. Van Leynseele, “Enforceability of Mediation Clauses in Belgium and the Netherlands,” Nederlands-Vlaams tijdschrift voor mediation and conflictmanagement 2017, afl. 3, (36) 46. See also R. Feehily, “The Contractual Certainty of Commercial Agreements to Mediate in Ireland,” Irish Journal of Legal Studies 2016, 64. For Germany, see BGH, XII ZR 165/06, Judgement of 29 October 2008, paras. 27–28 (mediation clauses prevent court action). For the United States, see case severing the agreement to mediate from the rest of MDR clause to save the MDR: Templeton Dev. Corp. v Superior Court, 144 Cal. App. 4th 1073, 1084, 51 Cal. Rptr. 3d 19, 27 (2006). See also R. Dendorfer and P. Wilhem, “Mediation in a global village: Legal complexity of cross-border mediation in Europe,” Yearbook on International Arbitration 2017, 238.

1.1 Separability

The separability of mediation agreements was specifically confirmed in Germany, where the doctrine of separability (Selbstständigkeit) is applied by analogy to mediation agreements.⁷ Accordingly, a mediation agreement is separable from the main contract and is thus not impeached or rendered void if the main contract is avoided, discharged, rescinded, frustrated, repudiated, or found to be void for illegality.⁸ The empirical research herein, i.e the systematic content analysis (SCA), also illustrates this point, where amongst the agreements that addressed separability, all stipulated that the mediation agreement is separable from the main contract. Therefore, the discussion of the validity of the parties’ agreement to submit their current or future disputes to mediation should be isolated from the discussion of the validity of the main contract. Moreover, it is legally correct to treat mediation tiers contained in multi-tiered dispute resolution (MDR) clauses as separable from the preceding and proceeding tiers, including the arbitration tier.⁹

7 Bundesgerichtshof of 4 July 1977 BGH NJW 1977, 2263, where the Court said that the clause was separable from the main contract and thus the termination of the partnership did not end the conciliation obligations. See also OLG Rostock 2006 3 U 37/06 18.09.2006; E. Kajkowska, Enforceability of Multi-Tiered Dispute Resolution Clauses, Oxford, Hart Publishing, 2017, 189.

8 See also M. Ahmed, The Nature and Enforcement of Choice of Court Agreements: A Comparative Study, Oxford, Hart Publishing, 2017, 38. D. Joseph, Jurisdiction and Arbitration Agreements and Their Enforcement, London, Sweet & Maxwell, 2005, 123–128.

9 See also M. Ahmed, The Nature and Enforcement of Choice of Court Agreements: A Comparative Study, Oxford, Hart Publishing, 2017, 39. NSW Court of Appeals, United Group Rail Service Ltd v Rail Corporation New South Wales, Judgement of 3 July 2009, para. 89.

The Australian case of Elizabeth Bay Developments ¹⁰ demonstrated the risk of treating arbitration and mediation tiers in MDR clauses agreement as an integrated unit. In the case, the defendant treated the MDR clause as one agreement, assuming that it was sufficient to request a stay of proceedings to commence mediation in order to enforce the entire dispute resolution clauses, which also included an arbitration tier. As the party never requested the enforcement of the arbitration tier, Giles J only addressed the request to enforce the mediation tier. He found that the mediation tier was too uncertain to have a binding force and thus asserted jurisdiction, which left the arbitration tier contained in the contract unenforced.¹¹

10 Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd, unreported, 28 March 1995, Supreme Court of NSW, Commercial Division, Construction List, Giles J – “In this case the court analysed a tiered dispute resolution clause contained in a joint venture contract concluded between two parties. The contract contained a mediation clause requiring administration of the dispute through the ACDC, followed by arbitration in accordance with the Arbitration Rules of the ACDC. The clause referred to a mediation appointment agreement which contained a stipulation committing the parties to ‘attempt in good faith to negotiate towards achieving settlement of the dispute.’ The relationship between the parties fell apart when Boral withdrew its participation in the project. In view of Boral’s infringement of its contractual duties Elisabeth Bay terminated the contract and filed its claim for damages directly in court. Although the claimant’s action stood in contravention of both the mediation and arbitration clause, the defendant ...

Table of contents

• Cover
• Half-Title
• Title
• Copyright
• Contents
• List of tables
• List of charts
• List of graphs
• Acknowledgements
• Abbreviations
• I Introduction
• II Binding mediation agreements and their enforcement
• III Parties’ rights and obligations under a mediation agreement
• IV Essential elements of a comprehensive legal framework
• V Conclusion
• Bibliography
• Annex I – Model mediation clause
• Annex II – Codebook
• Index