Balfour Beatty Construction Northern Limited –v- Modus Corovest (Blackpool) Limited – 4 December 2008 – Technology and Construction Court – Mr Justice Coulson - [2008] EWHC 3029 (TCC). Click here to read the judgment.

Will a court order a stay of court proceedings where there is an agreement to mediate in the underlying contract and, if so, in what circumstances?

The Court has an inherent jurisdiction to so order a stay of proceedings if the parties have agreed a particular method to resolve their disputes, for example, by mediation. The Courts will not do so if the agreement to mediate is an unenforceable “agreement to agree”. In any event, a stay will only be ordered if there is no right to summary judgment and mediation is the best way to resolve the dispute.

The Detail:  The underlying contract between Balfour Beatty Construction Northern Limited and Modus Corovest (Blackpool) Limited contained the following provisions:

 Article 6A: 

"If any dispute or difference arises under or in connection with this Contract, where the parties have agreed to do so, the dispute or difference may be submitted to mediation in accordance with the provisions of clause 39B.”

 and in Clause 39B:

"39.1  Either party may identify to the other any dispute or difference as being a matter that it considers to be capable of resolution by mediation and, upon being requested to do so, the other party shall within seven days indicate whether or not it consents to participate in the mediation with a view to resolving the dispute or difference. The objective of mediation under clause 39 shall be to reach a binding agreement in resolution of the dispute or difference.

39.2    The mediator or selection method for the mediator shall be determined by agreement between the parties."

The Judge regarded it as settled law that if the parties have agreed a particular method by which their disputes are to be resolved, then the Court has an inherent jurisdiction to stay proceedings brought in breach of that agreement (see Channel Tunnel Group Limited & France Manche SA v Balfour Beatty Construction Limited, [1993] AC 334).

Furthermore, he said that such a stay may be granted even where the term of the contract on which the claiming party is said to be in breach was a general agreement to refer disputes to ADR (see Cable & Wireless plc v IBM United Kingdom Ltd, [2002] EWHC 2059 (Comm); click here for the judgment). In that latter case, a contractual provision referring to resolving the dispute “…through an Alternative Dispute Resolution (ADR) procedure as recommended to the Parties by the Centre for Dispute Resolution…” was regarded by Mr Justice Colman as sufficiently certain in law for a stay to be ordered.

Mr Justice Coulson in this recent case took the view that the contractual provisions set out above were nothing more than an agreement to agree and too uncertain to be enforced by the Court. So he declined to order a stay. It might be said that those provisions were permissive and not mandatory. In Cable & Wireless, Mr Justice Colman had drawn that distinction, which he said was most important, not necessarily the absence of agreed terms for conducting a mediation.

Mr Justice Coulson also said that, if he was wrong about there not being an agreement to agree, he would in any event only have stayed the claim and counterclaim if:

(a) The party making the claim and/or the counterclaim was not entitled to summary judgment on that claim and/or counterclaim, i.e., that there was an arguable defence on which the other party had a realistic prospect of success, and

(b) The best way of resolving that dispute was a reference to mediation.

In short, he would first have to consider whether there was no defence to a claim or counterclaim (or at least no defence with a reasonable prospect of success) before he could consider a stay to mediation and, even then, he would have invited submissions as to the best way of resolving the underlying claims before deciding what directions to give. In looking at that question in Cable & Wireless, Mr Justice Colman had ordered a stay to mediation even though there was a dispute on a point of law because “…parties who enter into an ADR agreement…must be taken to appreciate that mediation as a tool for dispute resolution is not designed to achieve solutions which reflect the precise legal rights and obligations of the parties, but rather solutions which are mutually commercially acceptable at the time of the mediation…”

The moral of Balfour Beatty and Modus and the earlier cases is:

(a) To have an enforceable mediation provision in a contract, make it mandatory, not permissive, and

(b) Preferably, have the procedure for mediation defined or incorporated by reference (although its absence may not be fatal), and

(c) Do not expect a stay of proceedings to be ordered by a Court unless at least (a) above is in place (preferably (b) as well); that there is an arguable defence to the claim and that the Judge might be able to be convinced that mediation is the best way of trying to resolve the dispute.