Mediation clauses which were once deemed unenforceable as agreements to agree may have been given a new breath of life by recent case developments.

With alternative dispute resolution’s surging popularity in recent years, particularly with regard to its cost saving and non-adversarial methodology, it is now commonplace to find mandatory dispute resolution clauses in standard commercial contracts. While it used to be the case that arbitration was the poison of choice for parties who wished to delay or circumvent litigation, other forms of dispute resolution such as mediation have gained a name for themselves with their high rates of success and admirable ability to preserve fragile commercial relationships.

Where arbitration requires parties to submit to an arbitral award that lies out of their hands, mediation affords them an opportunity to rework their agreement with the luxury of hindsight that they did not have at the point of contracting. As such, many commercial contracts employ multi-tiered dispute resolution clauses which stipulate that only upon submission to mediation (or some other form of dispute resolution be that as the case may) and subsequent failure of the mediation process will parties submit themselves to arbitration. Consequently, the same applies to litigation – it should only be resorted to upon completion of the arbitral process.

A problem arises when a dispute surfaces close to a contractual time-bar for litigation and an aggrieved party wishes to expedite the process by by-passing mediation and going straight to arbitration, contrary to stipulations within the multi-tiered clause. As a mediator is but a neutral facilitator and a resolution can only be reached if agreed upon by the parties, it is the general view of the courts that a mediation clause is, unlike an arbitration clause, merely an agreement to agree and unenforceable per well-established principles of contract law.

Notwithstanding, some academics and practitioners have propounded that mediation clauses are in essence a binding agreement between the parties to subject themselves to a process and the outcome is unimportant. It also appears that with the growing advantages that dispute resolution provides, courts around the world have opened up to the proposition that some mediation clauses, if couched in sufficiently certain terms and adherent to a set mediation process, may indeed be enforceable.

In Hooper Bailie Associated Ltd. v. Natcon Group Ltd., the Supreme Court of New South Wales stayed an arbitration that one party sought to resume in breach of a mediation agreement until conclusion of the mediation process. Ten years on, the landmark case of Cable & Wireless plc. v. IBM United Kingdom Ltd., a 2002 Queen’s Bench Division judgment, was the first in which an English court enforced an agreement to mediate. Since then, Cable & Wireless has witnessed several references in similar English cases and even garnered approval abroad with the Hong Kong High Court hearing Hyundai Engineering and Construction Co. Ltd. v. Vigour Ltd. Although the High Court decision in Hyundai was later overturned by the Court of Appeal in 2005, the reasoning in Cable & Wireless was never doubted and hence leaves wide-open the door to possibilities of more like-minded judgments in the future.

Although the said judgments are but a few stacked against a long history of conservative opposition, it is hoped that in time to come, especially in Singapore where such cases are scarce and there remains little precedent binding our courts, the shackles are lifted and the mediation process may be able to find its wings.

Jeth Lee is a third year law student and the Chief Editor of SLR.