Judicial trend - no alternative to alternative dispute resolution

Alternative dispute resolution (“ADR”) can offer parties a cost and time efficient route to the resolution of disputes. The court requires parties to explore ADR before seeking its help. Parties who unreasonably refuse to explore ADR are exposed to potentially hefty financial sanctions being imposed by the court.

Ailsa Anderson and Kate Williams highlighted some key court decisions on this point earlier this year (here) and this note highlights some important recent developments.

Commercial agreements

Commercial agreements will usually include specific clauses that set out the framework for the resolution of disputes. These should be:

1. Specifically tailored to the nature of the agreement and relationship between the parties; and
2. Certain, both in terms of the process and the mechanism for selecting the party to resolve the dispute.

   If the above criteria are satisfied, then such clauses should, in principle, enable the parties to explore whether settlement can be achieved without the need for court action. However, 2020 has seen the court compelled to issue a number of judgments where parties have failed to adhere to agreed terms about ADR.

   Taylor Wimpey UK v Harron Homes Ltd [2020] EWHC 1190 (TCC)

   In this case (here), the parties entered into a “collaboration agreement” regarding a project. A dispute arose and Harron Homes triggered an ADR clause obliging the parties to refer the dispute for expert determination.

   Taylor Wimpey appears to have adopted the position that because the agreement also contained an exclusive jurisdiction clause in favour of the Courts of England and Wales that the jurisdiction clause overrode the ADR clause. It made a pre-action application to court for the disclosure of documents by Harron Homes.

   The court disagreed with Taylor Wimpey’s approach and refused its application. It found that although the jurisdictional threshold for ordering pre-action disclosure was crossed, it would not be appropriate for the court to exercise its discretion to make an order because Harron Homes had referred the dispute to expert determination.

   The judge stated that the court is vigilant of any attempt to use pre-action disclosure to interfere with, impede or frustrate contractually agreed ADR mechanisms. In this case, it was held that granting Taylor Wimpey’s application would run a real risk of doing just that. The judge commented:

“ADR has a vast number of advantages to parties to commercial agreements. It enables parties to have their disputes decided privately, by specialists either chosen by the parties jointly or, in default of agreement, by a body specifically appointed for that purpose. It is almost always far quicker than litigation, and almost always far cheaper, to have disputes resolved in this way.”

SRS Middle East FZE v Chemie Tech DMCC [2020] EWHC 2904 (Comm) 

In this case (here), the parties had entered into a contract to engineer and construct a new tank storage system in the UAE. The contract was governed by English law and contained an agreement to arbitrate any dispute exclusively in London.

When a dispute arose:

1. Steps were taken to commence arbitration in London;
2. Chemie Tech then issued a claim for interim security in the UAE; and
3. SRS Middle East made an application to the commercial court in London for an interim anti-suit injunction to prevent Chemie Tech from continuing the claim in the UAE.

   The court found that continuing the claim in the UAE would likely result in a breach of the arbitration agreement. The court took the view that, whilst Chemie Tech’s UAE claim may have been permissible in some circumstances, in the present case it was necessary to restrain the UAE proceedings and grant the anti-suit injunction.

   This case confirms that the court will prevent a party’s actions upon finding a potential breach of arbitration agreements.

   Summary

   Parties must be aware that entering into an ADR agreement may prevent a party from obtaining an otherwise unobjectionable interim relief or order. Once a party has contractually agreed to resolve a dispute through ADR, it cannot ignore this to pursue claims through other means.

   The court has demonstrated willingness to police this vigorously. Well advised clients should be aware of this and act accordingly.

   Should you have any queries regarding arbitration, ADR clauses or any of the subject matter above, please contact us at Ailsa.Anderson@irwinmitchell.com or Kate.Williams@irwinmitchell.com.