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1------------- Dispute Resolution-----------------I

Enforceability of ADR Clauses Revisited

- Patrick Mead, Senior Advocate,Building and Construction Division,Carter Newell Lawyers, Brisbane.

There has been strong growth in Alternate DisputeResolution in recent years, which has been accompaniedby a change in attitudes of the courts to the value ofalternate dispute resolution processes.1

The commonly perceived advantages of mediationover litigation are speed, lower cost, higher rates ofcompliance with the mediated agreement than with animposedjudgment and higher participant satisfaction thanwith arbitration or litigation.2

Conciliation and mediation3 both are processes ofstructured negotiation in which a neutral third party uses anumber of techniques to assist the parties to frame theirown agreement to resolve the dispute.

Unlike arbitration, which is given statutory force by theCommercial Arbitration Acts,4 agreements to engage insome form ofADR process prior to a matter being referredto the courtshave traditionallybeenheldto beunenforceableeither on the basis that they were in reality agreements tonegotiate or agreements to agreeS, were too vague oruncertain to be given effect t06, or were an attempt to oustthe jurisdiction of the courts.7

In the last 5 years in this country, there has been arecognition that in certain circumstances such agreementsmay be given effect to by the courts, although thecircumstances in which this will occur are not settled.

This article will trace the development of the law inrelation tothe enforceability ofADRclauses in this countryand will draw out the circumstances in which the courts arelikely to uphold the enforceability ofsuch agreements. Inhighlighting the difficulties associated with identifyingbreach and remedies available in these circumstances, thepaper will conclude that the courts are more likely to giveeffect to such agreements where they do no more thanprescribe a clear and unambiguous process for theresolution of the dispute, as opposed to those whichpurport to regulate the conduct of the parties involved insuch a process.

The Allco Steel decisionIn Allco Steel (Queensland) Limited v Torres Strait

Gold Pty Ltd, 8 the Court considered a "disputes" clauseunder the contract which provided for any party with a

grievance to give to the other party a notice in writingsetting out in full the detailed particulars of the dispute ordifference andthereafterprovided for a conciliationmeetingto be held to discuss the dispute or difference. If at theconclusion of the conciliation meeting, the parties hadfailed to resolve the dispute or difference, either party wasfree to litigate after complying with the requisite noticeperiod.9

Master Horton QC in declining to award a stay ofproceedings considered paramount the doctrine that thejurisdiction of the court could not be ousted. 10

The Master drew a distinction between so called "Scottv Avery" clauses which involved arbitration as opposed tothose which merely involved the obligation to conciliatebetween the parties, and concluded that the remedy for noncompliance with the disputes clause sounded only indamages. ll

The Master also held that, even if the court hadjurisdiction to grant such a stay, the discretion should notbe exercised as it was "abundantly clear the parties havetaken uppositions which effectively rule out thepossibilityofcompromise and conciliation ".12

This decision was criticised by Rogers CJ Comm. Div.inAWA Ltdv Daniels. 13 In that case, His Honour directedthe parties to undertake mediation with the assistance ofamediator to be agreed between them and noted theiragreement to enter into the negotiation in good faith.Although the enforceability of an agreement to mediatewas not directly in question, Giles J in Hooper Bailieconsideredthat the Judge clearly thought such an agreementwould be enforceable. 14 Giles J seems to have based thisupon His Honour's observations that there was utility inrequiring parties "who were clearly bent on beingdifficult' ,15 to submit to conciliation and his criticism ofMaster Horton QC who, in his view, should have requiredthe parties to "adhere to their freely agreed contractualobligations ". 16

The decision in Hooper BailieThe leading case in this country with respect to the

enforceability of agreements to mediate or conciliate isHooper Bailie Associated Ltd v Natcon Group Pty Ltd. 17

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In that case, a dispute arose in relation to work betweena contractor and subcontractor, who pursuant to clause 44of SCNPWC ed.3 (1981) had given a notice of dispute,which had been submitted to arbitration. A preliminaryconference had been held with the arbitrator although thearbitration had not yet come to hearing.

During the interlocutory steps in the arbitration, thesolicitors for Hooper Bailie had written to the solicitors forNatcon proposing a number of preliminary issues for aconciliator to deal with, and further suggested that theparties agree to be boundby the conciliator's determinationin respect of certain of these items. The letter went on tooutline the parameters and functions of the conciliation(which included the conciliator making rulings anddeterminations) and provided for quite definite steps to beundertaken by the parties in the conciliation process.

A number of matters were resolved at the ensuingconciliation, however it had been adjourned to enable theparties to exchange information concerning the outstandingitems when an order was made that Natcon be wound up.

Subsequently the solicitors for Natcon wrote to thesolicitors for Hooper Bailie stating that they had beeninstructed to proceed to arbitration with respect to theadjourned arbitration proceedings.

Hooper Bailie sought a stay of the arbitrationproceedings. In essence, it submitted that there came intoexistence a legally binding agreement - either as a variationof the arbitration agreement standing independently orpursuant to an estoppel - that the matters identified in theletter would be conciliated and the arbitration would notresume until the conciliation had concluded. 18 It wasfurther contended that it was an implied term of thatagreement, that the parties "would take all reasonablesteps to endeavour to resolve the conciliation issues underthe chairmanship of (the conciliator) by discussion,consideration andagreement ", 19 and it was submitted thatthe court should order that it do so prior to the arbitrationand should stay the arbitration for so long as Natconrefused to participate in the conciliation.20

Giles J concluded that the parties had agreed to aconciliation in respect ofthe issues identified in that letterand had also agreed that the arbitration would not resumeuntil the conciliation had been concluded.21

After recognising the increased value that the courtsplaced upon alternate dispute procedures,22 His Honourexamined the Australian authorities in the area.23 HisHonour also had reference to United States and Englishauthorities and noted that whilst the United Statesexperience was unsettled, it did demonstrate that anenforceable agreement to conciliate was not unknown tothe law.24 It was conversely noted that this appeared not tobe the position in England, where the courts had held thatthe concept ofa duty to carry on negotiations in good faithwas inherently repugnant to the adversarial position oftheparties when involved in negotiations.25

Giles J however drew support for the enforceability ofsuch agreements in this country from the decision ofCoalCliffCollieries Pty Ltd v Sijehama Pty Ltd.26 In that case,Kirby P, with whom Waddell A - JA agreed, considered

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that a contract to negotiate in good faith was known to thelawandthat in some circumstances wouldbe enforceable.27

Giles J concluded that an agreement to conciliate ormediate was not to be likened to an agreement to agree.28

Nor was it an agreement to negotiate, or negotiate in goodfaith, perhaps necessarily lacking certainty and obliging aparty to act contrary to its interests.29 Depending upon itsexpress terms and any terms to be implied, it may requireof the parties participation in the process by conduct ofsufficient certainty for legal recognition ofthe agreement.30

His Honour held that the contract between HooperBailie and Natcon provided a clear structure for theconciliation.31 Natcon had promised to participate in theconciliation by doing the things specified in that letter, andthe conduct required of it was sufficiently certain for itspromise to be given legal recognition.32 His Honour foundit unnecessary to decide, or express any view on, whetherthere was an implied term that Hooper Bailie and Natconshouldparticipate in the conciliation in good faith althoughhe seemed to doubt that the term contended for would beimplied.33

His Honour also seemed influenced by the fact that theconciliation had been successful in the period to late June1991 and that there was nothing to suggest why it shouldnot continue to be successful. He said that in the absenceof evidence demonstrating why conciliation would nowfail where it had succeeded before the liquidation ofNatcon there must be value in continuation of theconciliation.34

In terms ofthe appropriate relief, His Honour held thatthe Court had the power to stay the arbitration eitherpursuant to the provisions of the Commercial ArbitrationAct 1984 or pursuant to the inherent jurisdiction of thecourt to prevent abuse ofits process in accordance with theprinciples stated by MacKinnon LJ in Racecourse BettingControl Board v Secretary for Air: "... namely, that thecourtmakespeople abide by their contracts, and, therefore,will restrain a plaintifffrom bringing an action which heis doing in breach ofhis agreement with the defendant thatany dispute between them willbe otherwisedetermined". 35

Elizabeth Bay - Hooper Bailie RevisitedMost recently, the issue ofthe enforceability ofdispute

resolution clauses once again came for determinationbefore Giles J in the case ofElizabeth Bay DevelopmentsPty Ltd v Boral Building Services Pty Ltd. 36

In that case, Elizabeth Bay and Boral, who had enteredinto contracts in relation to building and constructionmanagement ofa project on the central coast ofNew SouthWales, found themselves embroiled in a dispute afterBoral ceased its involvement in the project and ElizabethBay treated that cessation as a repudiation and terminatedthe contracts.

Elizabeth Bay brought proceedings in the SupremeCourt claiming a declaration that its termination waseffective and seeking damages for breach of contract. Inaddition to Boral' s substantive defence, it also sought toinvoke the mediation clause in the contracts, and it movedfor an order that the proceedings be adjourned or stayed

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until further or other order so that the mediation could takeplace. Elizabeth Bay declined to participate in a mediationand opposed any adjournment or stay.

Both clauses in the building contracts provided thatafter an initial notice being given and the dispute remainingunresolved for a certain period of time, the parties agreedto first endeavour to settle the dispute or differences bymediation administered by the Australian CommercialDisputes Centre (ACDC).

The ACDC had, since its inception in 1986, maintaineda set of guidelines for mediation of commercial disputeswhich were reviewed and amended from time to time.37

Although there was no evidence that the parties had inmind the ACDC's guidelines or were even aware of theguidelines at the time of entering into the contract it wasnonetheless contended by Boral and expressly concededbyElizabethBaythatACDC's guidelines were incorporatedby reference into the mediation clause.38

These guidelines extended over4 pages, and additionalto the guidelines was ACDC's form ofmediation agreementextending over 7 pages. The mediation agreement was notexpressly identified in the guidelines, but paragraph 6 ofthe guidelines read:

"prior to the mediation, the parties shall sign amediation appointment agreement which sets out theterms ofthe mediation. The terms ofthe appointmentagreement are consistent with these guidelines. Theappointmentagreement is also signedby the mediator ".

The mediation agreement included a number ofrecitalsbut did not lay down the procedure for the mediation otherthan as to the presence or representation of the parties, astatement that the mediator would be free at the mediator'sunfettered discretion to communicate and discuss thedispute privately with any of the parties and a stipulationthat the parties would provide to each other and to themediator a short statement ofissues outlining the nature ofthe dispute and the various matters in issue.

There was, however, an express agreement (clause 11)that:

"Each party confirms that it enters into this mediationwith a commitment to attempt in goodfaith to negotiatetowards achieving a settlement ofthe dispute ".

In arriving at his decision, Giles J was prepared to acton the concession that ACDC's guidelines wereincorporated by reference into the mediation clauses, butwas by no means certain that the concession was correctlymade.39 He noted that the mediation clauses referred onlyto "mediation administeredby" ACDC, and did not confinethat administration to administration in accordance withthe guidelines.40 However, His Honour said that theconcession made it unnecessary to express a final view andalso made it unnecessary to express any view upon whethera mediation clause having no greater content than anagreement to settle the dispute by mediation administeredby a named person or body would require of the partiesparticipation in the process of mediation of sufficientcertainty for legal recognition of their agreement.41

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Giles J noted that both parties took as their startingpoint, that an agreement to mediate might be indirectlyenforced in the manner discussed in Hooper Bailie v

Natcon, if it required of the parties participation in aprocess of conduct of sufficient certainty for legalrecognition of the agreement.42

In declining to grant the stay, Giles J consideredrelevant the following factors:

• By incorporation of the guidelines the parties hadagreed to sign mediation agreements, the terms ofwhich were not settled beyond the necessity thatthey be consistent with the guidelines. His Honourheld that the agreements to mediate were open­ended and unworkable because the process to whichthe parties had committed themselves would cometo an early stop when, prior to the mediation, it wasasked what the parties had to sign and the questioncould not be answered.43

• While His Honour conceded that it would no doubtbe possible to prepare an agreement consistent withthe guidelines, he said that there would be an infinitecombination of provisions which would not beinconsistent with the guidelines, and for this reasonalone, the agreement ofthe parties fell down for lackofcertainty in the process which they should followin their mediation.44

• His Honour said that if on the other hand theguidelines did take up ACDC's form of mediationagreement, so that by the (assumed) incorporationofthe guidelines the parties agreedto signamediationin that form, the parties went someway towardssufficient certainty of conduct in the process ofmediation.45

His Honour was concerned however by clause 11,being of the view that it was difficult to regard theparties as having undertaken in 1993 to declare thatthey had (at a future time) a commitment to goodfaith negotiations. Other than being a laudablenotion, His Honour considered that the declarationitself would not advance the process of mediation,nor could it be certain that both parties would stillhave that commitment at a future time.46 Ratherthan being merely declaratory, His Honour thoughtit more likely that clause 11 was intended to imposean obligation to attempt to negotiate in good faith.47

In either case, His Honour considered clause 11 tobe regrettable since it eitherbrought to the mediationa legallyperipheral declaration likely to be disprovedat the very time clause 11 was invoked, or otherwiseit brought a purported obligation, the recognition ofwhich involved formidable legal difficulty; thecumulativeuncertaintyof"commitment", "attempt","negotiate" and "in good faith".48

His Honour viewed the latter difficulty not so much inthe ascertainment ofthe presence or absence ofgood faith,or even in the uncertainty of attempting, but rather in thenecessary tension between negotiation, in which a party isfree to, and may be expected to, have regard to selfinterest,

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rather than the interest of the other party, and themaintenance of good faith.49

Giles J concludedthat to adjourn or stay the proceedingsso that Elizabeth Baybe required either to sign an unknownagreement as an important step in the process ofmediation,or to commit itselfto attempting in good faith to negotiatetowards achieving a settlement of the dispute, wouldrequire of Elizabeth Bay conduct of unacceptableuncertainty.50 His Honour said that even if assuming theincorporation ofACnC's guidelines, the contracts in thiscase did not inhis opinionmeet the requirements consideredin Hooper Bailie Associated Ltd v Natcon Group. 51

Finally, while Giles J did not consider Elizabeth Bay'sadditional contentions for exercise ofdiscretion in favourofan adjournment, that the mediation would be futile andthat Boral had ceased its involvement in the projectwithoutjustification and in a high handed manner, His Honour didconsiderthatbothmatters wouldprovide additional groundsfor the conclusion to which he had otherwise come, ratherthan stand opposed to it.52

ISSUES WHICH ARISE FROM THE AUTHORITIESBoulle53 and Spencer54 identify five issues relevant to

the enforceability of mediation clauses:

1. Does a mediation clause survive thetermination of an agreement?55

It was common ground between the parties in theElizabeth Bay Developments' case, that although theconstruction management contract had come to an end inthe middle of 1994 the provisions for mediation survivedin the same manner as the provisions for arbitration.56

This raises the issue of severability which has beenconsidered at length in relation to arbitration clauses.57The principle of severability at its most basic, simplymeans that the arbitral tribunal may rule on its ownjurisdiction including any objections with respect to theexistence or validity of the arbitration agreement. Thecourts have accordingly treated arbitration agreements asa separate or severable agreement from the main agreementor alternatively as an agreement collateral to it.58

It is beyond the scope of this paper to examine thedoctrine ofseverability further,59 however, it is submittedthat the better view in this country is that in the event thecourts determine an agreement to mediate to be legallyenforceable, such an agreement is likely to be severableand, ifappropriately framed, shouldthenprovide a sufficientbasis to stay court proceedings until after the disputeprocess has been finalised.60

2. Is the mediation clause sufficiently certain?61Uncertainty has been described as a situation when the

court is unable to assign a sufficiently precise and clearmeaning to the language used, thereby not allowing thecourt to identify the rights and obligations agreed tobetween the parties.62

Certainty (or lack thereof) seems to be the basis ofthetwo decisions by Giles J in Hooper Bailie v NatconGroup63 and Elizabeth Bay Deve!opments64 . While at

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first instance these two decisions may not appear to sitcomfortably together, it is the writer's contention that thedecision in Elizabeth Bay is consistent with Giles J'spronouncements in the earlier case.

In Hooper Bailie, Giles J saw as important the focusupon the process or procedural aspects ofmediation ratherthan the content ofthe negotiations themselves.65 In otherwords, Giles J did not see himselfas enforcing an agreementto negotiate (let alone an agreement to agree) but rathersought to give effect to a contractual agreement betweenthe parties that they would bind themselves to a particularprocess: "what is enforced is notco-operation andconsentbut participation in a process from which co-operationand consent might come ".66

Elizabeth Bay on the other hand concerned a situationwhere the parties had agreed to a process in the futurewhich was otherwise undefined, even though arguably,that procedure could have been ascertained by reference toexternal standards.67 While the courts in recent decisionsin the United States and Hong Kong were prepared toenforce arbitration agreements68 in circumstances wherethe nominated international arbitration association hadceased to exist, Elizabeth Bay suggests that the courts inthis country would be unlikely to arrive at a similarconclusion with respect to agreements to mediate in thesecircumstances.

In the writer's view, while there was sufficient certaintyon the facts in the Hooper Bailie case that certainty was notpresent in Elizabeth Bay. In that case, Giles J was alsoconcerned about the affect on the process ofthe obligationto negotiate in good faith, a factor which has influenced thecourts in England to hold such agreements unenforceable.69

3. Is the mediation clause complete?70In Triarno PtyLtdv Triden Contractors Ltd71 a dispute

resolution clause made provision for independent expertdetermination - but was otherwise silent as to proceduresto be followed or the rights of the parties in the process.The court held it had no jurisdiction to construct theprocedures to be followed. 72 While Boulle considers thatgreater use ofand familiarity with mediation should causecourts to be less concerned about the problem ofincompleteness,73 this would appear to have been an issuewhich concerned Giles J in Elizabeth Bay Developments.

4. Does the mediation clause attempt to oustthe jurisdiction of the Courts?74

It is a general tenet of law that it is not possible toexclude by agreement an individual's right to pursueremedies through the courts.75 It would be against publicpolicy for instance to have a contract which provided thata mediation was to be an exclusive alternative to litigation.In relation to arbitration, courts have in the past held thatfor a arbitration clause to be enforceable it must be in"Scott v Avery,,76 form. Such a clause was not seen to bean attempt to oust the jurisdiction ofthe court as it acted ineffect as a postponement of a party's right to take actionuntil after the arbitration was concluded, but not a

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prohibition against a party having such recourse.77

The CommercialArbitration Act 198478 now providesthat notwithstanding the existence of "Scott vAvery" styleclause, apartymay proceed to litigation. However, that act'also provides that where arbitration proceedings have beencommenced pursuant to such a clause, the court, onapplication, has power to stay court proceedings pendingthe outcome of the arbitration.79

While there is no statutoryequivalentofthe CommercialArbitrationAct 1984 governing alternate dispute resolutionclauses, it is submitted that on the same principle, a ScottvAvery style clause in relation to a mediation should not beheldtobe unenforceable as anattempt to oust thejurisdictionof the court. It is submitted respectfully that the clausewhich so offended Master Horton QC in Allco Steel80, infact purported to do no more than postpone the party'srights to take legal action pending the engagement inconciliation and accordingly, to the extent that the Master'sdecision was based upon this factor it was incorrectlydecided.

5. Are there other policy considerations affectingthe enforceability of the mediation clause?81

The first and most obvious policy imperative is that ofholding the parties to their bargain.82 Balanced againstthis is the principal that the jurisdiction of the court is notto be ousted and the right of a party who brings a casebefore the court to be heard.83 Accordingly, where thatbargain does not offend againstprinciples such as illegalityor attempts to oust the jurisdiction ofthe courts, the courtswill generally attempt to give effect to that. This principleshould have application in relation to ADR clauses. Thereis similarly, a growing recognition ofADRprocedures andthis has been given effect to both legislatively and also inrecently judicial pronouncements.84

Drafting mediation clausesThe decisions referredto above indicate that the drafters

of mediation clauses should be attentive to the followingfactors:

• mediation clauses should be clear, certain,comprehensive and complete;85

• they should specify the procedures to be followedby the parties in setting up and undertaking amediation, with some reference to the identity ofthe mediator and timetables to be followed;86

• they should be in "Scott v Avery" form - ie.participation in the process should be a conditionprecedent to court or arbitral proceedings.87

It is also suggested that the dispute resolution clauseshouldbe detailed enough so that anyparty to the agreementcan ascertain what their responsibilities are in relation tothe dispute resolutionprocess.88 Thismay include annexinga set ofguidelines and a mediation appointment agreementto the agreement. In view ofthe Elizabeth Bay decision itis important that the clause and the documents must beconsistent with each other.

Subsequent to that decision, the ACDC's standard

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mediation clause now expressly incorporates the newACDC guidelines. The guidelines themselves do not referto a mediation agreement, solving the problem ofinconsistency. The decision in Elizabeth Bay also suggestto the writer that the drafters of such clauses should avoidreferences to obligations to negotiate on good faith. Thisis also reflected in the new ACDC guidelines.

When does a conciliation or mediation concludeIn Hooper Bailie89, the conciliation had "concluded"

in the sense that one party simply refused to proceedfurther. Giles J' sjudgmentmakes clearthat this is obviouslynot a "conclusion" of the conciliation in a sense whichentitled that party to then proceed to litigate theproceedings.90 Had His Honour had to consider anagreement to mediate then he may have arrived at adifferent view. This is because a party to a mediation isusually free to terminate the mediation at any time of theproceedings (often after a mediator's opening and perhapsthe party's opening addresses). In Hooper Bailie theprocess prescribedwas one wherebypursuant to a specifiedregime, parties had to undertake certain procedural stepsand then await a decision ofthe conciliator. As such, eachparty's involvement in the process could be assessedobjectively. As Giles J noted in Hooper Bailie, theconclusion of conciliation was not the same as resolutionof the issues by conciliation.91

Moreover, Robert Angyal92 correctly points out thatthe answer to when such a process is concluded is likely tobe found in the conciliation or mediation agreement itself.

BreachConsistent with what has been said above, it would

seem misconceived to hold a party in "breach" of itsagreement to mediate unless it simply refused to participatein the procedural steps of the process. No doubt therewould be certain circumstances where one or other partysimply "goes through the motions" and could objectivelybe seen to make no real attempt to involve itself in themediation process or seemingly make any legitimateattempt to settle the dispute. There is a danger in formingsuch aview, however, as it is predicatedupon an assumptionthat the particular dispute is one which lends itself to thisprocess.

It is similarly unlikely that a court would sanction aparty for failing to use its "best endeavours" to resolve thedispute via the process ofmediation or alternatively, for abreach ofan obligation to negotiate in "good faith". Whilstan obligation to use one's "best endeavours" has beenconsidered to be ascertainable by reference to externalstandards,93 concepts of"goodfaith" and "reasonableness"are by their nature subjective.94 Notwithstanding thepronouncements of the majority Judges in Coal CliffCollieries Pty LtcJ95 and Mason and Wilson JJ in Meehanv Jones96 (who considered that the courts were capable ofdetermining whetherparties were inbreach ofan obligationto act honestly and in good faith), the court appearsunlikely to do so in the context ofan agreement to mediatefor the reasons identified by Giles J in Elizabeth Bay

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Developments, that is:"the tension between negotiation, in which aparty hasregard to self interest rather than the interest of theother party, and the maintenance ofgoodfaith ".97

Although Boulle98 argues that Giles J's approachseems to overlook differences between unassisted,adversarial negotiations and mediated negotiations whichhave the potential to shift the parties towards collaborative,interestbasedbargaining, this pre-supposes that the disputein question lends itselfto such an approach. It fails to takeaccount of the circumstances where a claim made by aparty is a "try on" or alternatively, where that party hassimply misconceived its entitlement to a legal remedy.

An additional problem for a party who considered thatthe otherparty to the mediation did not make any endeavourto participate in any meaningful sense in the process, is thedifficulty in adducing evidence of the "without prejudicecommunications" which take place during such amediation.99 Robert Angyal lOO submits that evidencecould properly be given of communications not madegenuinely for the purpose of negotiating a settlement, inorder to establish that a party declined to participate.While this may be the case, it requires a subjectiveassessment ofthe parties behaviour to be made and ifeitherparty were forced to take such steps, it would tend toindicate that the likelihood of settlement has long sincepassed.

RemedyIn relation to a remedy for "breach" of a mediation

clause, there would appear to be three possibilities. Theseare damages, a stay of proceedings, or specificenforcement.101

DamagesIn the writer's view, damages which may be awarded

for breach of an agreement to mediate would be likely tobe nominal only. 102 Although the High Court in TheCommonwealth v Amann Aviation Pty Ltdl03 indicatedthat damages can be obtained for expenditure wasted in thenegotiating process, this was clearly in the context ofpre­contractnegotiations. The reason the court is likely to haveso much difficulty in assessing damages for a breach ofanotherwise enforceable mediation clause is the difficulty inassessing the damages suffered by any party. Causation isalso likely to be an issue as there is no guarantee that evenifthe partyhad compliedwith its "obligations" the outcomeof the mediation would have been any different.

Although it has been suggested that a mediationagreement might contain a genuine pre-estimate ofdamageclause,104 it is the writer's view that this would likely to bestruck down as being a penalty as it would be impossibleto ascertain what the genuine pre-estimate of damage forany breach at some time in the future would be. Mentionshould also be made of the decision in Capolingua v

Phylum Pty Ltdl05 in which the court levied cost sanctionsagainst aparty, partially on the basis ofthatparty's conductat amediationconference. Thatcase, however, is predicated

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on the failure ofone ofthe partys to assist a court appointedmediator to narrow the issues in dispute after it becameapparent that the matter was otherwise headed for Court,thus unnecessarily adding to the length and costs of thesubsequent court proceedings. Accordingly, this case isunlikely to be of universal application. It also raisesconcerns about the confidentiality ofthe mediationprocess.

Stay of ProceedingsIn relation to arbitration clauses, a stay ofproceedings

is specifically provided for by Section 53 of the UniformArbitration Acts. It would appear that while there is nostatutory basis for the order with respect to other ADRprocesses, the court does have inherent jurisdiction togrant a stay. 106

As the grant ofsuch a stay is discretionary, the court islikely to look at whether or not such a grant would be anexercise in futility. This seems to be the approach taken inAIlco Steel (Queensland) Pty Ltd v Torres Strait Gold PtyLtd107 and also in Hyslop v Liverpool Hospital. 108 Inboth cases, as the court had no confidence that the staywould lead to an efficient and speedy resolution throughthe alternate procedure, it declined to exercise its discretion.

Although Giles J in Hooper Bailie and Elizabeth BayDevelopment accepted in principle the ability of the courtthrough its inherent jurisdiction to grant a stay ofproceedings in these circumstancesl09, the recent decisionin Townsend & Townsend v CoynellO suggests that in theabsence of applicability of the Commercial ArbitrationAct, the court is unlikely to grant a stay unless there is anabuse ofprocess. Young J's reasoning in that case seemsto be similar to that ofMaster Horton inAIlco Steellli whichemphasised the over-riding concern of the paramountjurisdiction of the court to determine proceedings. InTownsend, Young J doubted whether it would constitutean abuse of process to commence proceedings without aprior attempt to mediate, and refused the application for astay.112

As this decision concerned an application for removalof caveats, it illustrates that where urgent interlocutoryrelief is being sought by one party, the court would beunlikely to allow another party to hide behind a mediationprocess to thwart a party obtaining that urgent relief.113

Finally, it should be noted that a stay of proceedings,will not afford a remedy where it is the potential plaintiffor aggrieved party which wishes to seek to invoke themediation procedure and the defendant refuses to co­operate. Shortofthe court compelling specificperformanceofthe process (something inherently unlikely) the plaintiffitself will be required to commence legal proceedings.

In circumstances where the court does exercise itsdiscretion to grant a stay ofproceedings, that stay is likelyto endure until the conclusion of the ADR process.114

Specific PerformanceAlthough in the United States it would appear that a

court has been prepared to compel compliance with thedispute resolution clause,115 it seems unlikely that a courtin this country would order specific performance of an

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agreement to mediate. Hooper Bailie indicates that it ishighly unlikely that equity would order specificperformance in these circumstances because supervisionofperformance wouldbe impossible. 116 Moreover, wherethe court can achieve in effect the same process by thegrant of a stay, it is unlikely to seek to invoke a far moredraconian remedy. The approach is not dissimilar to thatdemonstrated historically by the courts in Lumley vWagner1l7 and more recently by Burchett J in the FederalCourt in the ARL/Superleague decision1l8 whereby orderswere grantedrestraining the party in question from workingfor anyone else, but not specifically enforcing the contractof employment.

The desirability of compulsory mediationagreements

It is the view ofcertain judges and academics that it isundesirable to insert conciliation or mediation clauses incontracts.1l9 As was recognised by Giles J in HooperBailie, the opponents of enforceability contend that it isfutile to seek to enforce something which requires thecooperation and consent of a party when cooperation andconsent cannot be enforced. 120

Weighed against this is the potential that the reluctantpartymaybeconle involved in the process, or the mediator'sskill might induce the unwilling party into positiveparticipation.121 Certainly the research from the UnitedStates suggests that settlement rates are highest whenmediation is sought by both parties and substantially lowerwhen only requested by one side.122 However, the samefigures suggest that where only one party requestedmediation the process still resulted in at least 50% ofcasesin that survey settling. 123

Boullel24 argues quite persuasively that even if amediation clause is not enforceable by the Court, itspresence may still be ofbenefit in an agreement as it mayfocus attention on the possibility ofanon-litigious remedy.Moreover the presence ofsuch a clause is likely to make iteasier for one or other of the parties to seek to invokemediation of the dispute without being seen as comingfrom a position of weakness. 125

ConclusionThere has been a growing recognition in the value of

ADR processes by the courts in recent years. This isevidenced by court annexed and now court orderedmediations126 which are becoming increasingly frequentand which recognise the value ofthe process, which has asits aim an amicable resolution as opposed to an adversarialconquest.

Interestingly, however, in this country to date, there areno reported cases where a court has enforced a pre­existing agreement to mediate. 127 While the decision ofGiles J in Hooper Bailie v Natcon Group is often cited asauthority for the proposition that such agreements areenforceable (and there certainly seems no reason why theywould not be in the appropriate circumstances), in twomatters which came before the court last year in NewSouth Wales (Townsend and Elizabeth Bay) the courtdeclined to give these agreements any real force or effect.

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It would seem, on the state of the present authorities,that where a prescribed process is clearly defined and doesnot purport to superimpose obligations of"good faith" onthe parties, there are reasonable prospects that the courtwill uphold such an agreement by grant of a stay ofproceedings provided it is in "Scott v Avery" form and theCourt does not consider the stay to be an exercise in futility.

In the event that the Court were to refuse to grant a stay,in Queensland at least, we are faced with the irresistibleirony of the possibility of another judge at a later stageordering a compulsory mediation pursuant to Order 99 ofthe Rules ofthe Supreme Court, completewith an obligationon the parties to "act reasonably and genuinely in themediation ... 128

Footnotes1. See for example the comments of Mr Justice P W

Young in "Current Issues (1996) 70 at p9; see alsoPark Rail Developments Pty Ltd v RJ PearceAssociates Pty Ltd (1987) 8 NSWLR 123 at 126;see also Holland-Stolte Pty Ltd v Marbay Pty Ltd(1991) 105 FLR 304 at 309.

2. See Buckley R "Dispute Resolution Initiatives inFinancial Services in the United States: Lessons forAustralia" (1994) 68 ALJ 304; referring to KKressel, D G Pruitt, "Mediation Research" SanFrancisco, Jossey Bass Inc, 1989.

3. The terms are sometimes used interchangeably toconnote distinct but cognate process - see Giles J inHooper Bailie Associated Ltd v Natcon Group(1992) 28 NSWLR 194 at page 203.

4. InQueensland: CommercialArbitrationAct1990(QLD).5. Ridgeway v Wharton (1857) 6 HLC 238 at 305.6. Elizabeth Bay Developments Pty Ltd v Boral

Building Services Pty Ltd (1995) 36 NSWLR 709.7. Allco Steel (Qld) Pty Ltd v Torres Strait Gold Pty

Ltd (Supreme Court ofQueensland, MasterHorton,12 March 1990, unreported).

8. ibid.9 Interestingly, by the time the matter came before

MasterHorton QC, related cross-claims had alreadybeen brought in the Supreme Court and anapplication had already been determined by MrJustice Ambrose who had ordered that the partiesproceed to conciliation.

10. ibid at page 7.11. ibid at 7. A "Scott v Avery" clause is one which

makes clear that the right to proceed to litigationwas conditionaluponthe partieshaving first engagedin arbitration.

12. ibid at 7.13. (Rogers CJ in Comm D, 24 February 1992,

unreported).14. Hooper Bailie Associated Ltd v Natcon Group

(1992) 28 NSWLR 194 at 205.15. Rogers CJCommD, 24February 1992,unreportedat 10.16. Hooper Bailie Associated Ltd v Natcon Group

(1992) 28 NSWLR 194 at 205. For a discussion ofAllco Steel and the issues which arose from it, thereader is referred to the article by M Shirley"Breachof an ADR Clause - a Wrong Without Remedy?"(1991 ) 2 ADRJ 117-120.

17. (1992) 28 NSWLR 194.18. ibid at 202.

ACLN - Issue #48 39

19.20.21.22.23.

24.25.

26.27.

28.

29.30.31.32.33.34.35.

36.37.

38.

39.40.41.42.43.44.45.46.47.48.49.50.51.5253.

54.

ibid at 202.ibid at 202.ibid at 203.ibid at 203.Previously noted above. His Honour also referredto the decision ofMurray J in Aztec Mining Co Ltdv Leighton Contractors Pty Ltd (1990) 1 ADRJ104, but felt that the expert in that case was not a"facilitator" in the relevant sense. His Honour alsoreferred to the decision in Reed Constructions PtyLtd v Federal Airports Corporation (Brownie J, 23December 1988, unreported) and considered thatHis Honour must have thought that there could bea legally binding agreement to mediate.ibid at 207.ibid at 207-208 referring to the decision ofthe HouseofLords in Walford v Miles [1992] 2 WLR 174.(1991) 24 NSWLR 1.In this regard, see also Trawl Industries ofAustraliaPty Ltd v EfJem Foods Pty Ltd trading as "UncleBens ofAustralia (1992) Aust Contracts Reports90-011. Negotiation for the purpose of facilitatingan agreement is now reflectedby legislation such asthe Native Title Act 1993 (Cth) (s.31(1)(b)) and theIndustrial Relations Reform Act 1993 (Cth)(s.170Qk2(a)).Hooper Bailie Associated Ltd v Natcon Group(1992) 28 NSWLR 194 at 209.ibid at 209.ibid at 209.ibid at 209.ibid at 209.ibid at 210.ibid at 210.[1944] Ch 114 et 126 referred to in Hooper BailieAssociatedLtd v Natcon Group (1992)28 NSWLR194 at 211.(1995) 36 NSWLR 709.The dispute resolution clauses of both New SouthWales Law Society and the ACDC were amendedsubsequent to a decision in Hooper Bailie. Wherepreviously the NSW clause required the parties to"seek to agree" on one form of dispute resolutionand on the procedures to apply to that form, it wasamended to specify the procedures to be followedin the event of a dispute and provided a timetable.Elizabeth BayDevelopmentsPtyLtdvBoralBuildingServices Pty Ltd (1995) 36 NSWLR 709 at 714.ibid at 714.ibid at 714.ibid at 714.ibid at 715.ibid at 715.ibid at 715-716.ibid at 716.ibid at 716.ibid at 716.ibid at 716.ibid at 716.ibid at 716.ibid at 716.ibid at 717.Laurence Boulle "Mediation: Principles, Process,Practice" Sydney, Butterworths, 1996 at p262.D Spencer "Uncertainty and Incompleteness of

Dispute Resolution Clauses" (1995) 2 CDRJ 23.55. Laurence Boulle "Mediation: Principles, Process,

Practice" Sydney, Butterworths, 1996·at p262.56. Elizabeth Bay Developments Pty Ltd v Boral

BuildingServices PtyLtd (1995) 36 NSWLR 709 at715 - referring to Hayman v Darwins Ltd [1942]AC356, Codelfa Construction Pty Ltd v State RailAuthority of New South Wales (1982) 149 CLR337, and more generally as to severability Ferris vPlaister (1994) 34 NSWLR 474.

57. See for example Giles J "Severability of DisputeResolution Clauses in Contracts" [1994] BCL 393.

58. ibid at 396-398.59. In this regard the reader is referred to the excellent

article of His Honour referred to above.60. See for example Giles J inHooperBailieAssociated

Ltd v Natcon Group (1992) 28 NSWLR 194 at211and the same judge in Elizabeth Bay DevelopmentsPty Ltdv BoralBuilding Services Pty Ltd (1995) 36NSWLR 709 at 715 at 11. See also Anderson v GHMitchell & Sons Ltd (1941) 65 CLR 543.

61. Laurence Boulle "Mediation: Principles, Process,Practice" Sydney, Butterworths, 1996 at p263.

62. JWCarterandDJHarland,"ContractLawinAustralia",(2nd ed.), Sydney, Butterworths, 1991 at p67.

63. Hooper Bailie Associated Ltd v Natcon Group(1992) 28 NSWLR 194 at 211.

64. Elizabeth BayDevelopmentsPtyLtdvBoralBuildingServices Pty Ltd (1995) 36 NSWLR 709 at 715.

65. Hooper Bailie Associated Ltd v Natcon Group(1992) 28 NSWLR 194 at 209.

66. ibid at 206. This in fact exemplifies the differencebetween the English and Australian approaches theformer focussing on the unknown nature of theoutcome - the latter, the certainty or otherwise ofparticipation in a process.

67. See for example Trustees Executors & Agency CoLtd v Peters (1960) 102 CLR 537; Powell v Jones[1968] SASR 394 at 399; Sweet & Maxwell Ltd vUniversal News Services Ltd [1964] 2 QB 699; cfMeehan v Jones (1982) 149 CLR 571 at 589.

68. See Lucky-Goldstar International (HK) Ltd v NgMoo Kee Engineering Ltd - (Supreme Court ofHong Kong, KaplanJ, 5 May 1993) and Warnes SAv Harvic International Ltd & Anor (United StatesDistrict Court, Sweet DJ, 22 June 1993).

69. See for example Courtney & Fairbairn v TolainiBrothers (Hotels) Ltd [1975] 1WLR297;Walfordv Miles [1992] 2 WLR 174.

70. Laurence Boulle "Mediation: Principles, Process,Practice" Sydney, Butterworths, 1996 et p266.

71. (1992) 10 BCL 305.72. ibid at 307.73. Laurence Boulle "Mediation: Principles, Process,

Practice" Sydney, Butterworths, 1996 at p267.74. ibid at 267.75. See for example the comments ofMaster Horton in

Allco Steel (Queensland) Pty Limited v TorresStrait Gold Pty Limited (Supreme Court ofQueensland, 12 March 1990 unreported) at p7 andYoung J in Townsend v Coyne (Supreme Court ofNSW, 26 April 1995, unreported) at p18.

76. Scott v Avery (1856) 5 HLC 811.77. See for example: Freshwater v Western Australian

Assurance Co Limited [1933] 1 KB 515 at 523;

ACLN - Issue #48

Spurrier v la Cloche [1902] AC 446 at 451 andHeyman v Darwins Limited [1942] AC 356 at 377.

78. See Section 55(1) and Muirjield Property Pty Ltd vHansen & Yuncken Pty Ltd [1987] VR 615.

79. Section 53.80. (Supreme Court Queensland, 12 March 1990,

unreported).81. Laurence Boulle "Mediation: Principles, Process,

Practice" Sydney, Butterworths, 1996 at p269.82. Identified as such by John Tyrril "Practical

Commercial Mediation Issues" (1996) 46 ACLN31 at 33. See also the comments of Rogers CJ inA WA Ltd v Daniels (t/as Deloite Haskins & Sells)& Ors (1992) 7 ACSR463 where he stated that theMaster ought to have required the parties to adhereto their freely agreed contractual obligations.

83. SeeYoungJinTownsendvCoyne(1995)6BPR13,935.84. See for example the Courts LegislationAmendment

Act 1995 and the comments of Mr Justice PWYoung in "Current Issues - Litigation, Arbitrationand Mediation" (1996) 70 ALJ 9. Some of thepossible reasons for this change were examined byKirbyP inIBMAustraliaLtdvNationalDistributionService Ltd (1991) 22 NSWLR 466.

85. Laurence Boulle "Mediation: Principles, Process,Practice" Sydney, Butterworths, 1996 at p270.

86. ibid at 270.87. McKinn "Enforceability of ADR Clauses" (1993)

12 ACLR 84.88. D. Spencer "Uncertainty and Incompleteness of

Dispute Resolution Clauses" (1995) 2 CDRJ23 at 33.89. (1992) 28 NSWLR 194.90. See for example ibid at 211 to 213.91. Hooper Bailie Associated Ltd v Natcon Group Ltd

(1992) 28 NSWLR 194 at 206.92. R S Angyal "The Enforceability of Agreements to

Mediate" (1994) 34 ACLN 35 at 40.93. Hospital Products Limitedv United States Surgical

Corporation and Ors (1984) 156 CLR 41 andHawkins vPender Bros Pty Ltd [1990] 1 QdR 135.

94. The reader is referred to the Articles by the HonourableMrJustice TRH Cole "The ConceptofReasonablenessin Construction Contracts" (1994) 10 BCL 7 and "Law- All in Good Faith" (1994) 10 BCL 18.

95. (1991) 24 NSWLR 1.96. (1982) 149 CLR 571, particularly at 589-590, 597-598.97. (1995) 36 NSWLR 709. For a detailed discussion

of the concept of good faith, the reader is referredto the Articles of Cole J, noted at (92) above andFlint G "Enforce Them All: A Battle Cry for theBeleaguered Agreement to Negotiate" (1995) 13Australian Bar Review at 262.

98. Boulle "Mediation: Principles, Process, Practice"Sydney, Butterworths, 1996 at 271.

99. See for example Rodgers v Rodgers (1964) 114CLR 608 at 614.

100. R S Angyal "The Enforceability ofAgreements toMediate" (1994) 34 ACLN 35 at 39.

101. The reader is referred generally to the article by MShirley "Breach of an ADR Clause - a WrongWithout Remedy?" (1991) 2 ADRJ 117.

102. See for example Hillas & Co Ltd v Arcos Ltd [1932]AllERRep494at505perLordWright;BiotechnologyAustralia Pty Ltd v Pace (1988) 15 NSWLR at 156;Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd

40

[1991] 24 NSWLR 1 at 32 per Kirby P.103. (1991) 66 ALJR 123.104. Boulle "Mediation: Principles, Process, Practice"

Sydney, Butterworths, 1996 at 275.105. (1991) 5 WAR 137.106. See for example comments of Giles J in Hooper

Bailie Associated Ltd v Natcon Group (1992) 28NSWLR 194 at 210-211 and the same judge inElizabeth BayDevelopmentsPtyLtdvBoralBuildingServices Pty Ltd (1995) 36 NSWLR at 709 at 715.

107. (Supreme Court ofQueensland, Master Horton, 12March 1990, unreported).

108. (Supreme Court ofNew South Wales, Hodgson J,3905 of 1987, 14 October 1987, unreported).

109. ibid at 114.110. (1995) 6 BPR 13, 955.111. (Supreme Court ofQueensland, Master Horton, 12

March 1990, unreported).112. (1995) 6 BPR 13,955.113. See Boulle, "Mediation: Principles, Process,

Practice" Sydney, Butterworths, 199 at p274.114. Forexample see Giles J inHooperBailieAssociated

Ltdv Natcon Group (1992) 28 NSWLR 194 at211.115. AMFIncorporatedvBrunswickCorporation - albeit

in the context of a non-binding third partydetermination.

116. Hooper Bailie Associated Ltd v Natcon Group(1992) 28 NSWLR 194 at 210.

117. (1852) 43 ER 687.118. News Limited v Australian Rugby Football League

Limited (No 2) (1996) ATPR 41-467.119. See for example John Tyrril "Practical Commercial

Medication Issues" (1996) 46 ACLN 31 at 33.120. Hooper Bailie Associated Ltd v Natcon Group

(1992) 28 NSWLR 194 at 206.121. ibid at 33. This was recognised by Giles J inHooper

Bailie Associated Ltd v Natcon Group (1992) 28NSWLR 194 at 206 as being one of the chiefarguments of the proponents of enforceability.

122. K Kressel, D G Pruitt "Mediation Research" SanFrancisco, Jossey - Bass Inc 1989 at 247-248 and403. For instance, in one study started by Kressel71 % of cases were resolved by mediation when itwas sought by both parties and on 50% when it wassought by one. In another study the figures were77% and 55% respectively.

123. ibid.124. Boulle "Mediation: Principles, Process, Practice"

Sydney, Butterworths, 1996 at 275.125. ibid.126. See for example the Courts LegislationAmendment

Act 1995.127. In Hooper Bailie Associated Ltd v Natcon Group

(1992) 28 NSWLR 194, the "agreement" toconciliate was reached after the dispute arose.

128. In respect of "good faith" and "reasonableness"obligations under the rules of court orderedmediation - refer to Decker vLindsay 824 SW 247.See generally Rogers & McEwen "Mediation LawPolicy Practice New York", Lawyers Cooperative,1989 at p49-52.