May or Must Arbitrate

Can “May” Arbitrate mean “Must” Arbitrate?

Can “may” arbitrate mean “must” arbitrate? Agreeing in a contract how you are going to resolve any dispute is a key part of risk management for any business. After all, when things have gone pear shaped, people will start to argue about everything, including the dispute resolution clause itself, if they can.

This is just what happened in a recent case decided by the Privy Council (Anzen and Others v Hermes One Ltd (2016) UKPC1). There, the relevant clause stated: ‘any party may submit the dispute to binding arbitration’. Notwithstanding this, one party began litigation. The other party applied for the litigation to be stayed on the grounds that the case should be arbitrated.

After a series of decisions and appeals, the case came before the Privy Council. It held that:

  1. The litigation was stayed. It was not the appropriate forum because of the clause.
  2. If the claimant wished to pursue its claim, it would have to begin arbitration proceedings.
  3. In order for the stay to be granted, the defendant did not have to begin arbitration proceedings itself. (Thankfully. After all, what potential defendant is likely to commence an arbitration except in rare circumstances?)

So effectively the Privy Council decided that “may” means “must” in this situation.

Turning to mediation, the form of alternative dispute resolution that I practice, what impact may this case have that was decided by one of the highest courts of the land?

I would venture to say significant impact, potentially. If a contract includes a clause stating that the parties ‘may mediate’, that has until now been seen as a voluntary submission to mediation that cannot be enforced.  By analogy, it is highly possible that following the Privy Council decision such a clause will now be interpreted to mean if one party raises the issue of mediation, the courts or arbitrators will be obliged to issue a stay of the proceedings pending mediation. This would indeed be in keeping with the courts’ current propensity to encourage the parties to engage in sorting out the dispute themselves (see my January blog about the costs of unreasonably refusing to mediate).

Following a series of recent cases, we had previously reached the position where an agreement to mediate would only be binding in certain circumstances. Those are that it refers to mediation through a Mediation Provider whose Rules ensure once a referral is made to them a mediation will be set up, irrespective of differences between the parties about timings, practicalities, choice of mediator etc. It may be following the Privy Council decision that reference to these Rules is no longer necessary to create a binding obligation to mediate.

This must be good news for parties. More parties are satisfied with the result at mediation than at court, even if they win. It is also good news for solicitors who can finally get those difficult cases off their desk. As one litigation solicitor said to me at the conclusion of a complex mediation last week: “Why is it the trickiest looking cases that settle at mediation?” I guess it must be good news for mediators as well…