Wah (Aka Alan Tang) & Anor v Grant Thornton International Ltd & Ors [2012] EWHC 3198 (Ch)

Case No HC12E01608

[2012] EWHC 3198 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue The Royal Courts of Justice, The Rolls Building,, 7 Rolls Building, Fetter Lane, London EC4A 1NL

Date 14/11/2012

Before

THE HON. MR JUSTICE HILDYARD

Between

TANG CHUNG WAH (AKA ALAN TANG)Claimants

LEE FUNG YING (AKA ALISON WONG)Claimant

GRANT THORNTON INTERNATIONAL LIMITEDDefendants

JONATHAN RUSSELL LEONGDefendant

RINGO CHIU WING CHEUNGDefendant

ANDREW LAM HUNG YUNDefendant

GARY TERENCE JAMESDefendant

LO NGAI HANG (AKA TONY LO NGAI HANG)Defendant

AU YIU KWAN (AKA ALVIN AU YIU KWAN)Defendant

LI WING YIN (AKA AMOS LI WING YIN)Defendant

NORMAN TWUI KA CHEDefendant

(10) PAUL CHOWDefendant

John Machell QC and Dan McCourt Fritz (instructed by Locke Lord (UK) LLP) for Claimants

Alistair McGregor QC and James Leabeater (instructed by King & Wood Mallesons) for 1 st– 9 th Defendants

for The 10 th Defendant did not appear and was not represented

Hearing Hearing date: 3rd July 2012

Judgment

The Hon. Mr Justice Hildyard :

The nature of the dispute

[1]The Claimants apply for an order under section 67 of the Arbitration Act 1996 (“the 1996 Act”) that the final award (“the Final Award”) of an arbitral tribunal (“the Tribunal”) appointed by the London Court of International Arbitration (“the LCIA”) made on 26 March 2012 (reference no. 111853) is of no effect because the Tribunal did not have substantive jurisdiction.

[2]The claim was brought under Part 8 of the Civil Procedure Rules on 23 April 2012 and thus within 28 days of the date of the Final Award. The Claim Form was amended and re-issued on 13 May 2012.

[3]The basis for the claim is the Claimants’ contention that certain provisions of the relevant agreement pursuant to which the Request for Arbitration was made to the LCIA on 18 April 2011 stipulated steps to be taken as a condition precedent to any arbitral process and that such steps were not taken prior to that Request (or at all).

[4]The question determinative of the claim is a familiar one but it is not without difficulty: it is whether the provisions in issue had enforceable contractual effect and operated as conditions precedent such that the Tribunal cannot have had jurisdiction, and was wrong in its determination that it had.

[5]There have been a number of cases in which the enforceability of clauses providing for mediation or conciliation prior to arbitration or proceedings in court has been considered. These suggest, exemplify and explain various requirements to be fulfilled if such a clause can be given contractual effect; but the essential question is whether their content is sufficiently precise and certain to be enforced. Like an agreement to agree, a provision for dispute resolution which lacks sufficient detail as to the process required to be undertaken cannot be enforced. I return to discuss these authorities later.

The parties and the background

[6]The Claimants are two of the partners in a partnership governed by Hong Kong law called JBPB & Co (“JBPB”). (Strictly, references to JBPB should be taken to be to all partners in JBPB at the time when the LCIA arbitration commenced.)

[7]The First Defendant (“GTIL”) is a private company incorporated in England. GTIL is the “umbrella” organisation for the Grant Thornton network of accountancy and audit firms: it does not itself provide services to clients.

[8]The claims and counterclaims made in the arbitration to which these proceedings relate (“the Arbitration”) arose from GTIL’s expulsion of JBPB (then known as Grant Thornton in Hong Kong (“GTHK”)) from GTIL’s network in late 2010. It is common ground that the merits of the underlying dispute are not relevant to the issues now before me, and I say no more in that regard.

[9]The Second to Ninth Defendants (“the Majority Partners”), together with the Tenth Defendant (“Mr Chow”), were at all material times partners in JBPB. They were represented separately from the Claimants at the Arbitration by the firm of Hart Giles and were referred to as the Majority Partners in the Final Award.

[10]GTIL and the Majority Partners did not contest the Tribunal’s jurisdiction at the Arbitration and asked that the Tribunal’s decision that it had jurisdiction be affirmed. The Claimants did contest jurisdiction and now seek to set aside the Award accordingly.

[11]Rosenblatt, who represented the Claimants in the Arbitration, also represented Mr Chow until September 2011. However, they then ceased to do so: and after September 2011 Mr Chow has not been represented and he has had no involvement in the Arbitration. Nor was he represented before me. Indeed, when the matter came on for hearing it was unclear whether he had been served or what his position was. I agreed nevertheless to continue with the hearing, subject to Mr Chow being provided with a transcript and afforded the opportunity at a subsequent date (fixed for 6 August 2012) to make any further submissions he wished. In fact, I subsequently was informed (and provided with an e-mail from Mr Chow to confirm) that Mr Chow did not wish to participate and did not intend to acknowledge service, though in the e-mail he also stated that he agreed with the Claimants that the Tribunal had no jurisdiction. The further hearing fixed for 6 August 2012 was abandoned as being unnecessary.

[12]To return to the history of the matter, the Majority Partners had, by late October 2011, and after a mediation attended by all relevant parties, purported to enter into a settlement agreement with GTIL and others by way of deed (“the Settlement Deed”, which was stated to be effective as from 28 September 2011). The Settlement Deed, which is governed by English law, provided for the Arbitration and other proceedings in the High Court of Hong Kong SAR to be discontinued or withdrawn.

[13]The Claimants are not parties to the Settlement Deed. On 6 October 2011, they sought and obtained in Hong Kong an injunction to prevent a meeting being convened of all JBPB partners to adopt it. The injunction was subsequently lifted and at the meeting which then took place the Settlement Deed was ratified by the Majority Partners. The validity of the Settlement Deed is now the subject of proceedings in the High Court of Hong Kong SAR. Again it is common ground that the merits of those proceedings are not relevant to my determination.

The reference to arbitration and the Tribunal’s Final Award

[14]What is relevant is that on 9 November 2011 GTIL and the Majority Partners asked the Tribunal to terminate the Arbitration, on the basis that the dispute had been settled. The Claimants contested this. On 18 November 2011 the Tribunal ruled that the issue whether the dispute had been settled should be decided at a hearing on 2 February 2012.

[15]At that hearing the Claimants contended that the Tribunal had no jurisdiction to determine the issue. The Tribunal thus had to deal with and rule upon the issue of its own jurisdiction, as it was empowered and required to do by sections 30 and 31 of the 1996 Act.

[16]The Tribunal described the issues requiring its decision in the following terms:(1) Does the Tribunal have jurisdiction to determine this dispute?

(2) If the Tribunal has jurisdiction, does the Settlement Deed preclude the [Claimants] from continuing their claims against GTIL?

(3) Deciding the claims for costs of the various parties.

[17]The Final Award addresses each in turn, identifying the matter of jurisdiction as the threshold issue.

[18]The Tribunal held that:(1) there was no contractually enforceable condition precedent to prevent it having jurisdiction, that the arbitration clause had been validly invoked and that accordingly it did have such jurisdiction (paragraph 4.18 of the Final Award);

(2) the Settlement Deed required the Arbitration to be terminated; the Tribunal deciding to leave open whether nevertheless the Claimants could pursue proceedings against the Majority Partners under an agreement called the Deed of Termination (which is governed by the laws of Hong Kong, contains no arbitration clause and which could therefore not be the subject of the Arbitration): (paragraphs 5.14 and 5.16 of the Final Award);

(3) GTIL should be entitled to specified costs against the Claimants but the Majority Partners should not be entitled to recover their costs from the Claimants (paragraph 7 of the Final Award).

[19]As previously indicated, only the first issue arises for my adjudication, and that issue is as to the substantive jurisdiction of the Tribunal.

The basis of this application

[20]There is no dispute that, unlike appeals on a point of law under section 69 of the 1996 Act (where leave of the Court is required), challenges to the substantive jurisdiction of an arbitral tribunal with a view to declaring any award to be of no effect under section 67 of the 1996 Act may (pursuant to section 67(1)) be made as of right.

[21]Sub-section 67(3) of the 1996 Act empowers the Court to(a) confirm or

(b) vary or

[22]It is not disputed that, following Dallah Estate & Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan

[2010] UKSC 46

, the proper approach for the Court is to treat the challenge to an arbitral tribunal’s jurisdiction as a rehearing rather than a review. Indeed, as Lord Hope put it (at paragraph 30), “The tribunal’s own view of its jurisdiction has no legal or evidential value…however full was the evidence before it and however carefully deliberated was its conclusion.”

[23]As Lord Hope went on to explain (at paragraph 31), however, that is not to say that a court seised of the issue “will not examine, both carefully and with interest, the reasoning of an arbitral tribunal which has undertaken a similar examination. Courts welcome useful assistance.” It is simply that the court is neither bound nor restricted by the tribunal’s reasoning and findings.

The MFA and its relevant provisions

[24]The arbitration clause in issue is contained in an agreement setting out the terms of membership of the international group of accountancy firms known worldwide as Grant Thornton and regulated by the international umbrella entity (GTIL). The agreement is called the Grant Thornton Member Firm Agreement (“the MFA”).

[25]The MFA, which is governed by and to be construed in accordance with English law, excluding its conflict of law rules, also makes provision for the use by member firms of the intellectual property rights associated with the Grant Thornton name, and for other matters relating to the conduct of the local firm’s business. The MFA includes provisions for the expulsion of a local firm from the group.

[26]Section 14.2 of the MFA provides as follows:

“The relationships among the parties are in the nature of a long-term arrangement among professional firms. The resolution of any dispute or difference arising out of or in connection with this Agreement (which shall also be deemed to include the Articles) or the breach thereof requires special treatment. It is the desire of the parties that any such dispute or difference should be settled quickly and privately in a binding fashion.”

[27]Section 14.3 of the MFA provides as follows:

“(a) Any dispute or difference as described in Section 14.2 shall in the first instance be referred to the Chief Executive in an attempt to settle such dispute or difference by amicable conciliation or an informal nature. The conciliation provided for in this Section 14.3 shall be applicable notwithstanding that GTIL may be a party to the dispute or difference in question. (b) The Chief Executive shall attempt to resolve the dispute or difference in an amicable fashion. Any party may submit a request for such conciliation regarding any such dispute or difference, and the Chief Executive shall have up to one (1) month after receipt of such request to attempt to resolve it. (c) If the dispute or difference shall not have been resolved within one (1) month following submissions to the Chief Executive, it shall be referred to a Panel of three (3) members of the Board to be selected by the Board, none of whom shall be associated with or in any other way related to the Member Firm or Member Firms who are parties to the dispute or difference. The Panel shall have up to one (1) month to attempt to resolve the dispute or difference. (d) Until the earlier of (i) such date as the Panel shall determine that it cannot resolve the dispute or difference, or (ii) the date one (1) month after the request for conciliation of the dispute or difference has been referred to it, no party may commence any arbitration procedures in accordance with this Agreement.”

[28]Section 14.4 provides as follows:

“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the rules of the London Court of International Arbitration, which rules are deemed to be incorporated by reference into this Section. The number of arbitrators shall be 3. The Claimant and Respondent shall each nominate one member of the Tribunal. The seat, or legal place, of arbitration shall be London, England. The language to be used in the arbitral proceedings shall be English.”

[29]In addition, section 16.6 of the MFA provides as follows:

“If any provisions of this Agreement are held to be invalid under any legal or other binding requirement in any jurisdiction to which the Agreement or any portion thereof may be subject then, unless the matter is disposed of under Section 2.3, such provisions shall to that extent be deemed omitted, and the validity and enforceability of the remainder of this Agreement shall not be affected thereby.”

[30]The Claimants contend that unless and until each of the steps specified in section 14.3 of the MFA has taken place none of the parties may invoke the arbitration provision in section 14.4 and refer the matter to arbitration.

Steps taken before reference to arbitration

[31]As to what was actually done in this regard the relevant facts (which, except where otherwise stated, I take from the Final Award and which I understand are not in substance disputed) are as follows.

[32]On 4 October 2010, JBPB’s lawyers, Tanner de Witt, recorded the fact that their clients had and/or wished to “appeal” to the board of governors of GTIL, and sought to invoke the dispute resolution mechanism under clause 14 of the MFA.

[33]It appears from the correspondence to which I was taken that GTIL’s lawyers, Mayer Brown JSM, initially contended that the provisions of the MFA relating to expulsion (section 6.8) are not “within the province of the Dispute Resolution Procedure”; but that when Tanner de Witt rejected that Mayer Brown JSM (after not a little equivocation and delay, and still maintaining their position) adopted a different stance. This was to urge Tanner de Witt either to agree to proceed direct to arbitration on the basis that since the decision for expulsion was unanimous “there is now a lack of objectivity and independence” such that “the only option is arbitration”, failing which to proceed forthwith to invoke formally the dispute resolution procedure.

[34]In the event, or so it appears from the correspondence in evidence, it was GTIL which, by e-mail from Mayer Brown JSM to the Chief Executive dated 24 December 2010, recorded that JBPB had through Tanner de Witt advised them of a dispute, and whilst “reserving all its rights in terms of alternative methods of determination of this issue, it being a simple claim “in debt”, expressly submitted the issue to the Chief Executive “within the meaning of clause 14.3(a) of the MFA.”

[35]On 31 December 2010, the Chief Executive of GTIL informed Mayer Brown JSM by e-mail as follows:

“Given my involvement in the decision to expel ex-Grant Thornton Hong Kong, I do not believe I can act as an objective conciliator as described in Section 14.3(a) of the [MFA]. As a result, I recuse myself from this role and request that you contact Peter Bodin, Chairman of the Board of Governors, about the designation of a panel of three Board of Governors representatives to comprise the BoG panel under Section 14.3(c) of the [MFA.]”

[36]Returning to the facts as recorded in the Award, on 1 February 2011, Mr Peter Bodin, as Chairman of the Board of Governors of GTIL, sent a message asking the Board whether anyone felt themselves capable of acting on a reconciliation panel.

[37]The Award does not record this: but the message from Mr Peter Bodin included the following passages:

“It is the view of the GTIL legal team (and also external counsel) that clause 14 does not apply in this scenario but we should go through the process to avoid protracted legal argument later. The clause 14 process consists of three steps. The first step, which was taken in December 2010, was to refer the dispute for conciliation to Ed Nusbaum as CEO. Ed determined that he could not act as a fully independent and objective conciliator because of his previous involvement in dealing with the issues concerning the former firm – including voting as a BoG member to expel them. He therefore recused himself. The clause 14 process now goes to a second stage, which is for the Board of Governors to appoint a panel of three governors to act as conciliators/mediators in the dispute between GTIL and the former firm. To sit on the panel, clause 14.3(c) of the MFA provides that none of the three (3) BoG panel members “shall be associated with or in any other way related to the Member Firm or Firms who are parties to the dispute or difference”

. Whilst GTIL is not a Member Firm for this purpose, it is of course a party to the dispute and GTIL acts by the BoG as directors of it. Further, as a matter of fairness and natural justice it will be necessary for the panel of three (3) to be fully independent and objective in relation to the matters in dispute. Should a fully independent and objective panel of three (3) BoG members not be identified, the dispute will go to third stage of the process, which is external arbitration in London.”

[38]On 14 February 2011, GTIL advised JBPB’s lawyers that no governors had put themselves forward to serve on a reconciliation panel. As a result, the three-person panel contemplated by section 14.3(c) of the MFA was never constituted.

Summary of arguments

[39]The Claimants allege that the requisite steps to enable a process of pre-arbitration conciliation were clearly prescribed, and were conditions precedent before an arbitral reference could be made; as they were not fulfilled, the reference was thus invalid, so that the Tribunal cannot have had jurisdiction.

[40]On the other hand, GTIL and the Majority Partners allege that the steps adumbrated were not sufficiently precise or certain to be contractually binding; and further or alternatively, that on the true construction of the MFA, the parties did not intend and did not agree that if the conciliation process failed, they should not be entitled to refer the dispute or difference to arbitration.

The Tribunal’s decision

[41]The Tribunal considered that the steps prescribed do not constitute a detailed process which is sufficiently certain to be legally enforceable (see paragraph 4.17 of the Final Award).

[42]It considered that the provision for the Chief Executive to have one month to attempt a resolution was, on true construction, “merely a procedure to require that the dispute be brought to his attention” (see paragraph 4.16): and likewise the provision for further reference on to the Board of Governors (see paragraph 4.16). It characterised the provisions together as “only a mechanism to permit the members of the Grant Thornton group to keep the dispute “in house” for a period of time before it is brought for binding settlement before objective third parties (in arbitration)”: see paragraph 4.17. It concluded (see paragraph 4.18) that the “conciliation provisions of the MFA are more akin to an agreement to agree, because, in essence, the clause requires the complaining party to negotiate with the executives of GTIL, and thereafter with some of the members of GTIL. There is no true third party involvement. That the dispute resolution mechanism provided by the MFA is not true mediation conducted by a disinterested mediator is clear in the present situation. It was the Chief Executive of GTIL who expelled JBPB in the first place, after consultation with the Board of Governors from which the second panel was to be formed, all of whom had already decided to support the expulsion. It would be futile to form such a panel and the Members of the Board of Governors refused to do so. In such a case, it was obvious that the only recourse for the parties was to go to arbitration, their contractually preferred means of dispute resolution. Hence it is clear that exact compliance with the provisions of Section 14.3 of the MFA was not a condition precedent to the commencement of this arbitration. It thus follows that this Tribunal has jurisdiction to decide the existing dispute, and we so find.”

[43]The Tribunal thus, as I understand the Final Award on the issue of jurisdiction, took the view that Section 14.3 lacked essential qualities of a binding provision for mediation or conciliation, which it took to include that the process prescribed should involve reference to a third party, independent (and possibly also, paid) person.

[44]The Tribunal relied especially in that regard on the judgment of Ramsey J in Holloway and another v Chancery Mead Ltd

[2007] EWHC 2495 (TCC)

, [2008] 1 All ER (Comm) 653, and in particular a passage at paragraph 81 of that judgment which, after a review of the case law, states as follows:

“It seems to me that considering the above authorities the principles to be derived are that the ADR clause must meet at least the following three requirements: First, that the process must be sufficiently certain in that there should not be the need for an agreement at any stage before matters can proceed. Secondly, the administrative processes for selecting a party to resolve the dispute and to pay that person should also be defined. Thirdly, the process or at least a model of the process should be set out so that the detail of the process is sufficiently certain.”

[45]The Tribunal also relied on Halifax Financial Services Ltd v Intuitive Systems Ltd [1999] 1 All ER (Comm) 303 for the proposition that (as stated in paragraph 4.12 of the Final Award) that “common provisions such as requiring that the chief executives of the two companies shall first meet to attempt to resolve the dispute before commencing arbitration cannot be a condition precedent to one party commencing arbitration”. I think, however, that this extrapolation may go rather further than the actual decision in that case, though the more confined proposition that was accepted by McKinnon J was that “the courts [have] consistently declined to compel parties to engage in co-operative processes, particularly ‘good faith’ negotiation, because of the practical and legal impossibility of monitoring and enforcing the process…” (reliance being placed on Courtney & Fairbairn Ltd v Tolaini Bros. (Hotels) Ltd

[1975] 1 WLR 297

, Walford v Miles

[1992] 2 AC 128

, and Paul Smith Ltd v H & S International Holdings Inc

[1991] 2 Lloyd’s Rep 127

[46]The Tribunal referred in addition to the decision of Steyn J (as he then was) in Itex Shipping PTE Ltd v China Ocean Shipping Co, The “Jing Hong Hai”

[1989] 2 Lloyd’s Rep 522

in support of the proposition thata mere agreement that the parties shall seek to settle their disputes amicably and only refer the matter to arbitration in the event of being unable to settle is not a legally enforceable obligation constituting a condition precedent.

[47]The case which on behalf of the GTIL and the Majority Partners Mr McGregor QC presented as being the beginning and end of the matters in dispute, namely, Sulamérica CIA Nacional de Seguros SA and others v Enesa Engenharia SA – Enesa and others

[2012] EWCA Civ 638

, was not cited to the Tribunal, presumably because no transcript was yet available of Cooke J’s decision at first instance and the Court of Appeal judgment was published after the date of the Final Award.

[48]In that case, the provisions in question (which the claimants contended constituted an enforceable condition, compliance with which was precedent to the accrual of any right to refer that dispute to arbitration) stated in material part as follows:

“11. Mediation If any dispute or difference of whatsoever nature arises out of or in connection with this Policy including any question regarding its existence, validity or termination, hereafter termed as Dispute, the parties undertake that, prior to a reference to arbitration, they will seek to have the Dispute resolved amicably by mediation. … The mediation may be terminated should any party so wish by written notice to the appointed mediator and to the other party to that effect. Notice to terminate may be served at any time after the first meeting or discussion has taken place in mediation. If the Dispute has not been resolved to the satisfaction of either party within 90 days of service of the notice initiating mediation, or if either party serves written notice terminating the mediation under this clause, then either party may refer the Dispute to arbitration. In case the Insured and the Insurer(s) shall fail to agree as to the amount to be paid under this Policy through mediation as above, such dispute shall then be referred to arbitration under ARIAS Arbitration Rules…”

[49]Moore-Bick LJ, with whom the Master of the Rolls and Hallett LJ agreed, upheld the decision of Cooke J that this provision did not create a binding obligation to commence or participate in a mediation process before arbitration because it was insufficiently certain (see paragraphs 35 to 37). At paragraph 35 he cautioned that each case must be considered on its own terms, and the court should be slow to deny enforceability, but then at paragraph 36 he said this:

“In the present case, unlike Cable & Wireless Plc v IBM ([2002] EWHC 2059) and Holloway v Chancery Mead, condition 11 does not set out any defined mediation process, nor does it refer to the procedure of a specific mediation provider. The first paragraph contains merely an undertaking to seek to have the dispute resolved amicably by mediation. No provision is made for the process by which that is to be undertaken and none of the succeeding paragraphs touches on that question. I agree with the judge, therefore, that condition 11 is not apt to create an obligation to commence or participate in a mediation process. The most that might be said is that it imposes on any party who is contemplating referring a dispute to arbitration an obligation to invite the other to join in an ad hoc mediation, but the content of even such a limited obligation is so uncertain as to render it impossible of enforcement in the absence of some defined mediation process. I think that the judge was right, therefore, to hold that condition 11 is incapable of giving rise to a binding obligation of any kind.”

[50]At paragraph 37, Moore-Bick LJ concluded:

“…if (as I think)…mediation is not defined with sufficient certainty, the conditions cannot constitute a legally effective precondition to arbitration.”

[51]Partly because of Moore-Bick LJ’s reference to it, but also because it illustrates that the court will seek to give effect to provisions intended to bind the parties as far as possible, and may even enforce part of a commitment though the whole cannot be enforced, I should also address the Cable & Wireless case (which I do not think the Tribunal mentioned). In that case, the relevant provisions for ADR read (in relevant part) as follows:

“41.1 The parties shall attempt in good faith to resolve any dispute or claim arising out of or relating to this agreement or any local services agreement promptly through negotiations between the respective senior executives of the parties who have authority to settle the same… 41.2 If the matter is not resolved through negotiation, the parties shall attempt in good faith to resolve the dispute or claim through an alternative dispute resolution (ADR) procedure as recommended to the parties by the Centre for Dispute Resolution. However, an ADR procedure which is being followed shall not prevent any party or local party from issuing proceedings.” (The Centre for Effective Dispute Resolution (CEDR) model clauses include provisions preserving the principle of voluntary participation and providing for elective unilateral withdrawal at any time after the mediator’s appointment, but thereby also envisaging a “certain minimum participation in the procedure” (for example, cooperation in the appointment of a mediator and attendance at the first meeting called by him).) 52. Colman J held that there was an obligation on both parties to participate at least to the extent of co-operating in the appointment of a mediator and attending at least one meeting (see paragraphs 34 and 35 of his judgment). He adjourned any further proceedings until after the parties had taken the prescribed minimum steps, noting (at paragraph 35) that although the court retained jurisdiction not to enforce such provisions by injunction (since an injunction was an equitable remedy and always discretionary) “strong cause would have to be shown before a court would be justified in declining to enforce such an agreement.”

He also suggested (in paragraph 33) that “…I would wish to add that contractual references to ADR which did not include provision for an identifiable procedure would not necessarily fail to be enforceable by reason of uncertainty. An important consideration would be whether the obligation to mediate was expressed in unqualified and mandatory terms or whether, as is the case with the standard form of ADR orders in this court, the duty to mediate was expressed in qualified terms – ‘shall take such serious steps as they may be advised’. The wording of each reference will have to be examined with these considerations in mind. In principle, however, where there is an unqualified reference to ADR, a sufficiently certain and definable minimum duty of participation should not be hard to find.”

[52]I have puzzled over that last phrase, which was much stressed on behalf of the Claimants before me. On one reading, it might signify (as the Claimants urged) that in the case of a unilateral bare commitment to attempt to resolve a dispute all that is required is that the court should be able to discern what is the minimum that is required to be done, without necessarily having to be able to go any further in defining what else is required for the attempt not to be empty of any real content. But I do not think that such a reading would be correct: and especially where (as here) although certain steps in the envisaged conciliation process are prescribed, the content of that process is not defined at all and the commitment is so generally and equivocally expressed.

[53]Further, I do not think the phrase (which is strictly obiter) can have been intended to signify that the court may, as it were, extrapolate from a clause those parts of it which it considers are sufficiently certain to be enforceable and treat that as being the enforceable content of the clause. That would be to re-write the contractual bargain struck. As it seems to me, and is confirmed by the judgments in Sulamérica, the court must be satisfied that each part of the clause which was intended to be operative can be given certain legal content and effect. (There may be an exception in the case of provisions for machinery which is or has become wholly unnecessary or redundant: but that is not (on either side's case) the position here.)

[54]The last of the numerous cases cited to me which I should specifically mention under this heading is the decision of the Court of Appeal in Petromec Inc and others v Petroleo Brasileiro SA Petrobras and others

[2005] EWCA Civ 891

. In that case, the Court of Appeal noted that adjudication of the question as to the enforceability of a provision requiring negotiation in good faith with regard to the cost of a disputed upgrade of a drilling rig was not essential to the disposition of the appeal; but Longmore LJ (with whom Mance LJ (as he then was) and Pill LJ agreed) considered that in the particular circumstances there were no good reasons for saying that the obligation to negotiate the discrete issue as to the extra cost of the upgrade was unenforceable: the task was defined and of comparatively narrow scope; the provision in question was part of a complex agreement drafted by City Solicitors; and whilst recognising the difficulty of determining when a requirement to negotiate in good faith has been satisfied (the concept of bringing negotiations to an end in bad faith being “somewhat elusive”) nevertheless the court should not deny enforcement on that ground:

“the difficulty of a problem should not be an excuse for a court to withhold relevant assistance from the parties by declaring a blanket enforceability of the obligation”

. Though of course accepting that any review of Walford v Miles was a matter for the House of Lords/Supreme Court he did not consider it could mandate “blanket unenforceability” and he concluded as follows (in paragraph 121):

“It would be a strong thing to declare unenforceable a clause into which the parties have deliberately and expressly entered. I have already observed that it is of comparatively narrow scope. To decide that it has “no legal content” to use Lord Ackner’s phrase would be for the law deliberately to defeat the expectations of honest men, to adopt slightly the title of Lord Steyn’s Sultan Azlan Shah lecture delivered in Kuala Lumpur on 24th October 1996 (113 LQR 433). At page 439 Lord Steyn hoped that the House of Lords might reconsider Walford v Miles with the benefit of fuller argument. That is not an option open to this court. I would say only that I do not consider that Walford v Miles binds us to hold that the express obligation to negotiate as contained in [the relevant provision] is completely without legal substance.”

[55]However, Longmore LJ’s implicit hope that Walford v Miles might be reviewed at the highest level has not (yet) been fulfilled. Further, Petromec concerned a commitment to negotiate in good faith to establish an issue of costing or price. It does seem that the courts have been more ready to give effect to such commitments, construing them as in effect stipulations for a reasonable or fair price and treating that as a sufficient criterion for the courts to act upon. But this is not such a case. I do not think Petromec really assists in the present context.

Relevant guidelines emerging

[56]This recitation of authority illustrates the tensions, in the context of provisions for conciliation or mediation of disputes prior to arbitration or court proceedings, between the desire to give effect to what the parties agreed and the difficulty in giving what they have agreed objective and legally controllable substance.

[57]Agreements to agree and agreements to negotiate in good faith, without more, must be taken to be unenforceable: good faith is too open-ended a concept or criterion to provide a sufficient definition of what such an agreement must as a minimum involve and when it can objectively be determined to be properly concluded. That appears to be so even if the provision for agreement is one of many provisions in an otherwise binding legal contract, with an exception where the provision in question can be construed as a commitment to agree a fair and reasonable price.

[58]However, especially when the relevant provision is but one part of a concluded and otherwise legally enforceable contract the Court will strain to find a construction which gives it effect. For that purpose it may imply criteria or supply machinery sufficient to enable the Court to determine both what process is to be followed and when and how, without the necessity for further agreement, the process is to be treated as successful, exhausted or properly terminated. The Court will especially readily imply criteria or machinery in the context of a stipulation for agreement of a fair and reasonable price.

[59]The Court has been in the past, and will be, astute to consider each case on its own terms. The test is not whether a clause is a valid provision for a recognised process of ADR: it is whether the obligations and/or negative injunctions it imposes are sufficiently clear and certain to be given legal effect.

[60]In the context of a positive obligation to attempt to resolve a dispute or difference amicably before referring a matter to arbitration or bringing proceedings the test is whether the provision prescribes, without the need for further agreement,(a) a sufficiently certain and unequivocal commitment to commence a process

(b) from which may be discerned what steps each party is required to take to put the process in place and which is

(c) sufficiently clearly defined to enable the Court to determine objectively (i) what under that process is the minimum required of the parties to the dispute in terms of their participation in it and (ii) when or how the process will be exhausted or properly terminable without breach.

[61]In the context of a negative stipulation or injunction preventing a reference or proceedings until a given event, the question is whether the event is sufficiently defined and its happening objectively ascertainable to enable the court to determine whether and when the event has occurred.

Application of these principles to and construction of Section 14.3 of the MFA

[62]As to the positive obligations prescribed by Sections 14.3(a) to (c):(1) Section 14.3(a) requires that the dispute or difference should be referred to the Chief Executive with a view to him attempting amicably to resolve that dispute or difference by amicable conciliation of an informal nature;

(2) Section 14.3(b) prescribes that the Chief Executive shall attempt to resolve the dispute or difference in an amicable fashion within one month after receipt of a request that he should do so;

(3) Section 14.3(c) prescribes that if the dispute or difference is not by then resolved it should be referred to a three-person Panel selected by the Board (none of whom is associated with or in any other way related to the member Firm(s) who are parties to the dispute), it being provided that the Panel is to have up to one further month to resolve the dispute or difference.

[63]As to the positive obligations:(1) At the first stage all that is required is a reference to the Chief Executive: that seems to me to be a clear requirement, satisfaction of which is demonstrated by the objective fact of a reference;

(2) However, no more is said in section 14.3(b) as to (i) what form the process of conciliation should take (apart from the injunction that it is to be undertaken “in amicable fashion”); nor as to (ii) who is to be involved in it and what (if anything) they are required to do by way of participation in the process; nor indeed as to (iii) what the obligation to attempt to resolve the dispute or difference requires the Chief Executive to do;

(3) In relation to the next stage, of a reference to the Panel, again no more is said as to (i) what the form or process of resolution should be; nor (ii) whether it is to include participation by the parties to the dispute; nor again (iii) what will suffice in terms of an “attempt to resolve” the dispute or difference, whether on the part of the Panel or on the part of the other parties to the dispute or difference;

(4) As to the fourth stage, (i) nothing is stated as to whether the Panel must at least take some step calculated to lead to resolution of the dispute or whether it may determine that it cannot resolve it without taking any steps at all; but (ii) the provision for the Panel to have only one month at most to attempt to resolve the dispute or difference is clear.

[64]The Claimants urged on me that none of these omissions deprive Section 14.3 of enforceable legal effect, and the provision of an end date removes the difficulty there would otherwise be in determining when and how the process is to be brought to an end. They submitted, in effect, that the combination of(a) a prescription of the sequence of steps or events to take place within a defined time-scale; and

(b) the clear purpose of Section 14.3 in providing for a finite period of deferral or cooling off period; and

(c) the certainty which the definition of the time-scale provides in determining when the period of deferment is complete, is sufficient and certain.

[65]Put another way, the Claimants contend that Section 14.3 does not prescribe, and does not need to prescribe, any standards of compliance nor any basic process for the exercise of conciliation. The conditions precedent alleged by the Claimants are simple and absolute, not calling for or requiring any further agreement or (formalistic compliance being sufficient) subjective judgment: there is nothing deficient or uncertain in a provision which simply but unequivocally requires formalistic compliance with prescribed steps in a prescribed sequence with a view to enabling an opportunity for amicable resolution within a defined and limited time frame before any party may commence arbitration; and there is no reason not to give effect to such a provision as a condition precedent, even though no process for ADR, nor any definition of what as a matter of substance is required of the parties is provided.

[66]The Claimants further contend that Section 14.3 should not be compared with, on the one hand, agreements to agree or to negotiate, nor, on the other hand, with provisions (such as in Cable & Wireless) which incorporate CEDR processes by reference: and the Tribunal was wrong to test the provisions by reference to such an analogy or such a test (as they suggest it did in paragraph 4.12 of the Final Award). Nor, they contended, should the obligations be treated as giving rise to a mutual obligation of uncertain content: the sequential obligations on the Chief Executive and the Panel should be regarded as purely unilateral and satisfied by any formalistic step towards conciliation.

[67]In summary: the Claimants submit that Section 14.3 must be construed as it is and without seeking to label or shoe-horn it in to the established requirements for an enforceable ADR clause as the Tribunal had done. The proper task of the Court is not to assess whether a recognisable and sufficient process of dispute resolution (with the ingredients identified by Ramsay J in Holloway v Chancery Mead) is provided for; rather, it is to assess whether the specific provisions, read sui generis, are singly and together sufficiently certain to be given legal effect.

[68]The Defendants, on the other hand, urged on me the omissions which I have identified as demonstrating such uncertainty as to render Section 14.3 impossible of enforcement and thus incapable of constituting a binding condition precedent to the commencement of arbitration. They submitted that section 14.3 was intended to be far more than a simple provision for a period of deferment before commencement of arbitration and for formalistic steps in that period with a view to some form of resolution emerging. It was intended to provide for, and necessarily envisaged, a (probably multi-lateral) process of conciliation, and must be judged accordingly in terms of whether it defined with sufficient objective certainty what is required of the parties for the purposes of that process.

[69]They especially emphasised what they described as the “critical element of equivocation” inherent in a direction to “attempt to resolve a dispute” and the “nebulous” nature of the process contemplated. They posed the question in relation to the obligation thus placed on the Chief Executive as to “what it is precisely that he has to do to avoid being in breach of the obligation.” They likened the stipulation to the “ad hoc” process found to be insufficient in Sulamérica and the provisions as a whole as in substance mere obligations to agree to negotiate which have long been held to be unenforceable (see Cable & Wireless at [16] and [23]), citing in particular, Lord Denning MR’s judgment in Courtney and Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975 1 WLR 297).

[70]In summary, the Defendants submit that Section 14.3 provides for a process of conciliation which, though doubtless intended to be enforceable (as was the provision in Sulamérica), lacks the certainty to enable the Court to give it legal effect. The process envisaged was even less certain than an agreement to negotiate, which is plainly unenforceable.

Adjudication

[71]I should admit to at one time having been attracted by Mr Machell’s basic argument that the Tribunal had quickly and wrongly leaped to the conclusion that the provision should be tested according to whether the ingredients of a valid ADR clause were included in it. I have borne very much in mind the injunction in Moore-Bick LJ’s judgment in Sulamérica (at paragraph 35) that each case must be considered on its own terms and not by ticking off minimum ingredients for validity in the context of clauses providing for mediation (or some other form of dispute resolution).

[72]However, in line with the submissions of Mr McGregor, I have reached the clear conclusion that Section 14.3 is too equivocal in terms of the process required and too nebulous in terms of the content of the parties’ respective obligations to be given legal effect as an enforceable condition precedent to arbitration. In particular, I accept that the omission to give any guidance as to the quality or nature of the attempts to be made to resolve a dispute or difference renders the Court unable to determine or direct compliance with the provisions of Section 14.3(a), (b) and (c).

[73]I have considered whether the negative stipulation or injunction in Section 14.3(d), which in terms prevents any party commencing any arbitration procedures until the earlier of(i) a determination by a Panel that it cannot resolve the dispute or difference or

(ii) the date one month after the request for conciliation of the dispute or difference has been referred to it, may itself be given effect so as to defer any right to commence any arbitration procedure if the steps set out in the preceding sub-sections have not been taken.

[74]That raises, as it seems to me, an issue as to whether Section 14.3(d) constitutes, on its true construction, a permanent bar to any party commencing arbitration if either no Panel as provided for in Section 14.3(c) is established or no request for conciliation of the dispute or difference has been referred to it; or whether, rather, the true construction of the provision is that if for any reason the conciliation process (which, of course, they intended to be binding and enforceable notwithstanding that I have held they were not) failed, any restriction on referring the matter to arbitration should lapse no later than two months after it was first referred to the Chief Executive for amicable conciliation. (Two months being the aggregate of the one month permitted at each stage of the two-stage process envisaged by the preceding sub-sections.)

[75]The Tribunal addressed this point at paragraph 4.8 of the Final Award as follows:

“It is arguable (as the [Claimants] contend) but by no means clear, that the “it” in Section 14.3(d) refers only to the reference to a three-person panel of members of the Board of Governors. However, the word could as easily refer to the date when it was clear that the panel could not be constituted by reason of the unanimous refusal of its potential members to serve. This would be a sensible, commercial reading of the clause. After the failure of the conciliation process, for whatever reason, a party was permitted (indeed obligated) to seek arbitration if it wanted redress.”

[76]I must confess that I found this approach, and the effort to give alternative meaning to the word “it”, initially somewhat difficult to follow. However, I have concluded that the conclusion reached by the Tribunal as to the true effect of the provision is correct.

[77]In my view, the purpose of the provision is plain: to reinforce the provisions of the preceding sub-sections but also to provide an end date after which any restriction on the right to commence arbitration procedures in accordance with the MFA lapses. The words need to be construed consistently with that purpose and if possible given meaning in the context of events that may not have been foreseen.

[78]As it seems to me the words “referred to it” in Section 14.3(d)(ii) should be construed purposively as denoting a reference to the Panel if and when established, and if never established, to the members of the Board from whom the Panel was to be selected. On that interpretation, Section 14.3(d)(i) provides for the Panel to bring an end to the period and Section 14.3(d)(ii) caters for the case where nothing emerges from any Panel at all.

[79]Alternatively, but to the same substantive effect, the words “such date as the Panel shall determine that it cannot resolve the dispute or difference” in Section 14.3(d)(i) should be construed as meaning(a) if a Panel is established the date of its determination that it cannot resolve the dispute or difference but also

(b) if a Panel cannot be established, the date on which it is resolved that that is the position so that in consequence the dispute or difference cannot be resolved by a Panel and the period of deferment before commencement of arbitration is thereby terminated.

[80]In reaching this conclusion, I am also comforted, as was the Tribunal, by the unrealistic consequences of the Claimants’ contention that if no panel is established no arbitration can be commenced, even long after the request for conciliation would have been required to be referred to the second stage. I do not think it realistic to suppose the parties to have intended that the Board or panel members could indefinitely postpone the right to arbitration: but that would be the consequence of the Claimants’ construction. And if it were to be suggested that the impossibility is self-induced by the prospective panel members or by the terms of the invitation extended to them, that would necessitate implying some standard of reasonable excuse for not agreeing to be part of the panel which again would render the clause uncertain.

[81]In that latter context, I should add that the Claimants cited Cipriani v Burnett

[1933] AC 83

(in the Privy Council) in support of the proposition that GTIL should be precluded from claiming an entitlement to commence arbitration under a contractual provision by which in other respects it had declined to abide. But all that GTIL and the Majority Partners have done is to deny (successfully) the legal effectiveness of Section 14.3 as a condition precedent. The agreement for arbitration under the rules of the LCIA is comprised in Section 14.4. I do not see there was anything to prevent or preclude either side from invoking that provision.

Conclusion and result

[82]In the result, in my judgment:(1) The provisions of Section 14.3 lack sufficient definition and certainty to constitute enforceable conditions precedent to the commencement of arbitration in accordance with the provisions of Section 14.4.

(2) Further or alternatively, on its true construction Section 14.3(d) does not prevent any party to the MFA from commencing any arbitration procedures in accordance with its terms after the expiry of two months from the first reference of a request for conciliation or (if earlier) the failure of the conciliation process in consequence of (i) it not being possible to establish a panel because there are no members of the Board willing to serve and/or (ii) because all such members of the Board take the view that the dispute or difference cannot not be resolved by such a panel. The arbitration in this case was commenced well after any such time frame had expired and after it was clear that no panel could be established because none of the members of the Board considered that the dispute or difference could be resolved.

(3) On either approach, the Tribunal did have jurisdiction, as it itself concluded.

[83]I shall therefore dismiss the claim. I invite counsel to prepare a minute of order accordingly. That and any other matters can be dealt with when this judgment is formally handed down.