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Rowan Turrall
Rowan Turrall,
Is a dispute resolution clause a condition precedent to arbitration?
19 March 2013

In Wah and Ying v Grant Thornton International Limited [2012] the court had to consider whether following the provisions of a dispute resolution clause was a condition precedent to arbitration.

The facts

The claimants were two partners in a partnership which was formerly part of the Grant Thornton network of accountancy and audit firms. The partnership was expelled from the network in late 2010 and a dispute arose. The partnership’s membership of the network was governed by an agreement called the Grant Thornton Member Firm Agreement (MFA). The provisions of the MFA set out a dispute resolution procedure which required the following steps to be taken:

  • A reference to the Chief Executive in an attempt to settle such dispute or difference by amicable conciliation of an informal nature. The Chief Executive was allowed up to one month to attempt to resolve any dispute
  • If not resolved the next stage was referral to a panel of 3 members of the Board
  • If still not resolved the claim could be referred to arbitration

The process was not followed as the Chief Executive recused (the act of abstaining from participation in an official action such as a legal proceeding due to a conflict of interest) himself from being involved and the panel was not appointed. The claim was referred to arbitration and an issue arose as to whether following the dispute resolution procedure was a condition precedent to the arbitration such that the arbitration tribunal did not have jurisdiction.

The decision

The judge summarised the relevant principles and case law to be considered in determining the question. He reiterated that agreements to agree and agreements to negotiate in good faith, without more, are unenforceable. Good faith as a concept is too open-ended to allow objective determination of when the process has been concluded. The judge set out the test to be applied in the context of a positive obligation to attempt to resolve a dispute before referring the dispute to arbitration or proceedings. Such a provision must prescribe:

  1. "a sufficiently certain and unequivocal commitment to commence a process

  2. from which may be discerned what steps each party is required to take to put the process in place and which is

  3. 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.”

In relation to a negative stipulation preventing arbitration or proceedings without a specific event having occurred then the question is whether the event is sufficiently defined and it's happening objectively ascertainable to enable the court to determine whether and when the event has occurred.

Looking at the specific provision in question the judge concluded that it did not set out what form the process of conciliation should take, who was to be involved and what they were required to do. The reference to the Panel did not include any detail as to what the process of resolution should be, who was to participate and what would amount to "an attempt to resolve" the dispute. The judge therefore concluded that the provision lacked sufficient definition and certainty to constitute an enforceable condition precedent to the commencement of arbitration. The arbitration tribunal therefore had jurisdiction to deal with the dispute.

Practice points

The case highlights that even an apparently detailed dispute resolution clause may not be enough to prevent proceedings being issued or arbitration commenced if the process has not been followed. Very careful drafting of these provisions is therefore required if parties want to ensure that compliance with a dispute resolution procedure is to be mandatory before any other more formal steps can be taken. 

For more information about the issues in this article to find out more about how the Dispute Resolution team can help you please contact Rowan Turrall on 0118 952 7206 or email [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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