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Title : Wah v Grant Thornton International

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Status:  Positive or Neutral Judicial Treatment

Tang Chung Wah (Aka Alan Tang), Lee Fung Ying (Aka Alison
Wong) v Grant Thornton International Limited, Jonathan Russell
Leong, Ringo Chiu Wing Cheung, Andrew Lam Hung Yun, Gary
Terence James, Lo Ngai Hang (Aka Tony Lo Ngai Hang), Au Yiu
Kwan (Aka Alvin Au Yiu Kwan), Li Wing Yin (Aka Amos Li Wing
Yin), Norman Twui Ka Che, Paul Chow

Case No: HC12E01608

High Court of Justice Chancery Division

14 November 2012

[2012] EWHC 3198 (Ch)

2012 WL 4888769

Before: The Hon. Mr Justice Hildyard

Date: 14/11/2012

Hearing date: 3rd July 2012

Representation

John Machell QC and Dan McCourt Fritz (instructed by Locke Lord (UK) LLP ) for the
Claimants.
Alistair McGregor QC and James Leabeater (instructed by King & Wood Mallesons )
for the 1st – 9th Defendants.
The 10th Defendant did not appear and was not represented.

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
    Page  3

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
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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.
    Page  5

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 (c) set aside the award in whole or in part.

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…owever 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

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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.”
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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
    Page  8

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.”
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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.
    Page  10

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 that a 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
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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 35t 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
    Page  12

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)…ediation 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).)

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
    Page  13

(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
    Page  14

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
    Page  15

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
    Page  16

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.
    Page  17

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
    Page  18

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.”
    Page  19

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

    Page  20

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.

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