In Elizabeth Chong Pty Limited & Anor v Brown [2011] FMCA 565 (22 July 2011) the Federal Magistrate’s Court refused to stay proceedings on the basis that a mediation clause contained in an agreement between one of the applicants and the respondent had not been complied with.
In the event of a dispute, excluding an application for urgent interlocutory relief, the parties had agreed to meet in good faith to discuss a resolution. If there was no resolution within 14 days of notice being given by either party, then either party could cause the matter to be referred for mediation. Neither party could commence legal proceedings until the alternate dispute resolution process had been completed.
Background
Without first complying with the mediation clause, the applicants commenced proceedings in July 2010 in relation to a dispute that had a long history.
The dispute stemmed back to 2002 and related to a request to inspect documents. There was an ongoing dispute as to whether appropriate documents had been disclosed for there to be any effective auditor’s report.
The applicants commenced proceedings when they did to ensure that the limitations period did not expire. The Court was of the view that the exception to the commencement of proceedings set out in the agreement appeared to cover proceedings commenced before the expiry of the limitation period.
Law
The issue before the Court was whether the applicants must comply with the mediation clause. The Court canvassed relevant authorities on the point and noted that:
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equity would not order specific performance of such a clause however, there could be a stay of proceedings having the consequence that a party to the proceedings must give effect to such a clause
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an agreement to mediate is enforceable in principle if the conduct required for the parties to participate in the process is sufficiently certain e.g. that it sets out a procedure for mediation which is workable
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the disputes which are the subject of the proceedings sought to be stayed must be in the scope of the contractual provisions;
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to proceed with litigation in the face of an enforceable agreement to follow a dispute resolution procedure may be an abuse of process.
Decision
The Court held that on the facts of the case it was not appropriate to stay the proceedings. Relevant to the Court’s decision was:
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the parties had been engaged in prolonged and extensive negotiations over a period of years
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not all of the parties to the litigation were parties to the mediation agreement (the second respondent wasn’t a party) and it was important that all of the parties attend the mediation
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a mediation was more likely to succeed if the parties had already exchanged relevant information and critically reviewed their position prior to attending mediation
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there was a dispute over discovery which was likely to hinder any mediation
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not all of the disputes were covered by the clause which led to a real possibility of the dispute resolution process becoming fractured
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the Court had power to order a mediation with an experienced registrar once sufficient interlocutory processes had been undertaken to ensure the parties were properly prepared for mediation
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the efficient disposal of many cases required directions to ensure that parties are appropriately prepared and have sufficient disclosure of material to ensure that a mediation is a real event and not simply a process step. In the circumstances of this case disclosure of documents and pleadings were required if mediation was to be productive.
Conclusion
The decision supports the view that in some circumstances, it is appropriate for legal proceedings to be used in conjunction with an alternate dispute resolution procedure in order to progress a protracted dispute which has reached a stalemate. In this case, legal proceedings could be used to compel the production of relevant documents that were needed to progress the dispute, and for there to be any real chance of resolving the dispute by alternate means.
