In Ericsson AB v EADS Defence & Security Systems Ltd [2009] EWHC 2598 (TCC) the court ruled that express wording was needed if parties wanted to make types of dispute resolution mutually exclusive.
The dispute resolution clause in the agreement between the parties stated that the parties should first try to resolve any dispute by agreement and it also permitted either party to give notice of its intention to proceed to mediation or to refer the matter to adjudication should the parties fail to resolve the dispute by negotiation.
After a dispute arose, Ericsson suggested mediation to which EADS agreed. EADS shortly afterwards purported to serve notice of material default on Ericsson, who in turn served notice of adjudication on EADS. EADS objected to adjudication on the basis that the parties had already elected to mediate and accordingly applied for an injunction to stop the adjudication. Ericsson for its part disputed the notice of material default and applied for an injunction to prevent the termination of the contract by EADS pending the adjudication.
Akenhead J ruled that no interim injunctions should be ordered. As such, Ericsson was permitted to take further steps in the adjudication it had commenced. The true construction of the dispute resolution clause was that it was open to either party on a given dispute to mediate, to adjudicate or to mediate and adjudicate at the same time. The judge emphasised the following points in coming to this conclusion:
- Dispute resolution provisions, particularly in commercial contracts, should be construed in a way which would make sense to commercial parties.
- Logic suggested that the parties wanted flexibility in that they did not have to mediate or adjudicate and the word "may" in the clause supported this interpretation. The wording of the clause did not, however, require that a party had both to mediate and to adjudicate.
- Whilst, as in a number of international engineering contracts, it would have been easy for the parties to specify an absolute requirement that parties had good faith negotiations first followed by mediation, adjudication and then the final form of dispute resolution (court or arbitration), the parties chose (doubtless for reasons of commercial flexibility) not to have such an absolute and inflexible procedure.
- Mediation and adjudication were not mutually exclusive alternatives so that if a party embarked on one in relation to a specific dispute, it could also at the same time or later embark on the other.
This case emphasises the importance of making intentions absolutely clear in the written contract between the parties. If EADS wanted to make mediation and adjudication alternatives (as was their case), this should have been made explicit in the language of the dispute resolution clause. As drafted, each was optional and could run concurrently.