WHEN WILL A COURT SPECIFICALLY ENFORCE AN AGREEMENT TO RESOLVE DISPUTES BY MEDIATION?
In Maxx Engineering Works Pte Ltd v PQ Builders Pte Ltd [2023] SGHC 71, the key issue before the Court was whether a party could specifically enforce a dispute resolution clause by which the parties agreed to refer disputes to mediation.
The dispute. In this matter, Maxx Engineering Works Pte Ltd (‘Maxx’) and PQ Builders Pte Ltd (‘PQ’) entered into a Sub-Contract which contained a dispute resolution mechanism in clauses 54 and 55 as set out below:
“54. If a dispute arises between the parties under or out of or in connection with this Sub Contract [sic] or under or out of or in connection with the Sub-Contract Works, the parties shall endeavor to resolve the dispute through negotiations. If negotiations fail, the parties shall refer the dispute for mediation at the Singapore Mediation Centre in accordance with the Mediation Rules for the time being in force. For the avoidance of doubt, prior reference of the dispute to mediation under this clause shall not be a condition precedent for its reference to arbitration by either party nor shall it affect either party’s rights to refer the dispute to arbitration under Clause 55 below.
55. In the event of any dispute between the parties in connection with or arising out of this Sub-Contract or the Sub-Contract Works, including any dispute as to the existence, validity or termination of this Sub-Contract, and such dispute is not resolved by the parties in accordance with Clause 54, the parties shall refer the dispute for arbitration by an arbitrator agreed upon by the parties within 14 days of either party giving written notice requiring arbitration to the other, … . The place of the arbitration shall be Singapore and the arbitration shall be governed by the Arbitration Act (Chapter 10) as may be amended from time to time.”
Disputes arose in relation to the Sub-Contract, and without referring the dispute to mediation, PQ referred the dispute to arbitration pursuant to Clause 55.
In response, Maxx applied to Court seeking an order to compel PQ to refer the dispute to mediation pursuant to Clause 54.
Issues to be determined. Kwek Mean Luck J considered that there were 2 issues to be determined:
(a) Whether there was a legal obligation to refer the dispute to mediation (‘Issue 1’); and
(b) Whether it was just and equitable to order specific performance (‘Issue 2’).
Submission to arbitration. Both parties agreed that Clause 54 did not oblige them to refer any disputes to mediation before resorting to arbitration, as Clause 54 stated:
“[f]or the avoidance of doubt, prior reference of the dispute to mediation under this clause shall not be a condition precedent for its reference to arbitration…”
Issue 1 – the parties’ arguments. PQ argued that the parties were not obliged to refer disputes to mediation for the following reasons:
(a) Firstly, Clause 54 only stated that the parties shall endeavour to resolve disputes through negotiations;
(b) Secondly, the Parties were only obliged to consider referring the dispute to mediation, as opposed to being obligated to refer the dispute to mediation.
Maxx argued that the parties were obliged to refer disputes to mediation:
(a) Clause 54 provides that “…“[i]f negotiations fail, the parties shall refer the dispute for mediation”;
(b) Clause 54 does not provide that Parties must mediate before proceeding with arbitration. Rather, it provides that the Pparties must refer the dispute to mediation even if Parties had commenced arbitration.
Issue 1 – The Court’s decision. As to Issue 1, Kwek J found that the Parties were under a legal obligation to refer their dispute to mediation.
Firstly, Kwek J noted that PQ did not dispute that the words “shall refer” in Clause 55, in respect of referring disputes to arbitration, imposed an obligation to refer the dispute to arbitration. Kwek J considered that, by commencing arbitration, PQ had accepted that its contractual obligation was to refer the dispute to arbitration under Clause 55. Therefore, Kwek held that as a matter of consistency, and on the plain language of Clause 54, the phrase “shall refer” in Clause 54 also imposed an obligation on the Parties to refer the dispute to mediation (at [10]).
Secondly, Kwek J also placed importance on the fact that clause 54 obliged the Parties to ‘refer’ the dispute for mediation, rather than merely obliging the Parties to ‘consider’ mediation (at [13]), distinguishing the clause in question from the clause in Cheung Teck Cheong Richard and others v LVND Investments Pte Ltd [2021] 2 SLR 890 (“Richard Cheung”), which provided that the parties shall “… consider resolving the dispute or difference through mediation…” (at[12]).
Therefore, Kwek J found that on its plain meaning, Clause 54 imposed a legal obligation on the Parties to refer their dispute to mediation, if negotiations failed (at [15]).
The Court’s decision – Issue 2. Having found that Clause 54 imposed a legal obligation on the Parties to refer their dispute to mediation, should Maxx be granted an order for specific performance to compel PQ to perform its contractual obligation to refer the dispute to mediation?
Kwek J held that this was to be answered by considering whether an order of specific performance was just and equitable in these circumstances considering the following factors (at [17]):
(a) Whether damages would be an adequate remedy if the order was not made;
(b) Whether PQ would suffer substantial hardship from the order;
(c) Whether the order would be futile;
(d) Whether the order would be impractical; and
(e) Whether there were other factors that would render granting the order just and equitable in the circumstances of this case.
Adequacy of damages. Maxx submitted that damages would be inadequate because:
(a) Maxx would be denied the benefit of PQ’s participation in the mediation of the dispute; and
(b) The time and costs which could have been saved through a mediated settlement was difficult to quantify.
PQ confirmed at the hearing that it was not submitting that damages would be inadequate.
Kwek J considered that as the Parties had bargained for an obligation to refer their disputes to mediation, damages for PQ’s breach of this obligation would have been an inadequate and unsuitable substitute for this obligation (at [20]).
Therefore, this factor leaned in favour of ordering specific performance of the obligation to refer the dispute to mediation.
Substantial hardship. In relation to substantial hardship, PQ confirmed at the hearing that it was not submitting that granting specific performance would cause it to incur substantial hardship, legal costs, or delay.
Kwek J found that there was no evidence that PQ would suffer substantial hardship by being compelled to take steps to refer the dispute to mediation (at [21]).
Futility. In relation to futility, PQ submitted that, as Maxx had not provided it with any proposal for the resolution of the dispute, Maxx was insincere in seeking to mediate the dispute.
However, Kwek J found that the lack of a proposal from Maxx on the resolution of the dispute did not mean that mediation of the dispute would be futile, and that PQ did not indicate that it was unamenable to mediation or that mediation would be rendered futile by its unwillingness to mediate (at [23]).
Therefore, in the absence of evidence that either Party was unamenable to mediation, Kwek J found that there was no basis to find that an order of specific performance to mediate the dispute would be futile (at [23]).
Practicability. In relation to practicability, PQ submitted that an order for specific performance would be impractical as the court would be unable to supervise the acts to be carried out by PQ pursuant to such order.
However, Kwek J found that an order for specific performance would not be impractical for the following reasons (at [25]):
(a) The order sought required PQ to take specific and concrete steps to refer the dispute to mediation, including replying to the Singapore Mediation Centre to confirm its assent to mediation, providing dates for mediation, and providing its Case Summary to the mediator; and
(b) These steps did not present impracticality of supervision as there would have been no serious difficulty in determining whether PQ had complied with such steps.
Other circumstances relating to the requirement of ‘just and equitable’. Kwek J considered that there were three other circumstances relating to this matter that weighed in favour of it being just and equitable to order specific performance.
Firstly, Kwek J noted that the mediation process would have provided both Parties with the opportunity to resolve their dispute without incurring further legal costs or substantial delay. Therefore, PQ would also benefit from the referral of the dispute to mediation (at [27]).
Secondly, as the Parties, in concluding the Sub-Contract containing Clause 54, agreed that they would resolve their disputes by mediation should negotiations fail, the Parties’ choice to refer their dispute to mediation should be respected (at [28]).
Thirdly, Kwek J considered that an order of specific performance in the present case was consistent with the trend towards the promotion of amicable dispute resolution and the preference for amicable dispute resolution (at [30]).
Conclusion. If a contract contains a clause in which the parties have agreed to mediate their disputes, the court can specifically enforce such a clause and require the parties to refer their dispute to mediation.
However, such clauses must be drafted clearly to specify, e.g., the relevant mediation procedure, stating the relevant mediation body, as well as the rules of mediation. This is because if the clause is too vague, the court may refuse to specifically enforce the clause.
Importantly, readers should note that there is a difference between a tiered dispute resolution clause where parties must mediate before arbitration / litigation, versus a “concurrent” dispute resolution clause such as that in the present case where parties can concurrently mediate and arbitrate / litigate, versus a clause such as that in Richard Cheung where parties are only required to consider mediating.
Depending on the contract and relationship in question, parties may prefer agreeing to a particular type of dispute resolution clause over another type. As such, while it is trite, it is important not to leave the dispute resolution clause to be decided the midnight before the execution of the contract, or to ignore the wording of the clause, lest you find yourself signing up to a dispute resolution mechanism that you are not comfortable with.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.