Cable & Wireless v IBM
High Court
Citations: [2002] EWHC 2059 (Comm); [2002] 2 All ER (Comm) 1041; [2002] CLC 1319; [2003] BLR 89; (2002) 152 NLJ 1652; [2003] CLY 965.
Facts
The parties entered into an agreement where the defendant would supply IT services to the claimant in various countries. Part of the UK agreement required the annual selection of an independent third party to compare the defendant’s charges against similar services (something known as ‘benchmarking’).
Clause 5.3 of the contract required the defendant to then compensate the claimant ‘for the actual loss’ suffered as a result of any problems the benchmaker identified. The parties had a time limit to agree on a sum, after which clause 40 provided an extensive process of escalating disputes. If this failed, clause 41.2 required the parties to ‘attempt in good faith to resolve any dispute or claim’ arising from the agreement through negotiation. If this failed, then the parties should try a particular Alternative Dispute Resolution (‘ADR’) procedure, though the clause stated that this did not preclude them from issuing a claim.
The defendant failed a benchmarking. The claimant calculated that they had suffered losses of between £31-45 million. The defendant challenged both the benchmark report and the claimant’s method of calculating their losses. They argued that clause 5.3 only obliged them to pay for losses suffered after the benchmark report was issued.
The claimant applied for a ruling on the meaning of clause 5.3. The defendant applied for a stay of the claim under Rule 8.1(3) of the Civil Procedure Rules so that the parties could engage in ADR. They relied on clause 41.2. The claimant responded that clause 41.2 was unenforceable, because it was too uncertain. Previous cases, such as Walford v Miles [1992] 2 AC 128, had held that an agreement to negotiate is too uncertain. Alternatively, they argued that the fact that the clause did not bar them from bringing a claim was inconsistent with a binding obligation to engage in ADR.
Issue(s)
- Did clause 41.2 impose a binding obligation on the parties to engage in ADR?
- Was clause 41.2 sufficiently certain to be enforced?
Decision
The court held in favour of the defendant. Clause 41.2 imposed a binding obligation to engage in ADR. There was no reason that the parties could not engage in ADR and bring a claim at the same time, so there was no inconsistency. The clause was also sufficiently certain. This was because it provided the specific procedure the parties had to follow. It was not a bare ‘agreement to negotiate’, as there were objective benchmarks for assessing whether a party was in breach: whether they followed the procedure or not. The court exercised its discretion to stay the claim.
This Case is Authority For…
A contract clause which seems subjective or uncertain can be rendered certain if the contract specifies objective criteria for assessing whether a party has breached it.
Other
The judge in this case was heavily influence by the strong public policy reasons for encouraging parties to engage in ADR. He noted that ‘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’. The wording of the provision would have to be examined on a case-by-case basis. He thought that an important factor 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”.’
Where an agreement to engage in ADR is binding, the court should normally enforce it unless there are good reasons not to (for example, if it would be futile).
