How not to implement a mediation agreement

How will the courts approach mediation agreements in a commercial context? Michael King, commercial barrister at XXIV Old Buildings, comments on a ruling in which the Court of Appeal considered an agreement made at a mediation in a sale of goods case.

Original news

Beauty Star Ltd v Janmohamed [2014] EWCA Civ 451

What were the key issues in this case?

The original action between the parties arose out of the sale of goods from the claimant to the defendant. This action was compromised by a written agreement entered into between the parties at a mediation on 12 March 2008. Both parties then purported to implement the agreement but, because accounting issues remained unresolved, the matter returned to court. On 8 December 2008 a district judge made an order providing, among other things, that ‘the parties do appoint an accountant’ to prepare an account.

The accountant’s report was made on 23 July 2009 but the claimant refused to pay the sum found due to the defendant, largely because it argued that various invoices had not been taken into account. The claimant then issued proceedings seeking construction of and, if necessary, rectification of the mediation agreement. After a three day hearing, the judge dismissed the claim.

How did the court approach the mediation agreement at the heart of this case?

Issues before the Court of Appeal

The limited permission to appeal meant only two issues fell to be considered:

• whether, on the construction of the mediation agreement, the disputed invoices fell to be taken into account, and
• whether the reporting accountant had been appointed by the parties or was a court appointed expert

On the first issue, the court, in construing the mediation agreement as a whole, found that the invoices were not to be taken into account.

On the second issue, although various subsequent court hearings might have been consistent with the accountant being a court appointed expert—the clear terms of the order of 8 December 2008 meant the accountant had been appointed by the parties so that any remedy for errors in the report could only be brought against the accountant—as between the parties the report was binding.

How might this decision affect the drafting of future mediation agreements?

As with any other contract, clarity and certainty is essential. In the mediation context, any lawyer attending a mediation should recognise that the drafting of an agreement may be necessary and, for that purpose, should have given as much thought as possible to the provisions which might need to be included.

It is generally not appropriate for the mediator to assist with the drafting of any agreement, as this may expose him or her to a liability—if that assistance could be regarded as negligent. Ideally, this should be covered in the mediation agreement.

Although the Court of Appeal did not have to consider the issue of rectification, the case highlights that evidence that may have to be given after a mediation both in this respect and also if there is a dispute as to whether or not a binding agreement has actually been concluded. Even a carefully drafted mediation agreement may not be able to prevent all parties, and even the mediator, from becoming witnesses in such circumstances.

Finally, this case emphasises that time spent at the end of a mediation achieving certainty as to the terms of the mediation agreement will not be time wasted—after an apparent settlement at mediation the parties in this case suffered a further six years of cost, actions and disputes.

Interviewed by Nicola Laver.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

First published on Lexis®PSL Dispute Resolution on 1 May 2014. Click here for a free one week trial of Lexis®PSL.

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