The Mediation Clause: legally enforceable?

The facts

In the case before the Advocate General, the parties Lotamblau Investments B.V. (LI) and Project Partner Search B.V. (PPSB) agreed to a mediation clause in an arbitration clause. According to the arbitration clause any disputes arising from a purchase agreement would first be resolved by mediation. If they could not be resolved through mediation, the next step would be to submit the disputes to arbitration. 

A disagreement arose between LI and PPSB regarding a tax claim, among other things, and PPSB initiated arbitration proceedings. However, the ‘first step’ agreed in the arbitration clause, mediation, was ignored by PPSB. LI therefore requested the arbitrator to decline jurisdiction in the arbitration clause or to stay the proceedings. 

Both requests were rejected by the arbitrator. Setting-aside proceedings followed before the Hague Court of Appeal, in which LI argued (among other things) that there was no valid agreement to arbitrate because no mediation was attempted. 

The court of appeal ruled that PPSB was entitled to interpret the arbitration clause in such a way that it did not contain a binding mediation obligation and rejected LI's claims. LI challenged that judgment before the Supreme Court.

Mediation clause legally binding and enforceable

A-G de Bock concluded that the Court of Appeal’s judgment had to be set aside. According to the Advocate General, the mediation clause agreed between PPSB and LI in the arbitration clause – from which it follows that the parties must first try to settle the dispute through mediation before the dispute can be submitted to arbitration – is indeed legally binding. 

Also in the case of a mediation clause, according to the Advocate General pacta sunt servanda applies: agreements must be kept. The fact that mediation itself is voluntary does not alter this. If the parties have deliberately agreed with each other to first try to settle any disputes through mediation, they must, in principle, comply with the agreement. It would undermine legal certainty if a party could simply ignore a mediation clause to which it had agreed.

The Advocate General drew a comparison with the obligation to negotiate. Negotiations are also fundamentally voluntary, but if there is a contractual obligation to negotiate, that obligation must be fulfilled. As in the case of an obligation to negotiate, an mediation obligation is a best-efforts obligation. It depends on the circumstances of the case when that obligation has been fulfilled.

The binding nature of mediation clauses is in line with developments within European law, according to the Advocate General. The binding nature of a mediation clause is also in line with the growing importance in legal practice of mediation as extrajudicial dispute resolution. In support of this position, the Advocate General mentions the (so far fruitless) attention of the Dutch legislature to mediation and the European regulatory and case law.

Interpretation of a mediation clause 

The mediation clause – whether or not contained in an arbitration clause – will have to be interpreted on the basis of the Haviltex standard. According to this standard, contracts must be interpreted by considering all the specific circumstances of the case, subject to the principles of reasonableness and fairness. When applying the Haviltex standard, Dutch courts interpret the contract not only by reviewing its wording, but also by assessing, among other things, the parties’ intentions in entering into the contract and the expectations that the parties could reasonably have of each other. 

The clearer and more specific the parties’ mediation clause, the more likely it is that it will actually be enforceable. 

If the mediation clause does not make mediation a mandatory prelude to court or arbitration proceedings, failure to try mediation first will generally have no consequences, according to the advocate general.

Non compliance with a mediation clause

According to the Advocate General, non compliance with a mediation clause cannot lead to inadmissibility in legal proceedings. 

However, according to the Advocate General, it is also not right to leave non-compliance of a mediation clause, making mediation a mandatory prelude to court or arbitration proceedings, entirely without consequences; that would be at odds with the strongly increased importance attached to mediation.

The Advocate General believes that if a party fails to comply with such a mediation clause, the arbitrator should stay the proceedings at a party’s request. Not indefinitely, but for a certain period of time, during which the parties have the opportunity to comply with the mediation clause after all. According to the Advocate General, this applies not only to arbitral proceedings, but also to judicial proceedings. Of course, reliance on a mediation clause should take place at the beginning of the proceedings for all defences.

Finally, the Advocate General stated that a mediation clause can be binding not only for professional parties, but also for private individuals who include a mediation clause in a contract.

Conclusion

Mediation itself may be voluntary in nature, but if it is up to Advocate General De Bock a mediation clause can indeed be legally binding and thus enforceable by law. It is therefore advisable to agree to a mediation clause that makes mediation a mandatory prelude to court or arbitration proceedings only if mediation is indeed a first step desired by the parties in resolving a future dispute; and if this is indeed the desired first step, to set this out as clearly and specifically as possible in the mediation clause, to avoid interpretation issues.

Whether the Supreme Court will follow the Advocate Generals conclusion remains to be seen. If it does, the future will have to show what results we can expect of mediations that are enforced as a mandatory preliminary step before court proceedings. It also remains to be seen, for example, what the best efforts obligation to mediate arising from a mediation clause means. The Supreme Court’s ruling is (currently) expected on June 28.

Update

The Dutch Supreme Court ruled on this case on 12 July 2024, addressing the question whether a mediation clause can obligate parties to engage in mediation before initiating legal proceedings. According to the Supreme Court, this depends on what the parties agreed on in the mediation clause. This should be assessed on the basis of the so-called Haviltex standard: according to this standard, contracts should be interpreted by considering all the specific circumstances of the case, subject to the principles of reasonableness and fairness. The voluntary nature of mediation itself does not preclude mediation clauses obligating the parties to attempt mediation before initiating legal proceedings. 

However, this does not mean that court proceedings initiated in spite of a mediation clause obligating the parties to attempt mediation first should always be stayed awaiting the outcome of the mediation. The Supreme Court leaves it up to the courts to decide whether or not to stay the proceedings (if requested by one of the parties). According to the Supreme Court, possible reasons for not staying the proceedings are the urgency of a case or the expectation that mediation in that case will be pointless.