GOOD FAITH IN MEDIATION: CERTAINTY AND ENFORCEMENT

Aiton Australia Pty Ltd v Transfield Pty Ltd

It has been held in New South Wales that an agreement in a building contract to negotiate in good faith will not necessarily be void for uncertainty if the obligation to negotiate is undertaken as part of a broader process of dispute resolution between the parties rather than as a mere agreement to agree. However, the dispute resolution process must itself be prescribed with sufficient certainty. An omission to stipulate arrangements for the remuneration of a mediator, or to cater for the event that a chosen mediator will decline to act, may be incompatible with the required certainty, and so render the undertaking void. A contractual undertaking to negotiate before the parties resort to mediation, while again not in principle void, will be affected by the same uncertainty as the undertaking to mediate itself, and will be correspondingly void, where the negotiation and mediation clauses are designed to operate ‘hand in hand’. Valid agreements to mediate will not be judicially enforced by orders of specific performance because of the necessity for supervision, which the courts traditionally avoid. The proper mode of enforcement is for the court to stay any proceedings which are commenced in breach of the mediation agreement. For this reason, an effective mediation clause should stipulate (in proper Scott v Avery form) that completion of the agreed mediation is a condition precedent to the commencement of court proceedings.