English Courts Enforce An Obligation To Mediate And Negotiate

The articles on this site have often alerted the readers to the hidden dangers of mediation and negotiation clauses in construction contracts. The principle danger is that these sorts of clauses may be unenforceable, for two reasons.

The wording of the particular clause may be drafted in such a way as to create no enforceable agreement to mediate or negotiate.

Or the court may hold that an obligation to negotiate or mediate is too indefinite to enforce as a contractual obligation.

Two recent English decisions hold out the prospect that a clause in an existing contract requiring the parties to mediate or negotiate may be enforceable, at least for some purposes.

In Emirates Trading Agency LLC v Prime Mineral Exports Private Limited, the contract between the parties stated as follows:

“11.1 In case of any dispute or claim arising out of or in connection with or under this LTC … the Parties shall first seek to resolve the dispute or claim by friendly discussion….. If no solution can be arrived at in between the Parties for a continuous period of 4 (four) weeks then the non-defaulting party can invoke the arbitration clause and refer the disputes to arbitration.

11.2 All disputes arising out of or in connection with this LTC shall be finally resolved by arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce (“ICC”)….

The arbitrators held that clause 11.1 did not contain an enforceable obligation but that if it did, it had been complied with – and that the tribunal therefore had jurisdiction.

Mr. Justice Teare of the English High Court held that the obligation to undertake “friendly discussions” was enforceable. He held that friendly discussions to resolve the claim were “a condition precedent to the right to refer a claim to arbitration.” The clause did not require that those discussions continue for four weeks but that a period of four weeks must elapse from the commencement of friendly discussions before arbitration could be commenced.

Justice Tear distinguished other English cases which have held that an obligation to negotiate is not enforceable. He distinguished the leading English case holding that an agreement to negotiate is not enforceable – Walford v Miles, [1992] 2 AC 128 – on the basis that in that case there was no existing contract with an obligation to negotiate in it. In the present case, the obligation to undertake friendly discussions was in the parties’ binding and enforceable contract. He distinguished SulAmerica v Enesa Engenharis [2012] 1 Lloyd’s Reports 671on the basis that in that case, the obligation was to mediate, not have friendly discussions. In Justice Teare’s view, an obligation to mediate could well be unenforceable if the parties were unable to agree on the identity of the mediator or the mediation process. But he could see no good reason why an obligation in an existing contract to have friendly discussions before arbitration was not enforceable. He summarized his views as follows:

“The agreement is not incomplete; no term is missing. Nor is it uncertain; an obligation to seek to resolve a dispute by friendly discussions in good faith has an identifiable standard, namely, fair, honest and genuine discussions aimed at resolving a dispute. Difficulty of proving a breach in some cases should not be confused with a suggestion that the clause lacks certainty. In the context of a dispute resolution clause pursuant to which the parties have voluntarily accepted a restriction upon their freedom not to negotiate it is not appropriate to suggest that the obligation is inconsistent with the position of a negotiating party. Enforcement of such an agreement when found as part of a dispute resolution clause is in the public interest, first, because commercial men expect the court to enforce obligations which they have freely undertaken and, second, because the object of the agreement is to avoid what might otherwise be an expensive and time consuming arbitration.”

On the facts, he agreed with the arbitrator that such discussions had occurred.

In Garritt-Critchley v Ronnan, the English High court ordered the defendants to pay costs on an indemnity basis when the defendant accepted the claimants’ offer to settle during trial, but the defendant had failed to engage in mediation after repeated offers by the clamant to mediate during the action.

The four day trial took place in January, 2014. After the trial concluded and while judgment was reserved, the defendants sought the claimants’ agreement to accept out of time the claimants’ pre-trial offer to pay £10,000 and all of the claimants’ costs.

The claimants submitted that the court should order costs payable on a full indemnity basis, instead of the standard scale of costs. The court held that the action was based on questions of fact involving credibility and expert evidence and was a “classic matter” for mediation or negotiation. It described the action as follows:

“This was an action of a fairly typical kind where the allegation was whether a binding agreement had been made or not…. this was essentially a question of fact applying well-known contractual principles, in relation to a contract which did not itself require to be in writing. It therefore, was a very fact intensive and evidence intensive exercise where the court would have to judge the credibility of their witnesses and look at the importance or otherwise of contemporaneous documents and the commercial sense or otherwise of each side’s case. That is classically a case where both parties needed to engage in a risk analysis as to whether their side of the coin would be accepted or not…..The second aspect of this claim was that there was an obvious sliding scale of a compensatory award if the claimants succeeded. This was not an all or nothing case on quantum where the parties would have to agree that if liability was established the obvious amount of damages would be X. This was a case where the services of an expert, therefore a matter of opinion, was required, in order to see what the range of awards would be and as was apparent to me in the course of the trial and the points being taken, the range was really very considerable indeed…. That again is a classic matter where mediation should be considered because there is ample room for manoeuvre within the wide range of possible quantum scenarios.”

The defendants submitted two reasons why it had been justified in not mediating, both of which were rejected by the court.

First, the defendants said they reasonably believed that no settlement agreement would be reached. The court said that it was not “realistic for someone in the position of Mr. Ronnan to say that all the odds are so stacked in his favour that there is really no conceivable point in talking about settlement.” Moreover, “if that had been his view then it is surprising that no application for summary judgment was ever made, which it was not. Of course the reason why it was not is because there was evidence going both sides: both sides were relying on documents and the inferences which could or could not be reasonably drawn there from. So to say “extreme confidence”, does not, in my judgment, seem to be a reasonable position to take.”

Second, the court rejected the proposition that the “considerable dislike and mistrust between the parties” was such that mediation was bound to fail. The claimants had been willing to mediate from the beginning, and acrimony is just the sort of barrier to settlement that a skilled mediator can overcome.


Canadian courts have not yet determined whether an obligation to mediate or negotiate is enforceable. When they do, the decision in Emirates Trading will be useful to consider on three points whether the obligation should be enforced. According to the decision in this case, the obligation to mediate or negotiate should be enforced if:

1. The agreement is in an existing and enforceable contract;

2. The obligation is stated in common sense terms that a layman can understand; and

3. The obligation contains a reasonable time period during which it may be carried out,        not in the sense that the parties are bound to negotiate throughout that period, but that the period provides them with an opportunity to do so and comes to an end after a defined period so that the parties and the court may know that the period has come to an end.

The decision in Garritt-Critchley is significant for any jurisdiction, like most common law provinces and territories in Canada, which has a loser pay rule in which the court has a discretion to set a higher or lower cost order depending on the parties’ conduct. Under such a rule, the Garritt-Critchley decision says that, in setting the costs to be paid at the end of the proceeding, the court may take into account a party’s failure to negotiate or mediate, in the following circumstances:

  1. The nature of the dispute is such that there was no good reason not to negotiate;
  1. A party’s view that it had a very high probability of winning is no good reason not to negotiate, particularly if that party has not brought a summary judgment motion;
  1. An atmosphere of ill will between the parties or their counsel will not be a reason not to mediate.

Emirates Trading Agency LLC v Prime Mineral Exports Private Limited [2014] EWHC 2014

Garritt-Critchley v Ronnan [2014] EWHC 1774 (Ch)

Mediation – Negotiation – Enforceability – Costs – Limitation Periods – Certainty of Contract

Thomas G. Heintzman O.C., Q.C., FCIArb                                                           July 28, 2014



Is Certainty An Essential Element Of A Building Contract?


Courts are often unwilling to hold that an agreement is unenforceable for uncertainty when, by all appearances, the parties intended to make a contract.  But in a very spirited and colourful judgment, the Court of Appeal for Alberta has recently weighed in very heavily on the need for certainty in any contract, and particularly a building contract. In Seong Yun Ko v. Hillview Homes Ltd., that court provided a virtual law library on the Anglo-Canadian law, plus a dictionary of aphorisms and Latin phrases, on the subject of certainty in contracts.  Put this case in your hip pocket for the next time you need to address the issue because it will take you to all the important principles and cases.

The Alberta Court of Appeal also pointed out that the principles of contract law are a seamless web in which each principle is connected to another, while each principle remains an essential thread in a valid contract.  Thus, the intention to make a contract is one thread, but does not replace the need for certainty, and the mere existence of an intention to make a contract does not create certainty. And certainty of contract is connected not just to the initial validity of the contract, but to the objective terms of the contract and to a mistake about the terms of the contract, all of which may render the contract non-existent from the beginning, influence the contents of the contract or render it terminable by rescission.


The plaintiff was a licensed realtor and the defendant was a home builder.  The defendant sold the plaintiff a lot and agreed to build a home on the lot for the total price of about $1.2 million.  The contract contained an Entire Agreements clause precluding any reference to representations, warranties and previous statements. The contract stated that a particular model of the house was to be built on the lot.  It also contained short form language that the parties agreed meant that the house was to contain 1,666 more square feet, costed at $80 per square feet.  Those 1,666 square feet were not a minor part of the proposed building, and amounted to about 60 per cent of the size of the building if the size of the model house referred to in the agreement was used as a reference. However, the parties did not agree on what those 1666 square feet were to be added on to (and thus, what the total square feet were to be), or where the 1666 square feet were to be located in the house, or what they would contain, or anything else about those square feet.

The Decisions

The trial judge held that there was a valid contract.  The trial judgment granted specific performance for the lot itself, but not as to the house.  The trial judge held that the plaintiff was entitled to damages for the increased cost of construction of the house.

The Court of Appeal for Alberta held that there was no contract because of the uncertainty as to what the defendant was to build.  The fact that the parties may have thought that they made a contract, and had the requisite contractual intent, did not overcome the necessity that the terms of the contract be reasonably certain.  And here, because the parties had not agreed upon what the 1,666 square feet were to contain or where they were to be located, the terms of the contract were uncertain and there was no contract.

The Reasons of the Alberta Court of Appeal

The reasons of the Court of Appeal canvas virtually the entire scope of the Anglo-Canadian law on the subject of certainty as an essential element of an enforceable contract. Since the issues that the court addressed are so numerous, it might be helpful to list them one after another.

Here are the Top 10 David Lederman-style lessons from Ko :

  1. A contract for the sale of land with a finished building for a specific price as adjusted by a square feet formula is not a design-build contract.  So the uncertainty of the agreement could not be repaired or justified on the basis that it was a contract to provide professional or trade services at a reasonable rate. Moreover, even for a design-build contract to contain terms which meet the test of reasonable certainty, there must be a “warranty of suitability by the designer, restrictions on any variation by the owner and permission for variations by the builder” with the result that there is “control of the design by the designer, and a limitation on interference in it by the owner.”  None of that was present in this case
  2. While “house-building companies commonly agree with a customer to modify one of their standing plans when building his or her specific house”, there must be “more care… and a moderate degree of detail” for the contract to be enforceable.
  3.   The Entire Agreement clause precluded the parties from relying upon the negotiations and discussions to create certainty of terms. In any event, the plaintiff acknowledged that there was no agreement on where the 1,666 square feet would go, nor did the evidence disclose what the 1,666 square feet represented. Moreover, the parties’ subsequent conduct could not, and did not, clarify their prior agreement.
  4.  Certainty is an essential element of the validity of a contract, and that element is tied into all the other elements of contractual validity. The court said that “certainty of terms is not a separate self-contained defence….Quite to the contrary, certainty is an integral part of the very heart of the contract… The rule is far from a technicality.”  Thus, it is part of the law of offer and acceptance.  It is part of the reasonable bystander test as to whether there is an enforceable contract: “if the bystander could not make any sense of it, or finds it contradictory, there is no contract. It is void ab initio for mistake.” It is part of the law of contractual mistake.  It is part of the law of contractual remedies: the court will not grant a remedy for an uncertain agreement because in awarding damages or granting specific performance, the court “compares what the vendor contracted to provide with what it did provide. So one must know what it contracted to give.”
  5.  Whether an alleged agreement is sufficiently certain to be a contract cannot be determined in the abstract.  It depends on the subject matter of the contract.  Thus, “what is enough specificity to make a valid contract to buy an existing power mower may not be enough for a contract to build a new house.”
  6.  Uncertainty as to any essential term of the alleged contract renders that contract void from the beginning.  Uncertainty is not just limited to parties, price and terms: “any term which the parties thought they needed and included in the agreement, but which is too vague, renders the contract void.”  The court said that: “Disagreement on even a small term bars a contract”, usually on the basis that the offer and acceptance did not match to create a contract.
  7.  Complete silence on price may enable the court to set a reasonable price.  But the court cannot do that for the subject matter and the parties: the court cannot “set the parties or the property”.  And so far as the price, if the parties specify a price formula which is uncertain, the court cannot supply the price for them.
  8.  There is a substantive difference between an agreement in which the parties agreed that the terms were to be “fixed by their later agreement” and an agreement in which “the parties called for a future formal contract, but all its terms were fixed at once.” The former is not a contract but the latter is.
  9.  There are solutions available to parties who wish uncertainty in their agreement but want to have an enforceable contract.  The court listed four solutions:

 (a)  A  specific means to decide the matter, such as a published standard, price list or other reference;

(b)   An arbitrator, valuator or referee to fix the matter;

(c)  A custom of the trade;

(d)  An implied term if the term or matter is obvious.

None of those solutions applied in the present case.

10.  The alleged duty to negotiate could not overcome the absence of certainty, for two reasons.

First, “designing and negotiating are not the same thing” and the court could not impose a duty to design the house which was enforceable on the parties.

Second, “a mass of binding and persuasive authority” made it impossible to overcome the absence of certainty with an obligation to negotiate.

The Aphorisms and Latin phrases of the Court of Appeal

The Court of Appeal was obviously steamed up about the state of contract law in Canada if the trial judgment was correct.  In addressing this state of affairs, the court employed colourful language, aphorisms and Latin phrases which certainly keep the reader interested.

Here are just a few which you can put in your kit bag for further use:

“Commerce needs predictability. So do ordinary Canadians about to commit their future earnings and life savings, especially to acquire a house.”

“If that truly is Canadian contracts law, it needs fixing.  It is another reason why litigation today is often priced out of reach. If it is not correct law, the present judgment should be changed and the correct law affirmed and clarified.”

 “’De gustibus non est disputandum’, says a Latin proverb millennia old. One cannot debate tastes.”

“Ex nihilo nihil fit is a maxim meaning ‘From nothing, comes nothing.’


In its reasons, the Court of Appeal cites over 45 Canadian cases, and also several of the leading English cases, tracing the law relating to contractual certainty back to the 1800s. So it is a virtual treasure trove of case law on the subject.

Some might argue with the strictness of the court’s approach to the subject matter.  Case law could be cited that is more generous to the use of conduct after the alleged contract to shed light on its meaning and certainty. The suggestion that lack of agreement on non-essential terms dooms the alleged contract also seems harsh.  But the facts of the case did not render those points essential: here, the conduct of the parties after the contract did not clarify the terms of the alleged contract, and the 1,666 square feet of undefined and undefinable square footage was an important part of the building.  So the comments of the Court of Appeal on these points may not be binding in future cases.

What is important about the decision is the re-affirmation of the need for contracts, and particularly building contracts, to be reasonably certain.  And helpfully, the court stated many reasons that support that principle and identified several techniques to deal with uncertainty if the parties cannot agree on the specifics.  The bottom line message is: when negotiating a contract, don’t throw the ball up in the air and expect the courts to catch it.

See Heintzman & Goldsmith on Canadian Building Contracts, 4th Edition Chapter 1, Part 1C

Seong Yun Ko v. Hillview Homes Ltd. 2012 ABCA 245

Building Contracts  –  Enforceability  –  Certainty of Terms

Thomas G. Heintzman O.C., Q.C., FCIArb                                                             September 15, 2012