A judgment delivered by the Cour de Cassation (French Supreme Court) on 14 February 2003 gives a new boost to alternative methods of dispute resolution in France.
When an agreement provides that, in the event of a dispute, the parties shall have the right to proceed to a reconciliation or mediation before instituting a legal procedure, what is the effect of this clause? If it is not respected, can it be enforced?
Until the decision of 14 February 2003, French case law was unclear on this point. Certain decisions had refused to grant any sanctions whatsoever, on the grounds that no loss or damage had been caused by the failure to comply with a clause requiring negotiation or prior mediation.
The decision of 14 February 2003 has put an end to this uncertainty. By affirming that "a clause in an agreement which provides for a mandatory reconciliation procedure prior to submitting claims to a judge … imposes a restraint on the judge, if called for by the parties", the mixed Chamber of the Cour de Cassation upheld the enforceability of agreed methods of alternative dispute resolution. From now on, a party who commences legal or arbitral proceedings in breach of a mandatory reconciliation clause in an agreement runs the risk of the proceedings being stopped at the request of the other side.
This ruling has significant consequences for everyone negotiating a contract which includes provisions regarding the resolution of disputes. It gives a potential defendant another procedural weapon to frustrate or delay a claim made against it, whereas a potential claimant should consider carefully how onerous the reconciliation process must be and how its failure or conclusion should be proven.
Tight drafting of dispute resolution clauses is now of paramount importance. To ensure that an alternative dispute resolution clause will be enforced, it will not be sufficient for the agreement merely to express a principle of amicable arrangement. Specific and detailed provisions will be required which take into account the nature and duration of the relevant contract as well as the types of dispute which are likely to arise thereunder.
The decision of 14 February 2003 not only renders dispute resolution clauses more effective, but it also gives them renewed significance. They must, however, be handled with more precision than ever before, both in pre-contractual and pre-litigation phases.
Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.