International Construction Law Review
ENFORCEABILITY OF AGREEMENTS TO NEGOTIATE AND MEDIATE: WHERE DOES HONG KONG STAND?
DAVID BATESON
HKIAC and CIETAC Arbitrator Partner, Mallesons Stephen Jaques
KIM BARTON
Senior Associate, Mallesons Stephen Jaques
The enforceability of agreements to negotiate and agreements to mediate has been a focus of discussion over the last year or so in Hong Kong, as a result of the decision at first instance and, later on, appeal in the case of Hyundai Engineering and Construction Company Ltd
v. Vigour Ltd
.1
In April 2004, the Hong Kong High Court (at First Instance) held that, in principle, agreements for managing directors to negotiate a settlement to a large construction dispute, and to refer the disputes to mediation, were enforceable. In February 2005, the Court of Appeal held that the agreement to negotiate was not binding following the decision of the House of Lords in Walford
v. Miles.
2
The referral to mediation was also unenforceable because it lacked sufficient precision.
Hyundai
illustrates that these type of agreements require specificity in order to be enforceable and that an additional obligation of good faith will not be sufficient to bring the agreements outside the prohibition in Walford
. The decision at first instance contains a useful review of the inroads that have been made in narrowing the blanket prohibition in Walford
of enforceability of agreements to negotiate, and raises interesting questions as to why agreements to negotiate in good faith should or should not be enforceable.
The facts
Hyundai was the main contractor on a large construction project and Vigour was the employer. The various building contracts between the parties were all of a standard form which contained an arbitration clause. The project was delayed and disputes arose between the parties as to the extensions of time that were certified by the architect. Hyundai claimed
Pt 2]
Correspondents’ Reports—Hong Kong
267