The enforceability of multi-tiered dispute resolution clauses has long been a contested question in international arbitration. One recurring issue is whether parties can be bound to attempt mediation before resorting to arbitration or litigation. In CSW v PPSB 22/04619 (2024), the Dutch Supreme Court delivered a significant judgment on this matter, clarifying that mediation clauses can impose binding obligations on commercial parties, though the scope and effect of such clauses will ultimately depend on how they are drafted and interpreted.
The dispute in question arose from a Share Purchase Agreement between two Dutch companies, PPSB and CSW, which required disputes to be resolved first through mediation and, failing that, through arbitration. When PPSB initiated arbitration without attempting mediation, CSW argued that mediation was a condition precedent to arbitration and sought to set aside the arbitral award on that basis.
Both the arbitrator and the Court of Appeal rejected CSW’s argument, relying on the Haviltex standard of contractual interpretation. Under Dutch law, this standard requires contracts to be interpreted not merely by the literal meaning of their words but by the meaning that parties could reasonably attribute to them, and what they could reasonably expect from each other, in light of the circumstances. Applying this approach, the Court concluded that the clause did not impose a binding obligation to mediate, since mediation is by its nature voluntary.
On appeal, the Advocate-General urged the Supreme Court to take a stronger stance, suggesting that professional parties should be able to create a binding mediation step as a condition precedent to arbitration. Non-compliance, in this view, could invalidate the arbitration agreement itself. The Supreme Court took a more cautious path. It confirmed that the voluntary nature of mediation does not prevent parties from agreeing to binding mediation obligations. However, whether such an obligation exists, and its exact scope, must be determined by interpretation under the Haviltex standard.
Crucially, the Court declined to hold that ignoring a mediation clause renders an arbitration agreement invalid. Instead, it ruled that an arbitral tribunal faced with such a clause may stay proceedings to allow mediation, but is not obliged to do so, particularly where urgency demands immediate resolution or where mediation would be futile.
This ruling strikes a careful balance. It respects party autonomy by affirming the possibility of binding mediation clauses, but it also safeguards access to justice under Article 6 of the European Convention on Human Rights, ensuring that mediation does not become a procedural roadblock to arbitration. At the same time, it reinforces the Dutch courts’ generally pro-arbitration stance by leaving procedural discretion largely in the hands of tribunals.
