Commercial common sense prevails: English Court upholds arbitration clause and rejects mediation as condition precedent

In Toziwepi Ropa v Kharis Solutions Limited [2026] EWHC 259 (Comm), HHJ Charman, sitting as a High Court judge in the Circuit Commercial Court (Birmingham), granted a declaration that all disputes under two joint venture agreements shall be referred to arbitration. Despite a poorly drafted multi-tiered dispute resolution clause, the Court applied commercial common sense to hold that arbitration was compulsory and that the mediation provision was too uncertain to operate as a condition precedent. The decision offers practical guidance on how the courts construe such clauses.

Background

Toziwepi Ropa (Claimant) and Kharis Solutions Limited (Defendant) (together, the Parties) entered into two joint venture agreements in 2017 and 2018 (Agreements) under which the Claimant provided working capital in exchange for the Defendant’s services operating a domiciliary care business, with profits shared in agreed proportions.

The agreements contained a three-stage escalating dispute resolution clause (the DRC): (i) friendly consultation; (ii) optional mediation; and (iii) if mediation was unsuccessful or "unavailable", binding arbitration.

The operative provision, clause 56, read as follows:

[i]f mediation is not successful…or is unavailable, any outstanding issues will be submitted to final and binding arbitration in accordance with the laws of the Country of England.”

A dispute arose concerning alleged non-payment of profit share. The Claimant served a Notice to Arbitrate (the NTA) in February 2025 without first proposing mediation. The Defendant: (i) challenged the validity and service of the NTA; (ii) raised defects in the claim form; (iii) challenged the existence of a compulsory arbitration obligation under the DRC; and (iv) argued that mediation was a condition precedent to arbitration which the Claimant had failed to satisfy.

Decision

Construction: a compulsory arbitration clause?

The Court held that the DRC required all “disputes to be determined by arbitration”. While the literal wording was ambiguous as the clause used the permissive "may" in relation to mediation, the Court applied commercial common sense, relying on Lukoil Asia Pacific Pte Ltd v Ocean Tankers Pte Ltd [2018] EWHC 163 (Comm) and Arnold v Britton [2015] UKSC 36.

The Court identified three reasons why the Defendant's construction would be uncommercial:

1. Allowing a party to submit only some disputes to mediation would permit different forums to determine different disputes under the same contract, an outcome unlikely to have been intended.
2. The Court acknowledged that some agreements distinguish between types of disputes; for example, referring technically complex disputes to a specialist forum to secure relevant expertise. However, the subject matter of these Agreements was not technical, so there was no basis for providing different dispute resolution mechanics for different categories of dispute.
3. Moreover, an arbitration clause that parties could only invoke by mutual consent “would serve no practical purpose” as parties can always agree to arbitrate. An arbitration clause only adds value if it enables a party to compel submission of a dispute to arbitration; this is especially so for parties who include such a clause for reasons of confidentiality. 

Commercial common sense therefore pointed strongly to the Parties having intended arbitration to be compulsory for all disputes.

Mediation as a condition precedent

The Defendant argued that mediation was a condition precedent to arbitration and that the Claimant’s failure to attempt mediation before serving the NTA was fatal. The Court accepted that clause 56 contained a positive obligation to mediate before arbitrating, but ultimately held the provision insufficiently certain to be enforced as a condition precedent. 

Applying Holloway v Chancery Mead [2007] EWHC 2495 (TCC), the Court required: (i) a sufficiently certain commitment to commence a process; (ii) discernible steps each party must take; and (iii) sufficient definition to determine objectively when the process is exhausted or terminable without breach. Clause 56 failed all three requirements: it identified no mediator appointment mechanism, allocated no costs, and described no process in sufficient detail. The absence of prior mediation was therefore not fatal to submission of the NTA.

In the alternative, the Court held that mediation had not become "unavailable" on the facts, as the Claimant had never made a clear and unequivocal proposal of mediation before serving the NTA.

Validity of the NTA

The Defendant argued that for the NTA to be valid it must: (i) require the Defendant to appoint an arbitrator, and (ii) it must identify the dispute with sufficient precision. The Defendant's position was that the NTA did neither. Applying the broad and flexible approach in Finmoon Ltd v Baltic Reefers Management Ltd [2012] EWHC 920 (Comm), the Court held that the NTA was valid. Read together with prior correspondence, the dispute was identified with sufficient particularity to commence proceedings under section 14(4) of the Arbitration Act 1996 (the Act). 

The Court also rejected the Defendant's separate challenge to the service of the NTA, finding that it had been validly served.

Defects in the claim form

The claim form failed to specify the section of the Act relied upon or the question for determination, in breach of CPR 8.2 and CPR 62.4. The Court waived the defects under CPR 3.10, applying the three stage Denton test by analogy (seriousness of breach, reason for breach, all the circumstances): whilst the breach was serious and the reason was simply solicitor error, the remedy was apparent on the face of the form, the Defendant understood the claim, and dismissal at final hearing would not serve justice. The Court did, however, indicate it would factor the procedural errors into its costs determination.

Comment

This decision confirms that English courts will give effect to the parties' evident commercial intention when construing a dispute resolution clause, even where the drafting is poor. A construction that would allow a party to pick and choose between litigation and arbitration depending on the disputes raised is inherently uncommercial and will be rejected.

The decision also consolidates the requirements for a mediation clause to operate as a binding condition precedent. Practitioners drafting escalation clauses should specify the mediator appointment mechanism by reference to a named institution or rules, allocate mediation costs, and define what each party must do before the mediation step is exhausted. A clause that leaves these matters to further agreement is unlikely to be enforced as a condition precedent. 

Third, the flexible Finmoon approach to notices to arbitrate is reaffirmed: substance prevails over form, and even an imperfectly drafted notice will be valid under the Act if it unambiguously invokes the arbitration clause and requires the other party to participate in appointing an arbitrator. The Court's willingness to waive the claim form defects under CPR 3.10 is a reminder that procedural errors will not automatically be fatal, but may carry a costs risk.

The authors thank Mallika Savara for her assistance in preparing this post.