Multi-tiered dispute resolution clauses have been used for many years now although the jurisprudence has taken time to develop, in order to support their proper practical application.
Commonly, there is a pre-requisite when a dispute arises to attempt interparty negotiations for a set period of time before other options, such as litigation or arbitration, can then be pursued.
Many types of multi-tiered dispute resolution clauses (eg the BIMCO clauses) will also, if interparty negotiations do not succeed, require mediation to be attempted, before arbitration or litigation can then ensue.
However, parties to such clauses can be tempted to jump the gun, by immediately pursuing arbitration or litigation, without giving due regard to or any attempts at the pre-requisites.
When that happens, a number of issues arise as to whether there is a mandatory legal obligation to comply with pre-requisites, as a condition precedent, and, if there is, how it can be enforced.
That further raises the issue of whether failing to comply with a pre-condition means a court or arbitral tribunal lacks jurisdiction to hear a claim or if non-compliance goes to admissibility.
If non-compliance meant a court or arbitral tribunal lacked jurisdiction, then in disputes that are not progressed promptly or co-operatively there is a risk of a claim becoming time-barred.
That would be tantamount to an invitation, to a recalcitrant party, to refuse to engage or agree to attempt pre-conditions, potentially opening the door to abusive practices to stymie claims.
English courts have recently addressed the question of whether such clauses and any pre-conditions therein go to substantive jurisdiction or admissibility in the litigation and the arbitration contexts.
For a pre-condition to litigate, the English High Court in Ohpen Operations v Invesco [2019] EWHC 2246 (TCC) held that pre-conditions go to admissibility of the claim before the court.
For a pre-condition to arbitrate, the English High Court in Sierra Leone v SL Mining [2021] EWHC 286 (Comm) held that pre-conditions also go to admissibility of the claim before the tribunal.
The latter case noted that the generally held view of international tribunals and national courts is that non-compliance with procedural pre-conditions, such as a requirement to engage in prior negotiations, goes to admissibility of the claim rather than the tribunal or court’s jurisdiction.
There is very good sense in this being the case in both the litigation and the arbitration contexts, as the Hong Kong High Court has most recently recognised in C v D [2021] HKCFI 1474.
In that case the judge highlighted that if the arbitral tribunal or court has jurisdiction then it may deal with the question of compliance or non-compliance as it sees fit under the circumstances.
Accordingly, if a tribunal or court comes to the view that the earlier stages in a multi-tiered dispute resolution clause have not been fulfilled, it can give effect to the contractual requirement.
This means a tribunal or court may stay the proceedings pending compliance or, otherwise, impose costs sanctions, dismiss the claim as inadmissible or recognise the futility of compelling compliance in instances where there would be no realistic benefit achieved by seeking to force adherence.
Increasing the chances of avoiding arbitration or litigation by requiring mediation
While not all multi-tiered dispute resolution clauses include an intermediate pre-condition to attempt mediation, there is also good sense in seeking to do so for most if not all contracts.
As the above highlights, courts and arbitral tribunals have the powers required to ensure the parties attempt negotiation and mediation, if pre-agreed, to give amicable resolution its best shot.
In many disputes, the parties will seek to negotiation a settlement in the first instance anyway, before escalating a dispute to more formal proceedings, and often such negotiations succeed.
The costs of litigation and arbitration are considerable and, if seen through to judgment or award, will necessarily see control taken out of the parties’ hands by a third party imposing a resolution.
Before giving up control and incurring substantial time, effort and costs, it makes sense to involve a mediator to facilitate negotiations if the parties have struggled to reach consensus on their own.
How could mediation help?
While a mediator sometimes does not become involved until legal proceedings are underway, that usually does not have to be the case, and early intervention can often be far more desirable.
At the point when substantial costs have already been incurred, achieving a satisfactory settlement can become difficult and the extra costs involved can become an obstacle to an amicable solution.
As some contractual disputes are very expensive and time consuming to resolve formally and may invite unwanted publicity, mediation may facilitate a faster, commercial and discreet resolution.
A wide range of commercial solutions, which judgments or awards cannot achieve, could be fielded, particularly where there is an on-going relationship, to seek a win-win result, not a bruising win-lose.
A specialist commercial mediator is not only an expert at helping parties reach a mutually acceptable agreement but will understand the commercial situation of both sides and the limitations they face.
The mediator will use their understanding of the way business is done to help the parties to come up with innovative solutions, including ones that might not otherwise have been contemplated.
The benefits of seeking an earlier resolution to a dispute
Time is often a big factor in resolving a dispute satisfactorily. Addressing a problem as soon as it is apparent and having an early session with a mediator may resolve the issues quickly to put the parties back on track and to preserve the relationship.
Where difficulties are allowed to fester and communication becomes sporadic and reluctant, it is possible to waste a great deal of time achieving little except a worsening of relations, so it is important to be proactive.
It is also important to approach a problem with an open mind and some flexibility because resolving a dispute at an early stage involves willingness to compromise, and doing so can have additional benefits to all involved.
In helping the parties to see the pros and cons of fighting the dispute out, and to consider other important ramifications of perpetuating a dispute, a mediator could help the parties to appreciate the risks and to see the benefit of improving the situation.
Contact us
At Lux Mediation, we offer a range of different Dispute Resolution Services, designed to deal with all types and stages of disputes. We are experienced in and understand the subtleties of online mediation. Our mediators have extensive credentials and experience in areas including maritime, international, EU and general commercial and civil law.
We can step in early to advise you in respect of seeking to resolve a dispute. We work internationally and have an in-depth understanding of cultural differences, which are often of great importance in a successful mediation related to cross-border transactions.
Our mediators are experts in both mediation and commercial enterprise and we have an excellent track record of success in helping businesses to put difficulties behind them so that they can focus on their goals and other more productive activities.
If you would like to explore further whether we can help you to resolve a dispute or you have any questions about the process, please call Lux-Mediation on +44 (0)7876 232305 or email mediation@lux-mediation.com.
With many years international and domestic experience in mediation, arbitration and litigation Lux Mediation can give guidance on any dispute with a view to a swift and effective resolution.