Multi-tiered dispute resolution clauses have been used for many years and the jurisprudence has recently accelerated in their development, to better 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.
Some types of multi-tiered dispute resolution clauses can 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 or to attempt to abuse the clause to seek to derail the process, neither of which is truly in the wider interests of either party.
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 just 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 real 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  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  EWHC 286 (Comm) held that pre-conditions also go to admissibility of the claim before the tribunal.
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 also since recognised in C v D  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.
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.
The ability of arbitral tribunals to exercise wide powers in a way most conducive to the particular circumstances has since been recognised by NWA v NVF  EWHC 2666 (Comm), where the English High Court again affirmed that such considerations go to admissibility, not jurisdiction.
In that case the claimants (respondents in the arbitration) had sought to avoid the dispute being progressed on more than one occasion by failing to comply with the obligation to undertake mediation before pursuing arbitration if the parties are unable first to settle their differences.
That led to a partial final award by the tribunal that the claimants sought to challenge for want of jurisdiction, but the court recognized the issue went to admissibility for the tribunal alone to consider, leaving the tribunal to exercise the powers within its substantive jurisdiction to decide:
(i) Is the provision in the dispute resolution clause requiring prior mediation (a) sufficiently certain to be enforced and/or (b) a condition precedent to any agreement to arbitrate?
(ii) If so, did the defendants (claimants in the arbitration) comply with those provisions or not?
(iii) If the defendants did not so comply, what is the appropriate remedy for non-compliance?
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 the majority of contracts.
As the above highlights, courts and arbitral tribunals have the powers required to ensure parties attempt negotiation and mediation, if pre-agreed, to give amicable resolution its best shot if feasible but not in a manner that would facilitate attempts by one party to prevent a timely resolution.
In many disputes, the parties will seek to negotiate a settlement in the first instance anyway, before escalating a dispute to more formal proceedings, and often such negotiations will 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.
As NWA v NVF demonstrates, attempts to derail the dispute resolution process agreed will not be rewarded with a final arbitration award being set aside for want of jurisdiction when the self-same party is the effective cause of any procedural non-compliance, such that engaging with the agreed procedure is far less costly and can help to keep control of the end result in the parties’ hands.
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, are possible, particularly where there is an on-going relationship, to seek a win-win result, not a damaging 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 constraints they face.
The mediator will use their understanding of the way business is done to help the parties to come up with inventive solutions, including ones that the parties might not have considered on their own.
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 promptly by fostering a collaborative approach by the parties and help to improve the relationship.
Where difficulties are allowed to worsen and communication becomes sporadic and combative, 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 many benefits to all involved.
In helping the parties to see the pros and cons of escalating the dispute, and to consider other important ramifications of perpetuating a dispute, a mediator could help the parties to appreciate the perils and to see the value of improving the situation.
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 email@example.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.