Rely on the most comprehensive, up-to-date legal content designed and curated by lawyers for lawyers
Work faster and smarter to improve your drafting productivity without increasing risk
Accelerate the creation and use of high quality and trusted legal documents and forms
Streamline how you manage your legal business with proven tools and processes
Manage risk and compliance in your organisation to reduce your risk profile
Stay up to date and informed with insights from our trusted experts, news and information sources
Access the best content in the industry, effortlessly — confident that your news is trustworthy and up to date.
With over 30 practice areas, we have all bases covered. Find out how we can help
Our trusted tax intelligence solutions, highly-regarded exam training and education materials help guide and tutor Tax professionals
Regulatory, business information and analytics solutions that help professionals make better decisions
A leading provider of software platforms for professional services firms
In-depth analysis, commentary and practical information to help you protect your business
LexisNexis Blogs shed light on topics affecting the legal profession and the issues you're facing
Legal professionals trust us to help navigate change. Find out how we help ensure they exceed expectations
Lex Chat is a LexisNexis current affairs podcast sharing insights on topics for the legal profession
Printer Friendly Version
To what extent are multi-tiered dispute resolution clauses enforceable? David Greene, senior partner and commercial litigator at Edwin Coe, says a recent decision is another stage in the development of modern judicial thought in various jurisdictions that clauses providing multi-tier dispute resolution can be enforceable.
Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd  EWHC 2104 (Comm),  All ER (D) 40 (Jul)
The claimant agreed to purchase iron ore from the defendant, pursuant to a contract, which contained, as a condition precedent, pre-arbitration conciliation steps, the first being time-limited friendly discussion between the parties. A dispute arose under the contract, which the defendant referred to arbitration. The claimant applied, pursuant to the Arbitration Act 1996, s 67 for an order that the tribunal had lacked jurisdiction. The Commercial Court, dismissing the application, held that the arbitral tribunal had jurisdiction to hear and determine the claim because the condition precedent to arbitration had been satisfied.
What is the significance of this decision?
Multi-tiered dispute resolution clauses are increasingly common, particularly in large and on-going contracts in which a resolution process that does not destroy a continuing relationship is all important. Historically, anything short of submitting to arbitration has been unenforceable. The problem is that, for instance, an obligation to seek to resolve issues in good faith lacks the certainty or hard edges that the court seeks in order to enforce or police such a provision. It is not unlike an agreement to agree, which is similarly unenforceable.
However, over the past few years the courts have taken a different line. This change in attitude has taken place against the background of the changes to the Civil Procedure Rules 1998, SI 1998/3132 which now provide for a pre-action procedure which may be enforced by the court. Further, there is an allied consideration which has developed over the past 20 years. The modern court is concerned to interpret agreements to give them business efficacy and to ensure that parties perform contracts as intended by them. Therefore, if the parties have agreed a resolution process, the court is keen to ensure parties perform their obligations as far as possible.
The decision is another stage in the development of modern judicial thought in various jurisdictions that clauses that provide multi-tier dispute resolution can be enforceable.
How did the court address the issue of enforceability of multi-tiered dispute resolution clauses?
The court was faced with the usual problems of identifying sufficiently hard edges in the relevant clause to determine whether or not there had been a failure by one of the parties to perform. It also concluded that it was able to test an obligation to seek resolution in good faith discussions within a time limit which it found to be sufficiently hard edged to be enforceable.
What practical advice can lawyers take from this decision?
Draft a multi-tiered resolution so that the obligations are clear. The judge placed some importance on the fact that there was a time limit on the period for negotiation so probably best to include timings to any procedure adopted.
Should lawyers consider reviewing existing contracts in light of this?
It would be an idea to review existing contracts, but in order to change the clause one party needs the agreement of the other. Certainly in templates/boilerplates it would be an idea to review standard multi-tiered resolution clauses.
What are the risks/rewards of multi-tiered dispute resolution clauses?
The benefit is that the parties are required to enter into negotiations in good faith. The difficulty is that one or more parties may be merely ticking the box without any real intention to act in good faith. It remains a very difficult task for the court to measure that good faith or lack of it. The risk is that the process merely delays the inevitable court or arbitration process.
Find out more about how LexisPSL can help you and click here for a free trial of LexisPSL Restructuring and Insolvency.
First published on LexisPSL Restructuring and Insolvency
Interviewed by Nicolas Laver
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
0330 161 1234