Multi-tiered dispute resolution clauses, also known as escalation clauses, are commonplace in international commercial contracts, particularly in the construction and projects sectors. They provide for parties to engage in some form of alternative dispute resolution such as negotiation, conciliation or mediation prior to commencing arbitration or litigation. However, they are typically “midnight clauses”, clauses that are included in complex contracts at the last minute and without full consideration. Courts and tribunals have at times been ambivalent in their approach to the enforceability of these clauses, but the modern trend appears to be that they will be enforced wherever possible. It is, therefore, essential to understand the proper approach to be taken to their interpretation and enforceability.
This presentation and discussion will consider the approach to multi-tiered dispute resolution clauses in a number of jurisdictions. They will cover the potential advantages and disadvantages of such clauses, the approaches of courts and other institutions to their interpretation and enforcement, the law to be applied to issues arising in respect of such clauses, and also modern approaches to substantive obligations typically found in such clauses such as duties to negotiate in good faith and to undertake mediation. Some suggestions will also be provided in relation to the drafting of such clauses, including how to ensure they are enforceable and pitfalls to be avoided.