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International Arbitration Department explain how multi-tiered dispute resolution clauses which set pre-arbitral procedural requirements are treated in the UAE.

Multi-tiered dispute resolution clauses are common in commercial contracts, particularly in international agreements. They prescribe a layered process for conflict management, obliging the parties to take specific measures before resorting to arbitration. Typically, these measures are non-binding variants of ADR, such as negotiation, mediation, or conciliation. Typically meant to save time and costs, tiered dispute resolution clauses also have the potential to make the dispute resolution process more intricate, particularly if disputes involve non-compliance with the clause. Local courts and arbitral tribunals have long struggled with the legal consequences of such non-compliance, with debates typically centring around whether the issue is one of admissibility or jurisdiction. The crucial consequence of this distinction is that admissibility matters do not touch on the arbitral tribunal’s substantive jurisdiction and cannot form the basis of setting-aside proceedings against the award (see Article V of the New York Convention and the English Arbitration Act 1996, s67). Effectively, the choice between admissibility and jurisdiction determines who has the final say on adjudication of the violation of the tiered dispute resolution clause - the tribunal or the courts.

IS A MULTI-TIER CLAUSE BINDING?

In DCC Case No. 124/2008, the Dubai Court of Cassation stated that: ‘according to the general principles of contracts; the parties to it may stipulate any condition that they find appropriate as far as it is not against public policy. The parties may agree conditions precedent that must be followed before recourse to arbitration. If the condition precedent is not satisfied the request for arbitration should be inadmissible’. However, if pre-arbitration steps are not clearly defined, the court will be unable to determine whether or not they were abided by. For example, the words ‘amicable settlement’ are not sufficiently clear to form the basis for an objection that the contractual preconditions were not followed. As stated in Dubai Court of Cassation, DCC Case No. 75/2015, ‘the […] agreement provides no guidance as to what such amicable settlement entails and contains no material facts to enable the Court of First Instance to determine whether or not the settlement was pursued’. In the UK, historically, pre-arbitral steps in multi-tiered dispute resolution clauses did not constitute a jurisdictional condition precedent to arbitration, without there being clear language to that effect (see Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd [2014] EWHC 2104 (Comm)). However, delving into the question of non-compliance with pre-arbitral steps, the Court in Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm) explained the difference between admissibility and jurisdiction. The Court noted the trend in international literature that pre-arbitral steps are treated as matters of admissibility as opposed to jurisdiction, and endorsed that view in this case. The Court considered that the issue of compliance with escalation clauses relates to whether a claim can be heard by the arbitrators at the time when it is brought, as opposed to whether it can be brought to arbitration at all. It felt the former was a clear indication that the issue was one of admissibility. In the US, pre-arbitral steps in multi-tier dispute resolution clauses will not constitute jurisdictional conditions precedent to the commencement of arbitration, unless expressly agreed otherwise.

The language of the multi-tiered dispute resolution clause and whether it is a clear and express condition precedent are key. MENA region Courts generally enforce multi-tiered dispute resolution clauses and expect parties to comply with any preconditions to arbitration they have agreed to. For example, a Dubai Court of First Instance case (DCFI Case No. 757/2016 Commercial) ordered the annulment of an arbitral award on the basis that the Claimant had no evidence showing the dispute was ever referred for the Engineer’s decision under Clause 67 of the FIDIC Red Book.

Similarly, the Dubai Court of Appeal (DCA Case No. 795/2018) rejected the appointment of an arbitrator before the parties had exhausted the contractual Dispute Adjudication Board process.