The importance of mediation with arbitration in multi-tiered dispute resolution agreements
Alternative dispute resolution (ADR) provides options that many find more flexible, more effective, and more affordable than court litigation. ADR methods include negotiation, mediation, and arbitration, whereby each offers different levels of intervention and control from third parties, unlike the regimented and court-controlled process of a litigation proceeding.
ADR is particularly appealing to businesses. This is why many commercial contracts will include an arbitration clause, establishing that the involved parties agree to settle disputes with arbitration rather than resorting to litigation in the first instance. However, while arbitration is a less contentious method of dispute resolution than litigation, some parties may want to attempt negotiation or mediation, which can be less confrontational than arbitration first. This may especially be the case if the issues involve multiple parties across complex matters. In such cases, participants may want to pursue multi-tiered dispute resolution. The parties agree to a tiered or escalating process, depending on the dispute in question. This article will discuss how multi-tiered dispute resolution and its relevant clauses work.
What is ADR?
ADR, or alternative dispute resolution, allows parties in conflict to settle their issues in a less adversarial forum than a court proceeding. Generally, there are three main methods: negotiation, mediation, and arbitration. All three do offer benefits compared to litigation, as touched upon above. Basically, involved parties have greater control over the process, unlike litigation, where the court and established rules and regulations govern scheduling, proceeding, and most other factors. Furthermore, litigation undertakings will ultimately accrue significant court and legal advisor fees, which may discourage potential disputants.
Where these ADR methods differ is in their formality and process. Negotiation entails the disputing parties and their advisors meeting confidentially to discuss their issues with the goal of settling matters without involving a third party. Mediation takes things up a level as a neutral third party, a mediator, is brought in to facilitate discussions, perhaps helping navigate issues. Still, the mediator does not have any authority over the proceedings. Finally, arbitration is the closest ADR method to litigation. An independent third party or a tribunal or arbitrator(s) oversees hearings and renders a decision or arbitral award usually legally binding on all parties involved.
What is multi-tiered dispute resolution?
From the discussion above, it becomes apparent that one type of ADR may be more suitable for certain types of disputes than another. Where conflicts are straightforward or not too contentious so that they may be resolvable by open discussions, negotiation or mediation may be the best way forward. However, arbitration clauses may be preferable if disputes become more complicated or adversarial. For complex or layered contracts or agreements, parties may understand that one form of ADR may not be the most effective way to settle disputes. This is where a multi-tiered dispute resolution clause enters.
As its name suggests, multi-tiered dispute resolution (MTDR) clauses outline a sequence of escalating ADR methods parties should undertake for conflicts. Typically, they would start with the least formal methods, such as negotiation or mediation, before resorting to arbitration and arbitration clauses. They consider the various relationships involved in the agreement or matter in question and provide an amicable way to solve issues, thereby offering a way to salvage working relationships. For sizable, complex undertakings such as construction or energy/exploration projects, MTDR clauses are ideal.
How does MTDR benefit business?
MTDR clauses are intended to mitigate dispute escalation to help maintain business relationships. Parties can pursue a less formal mediation or negotiation before or in parallel with arbitrations to clear a path to an agreeable resolution. Each step is put in place to prevent matters from intensifying. One could consider MTDR clauses as a mechanism to avoid dispute escalation as much as dispute resolution.
MTDR offers a facet of benefits. It provides a cooling-off, or a truce, as the parties discuss their issues in a friendlier forum than in a courtroom. During this time, they can take their time in evaluating their situations and possibly find common ground. Furthermore, MTDR can act as a filter of sorts, whereby simple issues are resolved in a simple mediation while more complicated matters may need the attention of a tribunal. This also means that MTDR can increase cost savings over a single ADR method. Simpler negotiation and mediation take less time and money than arbitration (which takes less than litigation), so by avoiding arbitration clauses for every dispute, commercial undertakings can see scheduling and expenditure savings.
Then there is the goodwill garnered with MTDR. In the recent Uber case, the company argues for the plaintiff drivers to mediate, which is the first step in their agreement, before resorting to arbitration or litigation. It could be argued that the courts may see the less adversarial mediation as a way through for Uber and the drivers without having to escalate to arbitration or even litigation.
Some may question MTDR clauses’ enforceability as they can be interpreted differently, depending on the jurisdiction. For example, in Russia, the courts look at simple MTDR clauses that only reference negotiation as potentially unnecessary, while the more complex clauses are enforceable as long as the different parties are treated equally. Other jurisdictions, such as England, have moved from considering these clauses unenforceable to enforceable as long as the MTDR terms were clear.
What to include in an MTDR clause?
The general consensus is that an MTDR clause, unlike formal arbitration or mediation Clause, must be clear and well written, avoiding any ambiguity that could be later contested in court. Some best practices to do so include:
- Compulsory processes must be clearly defined with their conditions and processes.
- Any transitions from one step to another must be detailed. There should not be any need to determine terms once in place.
- Including time frames provides clarity to steps and processes.
- Selected dispute resolution rules and forums must be clearly specified.
- Avoid vague language wherever possible. For example, use “must”, not “may”. And relying on “best efforts” or “good faith” may be open to interpretation later.
Ultimately, the parties should consult an expert in MTDR clauses to ensure their interests are met equitably and clearly. Any disputes resolved from such are enforceable within the jurisdictions involved.
THAC are expert in ADR and MTDR clauses
The Thailand Arbitration Center (THAC) provides world-class resources for parties seeking to draft tailored mediation clauses, arbitration clauses, MTDR clauses or agreements for their commercial undertakings to the benefit of all. Furthermore, THAC offers dispute resolution center services at international standards for local and cross-border matters. The center provides access to skilled mediators and arbitrators with subject matter expertise as well as state-of-the-art facilities for in-person or remote hearings. All our services, including complete administrative support, is available at affordable rates, and our facilities are centrally located near public transport and major thoroughfares for convenient access. To find out more about THAC’s ADR services and how we can help resolve your commercial disputes, please contact THAC at [email protected] or +66 (0)2018 1615.