Step by Step: Comply with Multi-tiered Dispute Resolution Clauses

A recent High Court decision of Usahasama SPNB-LTAT Sdn Bhd emphasised the importance of complying with all the pre-conditions / conditions precedent of a dispute resolution clause before initiating arbitration.

Multi-tiered dispute resolution clauses are very common. They usually incorporate language referring to the need to hold “good faith negotiations”, to hold a meeting between certain higher management personnel first, or to attempt mediation or negotiation before parties can initiate arbitration.

step by step

In practice, it is important to frame and flesh out the issues in dispute, bring these specific issues into the multi-tier process and only then push these issues into arbitration. The failure to do so may result in a challenge to the arbitral tribunal’s jurisdiction. In the worst case scenario, you may even have the successful arbitral award being subsequently challenged for lack of jurisdiction in a setting aside application or an opposition to enforcement.

This case centred on a clause which required parties to refer the dispute or difference to the Superintending Officer for a decision before the dispute could be referred to arbitration. The claimant in the arbitration had failed to refer the  dispute to the officer and had instead issued the Notice of Arbitration. The High Court agreed that the arbitral tribunal had no jurisdiction to hear the dispute until this pre-condition had been met.

This case is very useful in summarising the relevant case law from Malaysia, Singapore, England and Australia which has upheld the need to comply with these multi-tiered dispute resolution clauses. As emphasised by the Judge, there is now a clear shift to upholding such pre-conditions:

There is a clear paradigm and indeed purposeful shift towards enforcing a precondition good faith negotiation and friendly discussion clause or even a mediation clause in resolving a dispute or difference that has arisen between the parties and a fortiori, when the precondition takes the form of a sieving mechanism of a definite reference to the S.O. for a decision before the parties launched into a full-blown Arbitration or Litigation, consuming in its wake much time and financial resources which would doubtless take a toll on the parties. Like all battles fought and won, even the winner is not without its casualties.

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