Multi-Tier Dispute Resolution Clauses
Basics
 A clause may provide first for non-binding mediation
under mediation procedures. If the mediation is
unsuccessful, the clause authorizes the dispute to be
resolved by binding arbitration pursuant to specific
arbitration rules.
 A three tier clause may provide first for negotiation,
which, if unsuccessful, is followed by non-binding
mediation, then by binding arbitration.
Goal of the Clause
 Prompt, cost-effective dispute resolution
 Appropriate escalation of ADR techniques
 Negotiation and mediation required before “litigation
mind-set” takes hold
 Conservation, if possible, of the underlying relationship
Typical Uses: Long Term or
“Relationship” Agreements
 Joint Ventures
 Distributorship or Licensing Agreements
 Supply Agreements
 Long Term Service Agreements
 Governing Documents for Closely Held Entities
 Construction or Infrastructure Projects
Example Clause:
ICDR Model Clause
In the event of any controversy or claim arising out of or relating to this
contract, or a breach thereof, the parties hereto agree first to try and settle
the dispute by mediation, administered by the International Centre for
Dispute Resolution under its Mediation Rules. If settlement is not reached
within 60 days after service of a written demand for mediation, any
unresolved controversy or claim arising out of or relating to this contract
shall be settled by arbitration in accordance with the International
Arbitration Rules of the International Centre for Dispute Resolution.
The parties should consider adding:
“The number of arbitrators shall be (one or three)”;
“The place of arbitration shall be (city and/or country)”;
“The language(s) of the arbitration shall be ___.”
Example Clause:
ICDR Model Clause (Three Tier)
In the event of any controversy or claim arising out of or relating to
this contract, or the breach thereof, the parties hereto shall consult
and negotiate with each other and, recognizing their mutual interests,
attempt to reach a solution satisfactory to both parties. If they do not
reach settlement within a period of 60 days, then either party may, by
notice to the other party and the International Centre for Dispute
Resolution, demand mediation under the Mediation Rules of the
International Centre for Dispute Resolution. If settlement is not
reached within 60 days after service of a written demand for
mediation, any unresolved controversy or claim arising out of or
relating to this contract shall be settled by arbitration administered by
the International Centre for Dispute Resolution in accordance with
its International Arbitration Rules.
Example Clause:
ICC Model Clause
In the event of any dispute arising out of or in connection with
the present contract, the parties agree to submit the matter to
settlement proceedings under the ICC ADR Rules. If the
dispute has not been settled pursuant to the said Rules within
45 days following the filing of a Request for ADR or within
such other period as the parties may agree in writing, such
dispute shall be finally settled under the Rules of Arbitration of
the International Chamber of Commerce by one or more
arbitrators appointed in accordance with the said Rules of
Arbitration.
Example Clause:
LCIA Model Clause
In the event of a dispute arising out of or relating to this contract, including any question
regarding its existence, validity or termination, the parties shall first seek settlement of that
dispute by mediation in accordance with the LCIA Mediation Rules, which Rules are deemed
to be incorporated by reference into this clause.
If the dispute is not settled by mediation within [............] days of the appointment of the
mediator, or such further period as the parties shall agree in writing, the dispute shall be
referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed
to be incorporated by reference into this clause.
The language to be used in the mediation and in the arbitration shall be [............].
The governing law of the contract shall be the substantive law of [............].
In any arbitration commenced pursuant to this clause,
(i) the number of arbitrators shall be [one/three]; and
(ii) the seat, or legal place, of arbitration shall be [City and/or Country].
Negotiation Options for
Multi-Tier ADR Clause
 Requirement of preliminary meeting to negotiate within
short period of notice or other event giving rise to dispute
 Requiring specific parties (i.e. project manager or CEO) to
attend negotiation and/or mediation
 Escalation of negotiation representatives within a defined
timetable (i.e. project manager negotiates within 10 days,
then, if not resolved, CEO meet within 25 days)
Multi-Tier Clause Pitfall:
Condition Precedent
Definition: A Condition Precedent is an event which must
occur, unless its non-occurrence is excused, before
performance under a contract becomes due, i.e., before
any contractual duty arises.
See RESTATEMENT (2D) CONTRACTS § 224
Multi-Tier Clause Pitfall:
Condition Precedent
 The clause creates a condition precedent (mediation taking
place) before performance under the arbitration clause
becomes due
 A recalcitrant party simply refuses to participate in
mediation, rendering the arbitration clause unenforceable
until mediation takes place.
 Result: no resolution is possible
Condition Precedent
Example:
HIM Portland, LLC v. DeVito Builders, Inc., 317 F.3d 41 (1st
Cir. 2003).
 Contract for motel renovation
 Multi-tier ADR clause was drafted to create a
condition precedent (mediation before arbitration)
 Party sought to compel arbitration
 The court declined to compel arbitration, as the
condition precedent (mediation) had not taken place
Condition Precedent
Solutions:
 Simple time expiration for mediation: “If settlement is not
reached within 60 days after service of a written demand
for mediation…”
 More elaborate carve out: “In the event mediation fails to
resolve all of the issues between or among the Parties, the
Parties forgo their option to mediate, or if mediation is not
held within 60 days of the event giving rise to the dispute,
then the matter or any remaining matters shall be
submitted to final, non-appealable arbitration. The
arbitration shall be…”
Multi-Tier Clause Pitfall:
Enforceability of the Preliminary
Tier(s) of the Clause
Problem: Agreement to Negotiate or Mediate may not be
Enforceable in the Seat of the ADR Clause.
May be found to be an illusory agreement or an unenforceable
“agreement to agree” under the law of the seat of the ADR clause
Should court intervention be required, a local court will refuse to
enforce the clause
Mediation Clauses
Enforceable in:




Almost all U.S. Jurisdictions
Germany (German Federal Supreme Court)
France (French Cour de Cassation)
England (English Commercial Court) (recent change in the law
on this issue)
 New South Wales, Australia (Supreme Court of New South
Wales)
 Ireland (Irish High Court)
Klaus Peter Berger, Law and Practice of Escalation Clauses, 22 ARBITRATION INT’L 1,
7-8 (2006).
Enforceability Issues
Solutions:
 Seat your Multi-Tier ADR Clause in a jurisdiction which
will enforce the preliminary tiers
 If you are considering placing the seat in an unfamiliar
jurisdiction, Consult Local Counsel
 Include provisions giving the arbitrator the power to
require specific performance of preliminary tiers of the
ADR clause