Study On The Nature And Enforcement Of Multi-tiered Dispute Resolution Clauses

In international commercial transactions, it is inevitable that various types of disputesmay arise due to the complex conflicts of parties’ interests. Thus, seeking anappropriate set of dispute resolution mechanism is of practical significance for partiesto commercial contracts. In recent years, multi-tiered dispute resolution clause isenjoying an increasing popularity in commercial contract especially in long-termconstruction or engineering contracts.Multi-tiered dispute resolution clause is also called ‘escalation clause’, in whichmulti-level proceedings are stipulated in a certain sequence for seeking an amicablesettlement of the disputes between the conflicting parties. In such clause, mediation,dispute adjudication board and expert determination can be stipulated as thepreliminary proceedings and normally, arbitration acts as the last resort of thedisputes.This paper aims to examine and clarify the following legal issues regarding themulti-tiered dispute resolution clauses: the nature of multi-tiered dispute resolution clauses, the interaction between the preliminary stages (ADR stage) and thearbitration stage, the requirements for fulfilling the preliminary obligations, thetransition point of each stage, the jurisdiction of the arbitral tribunal and theenforcement of multi-tiered dispute resolution clauses. The aforesaid issues areclarified through examining the local practice and typical cases in some mainjurisdictions (e.g England, the USA, Germany, Switzerland and China) and the writeris in the view that the preliminary stages are the procedural component of the wholedispute resolution process, which is to say, in the event that parties fail to perform theobligation of the preliminary stages, the subsequent arbitral tribunal may don’t havethe qualified jurisdiction regarding the dispute. However, there is one exception that,the arbitral tribunal may have the jurisdiction provided that both parties agree towaiver the preliminary stages and bring the dispute before the arbitral tribunal directlyor both parties don’t use such performance failure as a plea in the arbitration process.In terms of the enforcement of such clauses, most jurisdictions tend to accept andenforce them provided that they are sufficiently certain for parties, arbitral tribunal orthe court to follow.In addition, the practice of Chinese multiple dispute resolutionmechanism and China’sattitude towards the enforcement of multi-tiered dispute resolution clauses are alsoexamined through a typical case and a judicial interpretation issued by the SupremePeople’s Court. Further, some drafting considerations are provided for ensuring theenforcement of such clauses which including prescribing obligational terms, clearboundaries of each stages, express procedures for each stage, etc. China should hold amore positive attitude towards the enforcement of multi-tiered dispute resolutionclauses and make the alternative dispute resolution mechanism a strong supplement ofthe judicial system in order to strengthen the Chinese multiple dispute resolutionmechanism.