A Shortcut through Multi-Tier Dispute Resolution Clauses

Multi-tier dispute resolution clauses are a useful tool of containing disputes at their early stages and resolving even those more serious conflicts constructively. Typically, a multi-tier clause provides that before a dispute is referred to arbitral tribunal or a common court, the parties should try to resolve it amicably, using at least one of the non-binding ADR methods. These usually include negotiations, mediation, expert determination or dispute boards.

However, it is often the case that after a dispute emerges at least one of the parties wishes to pass over the soft procedures and to immediately commence the contentious proceedings. A question arises whether this is possible at all and if so, what are the consequences of such a step.

Under Polish law there is no universal answer and each case should be assessed individually, based on the wording applied by the parties in the particular multi-tier clause. However, some general remarks may still be made.

In case of court proceedings, the Polish Civil Procedure Code provides in article 202(1) that if the parties have concluded a valid mediation agreement, the defendant before arguing on merits may apply to the judge for the court proceedings to be adjourned until the mediation will have finished. The court is obliged to accept such an application. This rule, however, applies to mediation only and the court will not adjourn its proceedings to allow for negotiations, expert determination or proceedings before a dispute board. This would be possible only if both parties requested the adjournment.

The situation is less clear in case of arbitral proceedings. In Poland some arbitral tribunals tend to treat multi-tier dispute resolution clauses as modified arbitration clauses with preliminary requirements to be fulfilled before the arbitral proceedings are commenced. In consequence, arbitrators often consider that they cannot act until all of those preliminary requirements are fulfilled.

As the approach of arbitral tribunals and the solution they adopt may differ in each case, potential claimants should consider all the possible consequences of passing over the non-binding ADR methods – including even those most unfavourable. They should also bear in mind that the judge or the arbitrators will expect to hear an explanation as to why the ADR methods which were initially agreed for were not fully utilised. Based on what they hear they may form a general conclusion regarding the party’s reliability.