CM July and August 2023 digital

BUSINESS ADVICE
AUTHOR –Nick McQueen
the 2007 Lugano Convention which broadly
replicates the pre-Brexit regime; as a
result, local laws and practice would apply.
As a partial fall-back, the UK re-joined
another Hague Convention on Choice of
Court Agreements 2005 in its own right at
the end of the transition period. This gives
effect to exclusive jurisdiction clauses
where parties have agreed that disputes
will be settled exclusively by the courts of
a chosen jurisdiction and provides for the
recognition and enforcement of resulting
judgments.
Issues of recognition and enforcement
do not arise in relation to arbitral awards,
since the UK is a signatory to the New
York Convention, which is unaffected
by Brexit. Another factor to consider is
that the English courts may no longer
be prohibited from issuing EU-wide antisuit
injunctions in support of arbitration,
i.e., where a party commences court
proceedings in breach of the parties’
arbitration agreement or in breach of an
exclusive jurisdiction clause.
The importance of giving thought
A relatively recent case on tiered
dispute resolution clauses illustrates the
importance of drafting effective dispute
resolution clauses.
The decision, NWA and another v NVF
and others [2021] EWHC 2666 (Comm), is
a reminder to commercial counterparties
of the importance of giving thought at the
outset to what they will do in the event
of a dispute and to draft their agreement
accordingly. It also demonstrates the
importance of engaging with requests to
mediate or participate in other forms of
ADR.
In this case the court had to consider
whether a party’s alleged failure to
comply with a term of an arbitration
agreement that the parties should first
seek to mediate a settlement of their
dispute before referring it to arbitration
– a form of tiered dispute resolution or
escalation clause – resulted in the arbitral
tribunal not having jurisdiction to hear
the dispute at all, or instead concerned
only a challenge to the admissibility of the
dispute, on which the tribunal’s decision
was final.
The parties’ dispute resolution clause
provided that, in the event of a dispute
arising out of or in connection with
the agreement, the relevant parties to
the dispute would first seek settlement
by mediation in accordance with the
LCIA Mediation Procedure. If it was not
settled by mediation within 30 days of
commencement of the mediation or such
further period as the parties agreed in
writing, the dispute would be referred to
and finally resolved by arbitration under
the LCIA Rules.
The defendants’ solicitors sent a request
for arbitration to the LCIA but asked that
the arbitration be immediately stayed once
commenced and prior to the constitution
of a tribunal, to allow the parties to seek
settlement of the dispute by mediation as
required by the clause. The defendants
repeatedly sought mediation in respect
of the claims made in the arbitration, but
the claimants failed to engage with the
proposal.
The arbitrator decided that he had
jurisdiction to hear the dispute. The
claimants challenged that decision under
section 67 of the Arbitration Act 1996,
seeking the court’s intervention.
Despite having no intention of seeking
to resolve the dispute by mediation over
the course of a two year period, the
claimants contended that because the
defendants requested mediation at the
same time as requesting arbitration and
proposed that the arbitration be stayed
for 30 days before appointment of an
arbitrator to allow the parties to seek to
resolve the dispute by mediation, they did
not “first seek settlement of the dispute by
mediation”, and so the arbitrator had no
jurisdiction to hear the dispute at all.
The court described that as “a highly
unattractive stance to adopt” but went on
to consider if it was correct as a matter of
the proper construction of the arbitration
agreement.
The central question for the court was
whether the defendants’ alleged noncompliance
with the requirement for prior
mediation was a matter merely affecting
the admissibility of the claim, or went to
the tribunal’s substantive jurisdiction to
determine the claim at all.
If it was the second of these, then
the court would have to determine the
following further questions:
Was the provision in the dispute
resolution clause requiring prior
mediation (a) sufficiently certain to be
enforced and/or (b) a condition precedent
to any agreement to arbitrate? If so, did the
defendants comply with those provisions
or not? And if they did not comply, what
would be the appropriate remedy for noncompliance?
If it only affected the admissibility of
the claim, then these three issues were
matters for the arbitrator, and not the
court to determine.
The decision
The dispute had been validly submitted
to arbitration under the parties’ dispute
resolution clause as it was a dispute
arising out of or in connection with the
agreement. That clause also contained
a procedural requirement to first seek
settlement of the dispute by mediation.
It was for the arbitrator to determine
the consequences of any alleged breach
of that procedural condition. The fact
that the parties had agreed that both the
mediation and the arbitration should be
controlled by the LCIA court reinforced
the conclusion that LCIA mediation was
part of the procedure which must be
followed in respect of the LCIA arbitral
reference, which was a matter for the
tribunal.
The dispute as to whether the duty
to mediate amounted to a condition
precedent and if breached, were matters
which should be resolved by the arbitral
tribunal as relating to the admissibility of
the dispute.
In light of that conclusion, it was not
necessary or appropriate for the court to
second-guess the arbitrator’s rulings on
those matters. The judge went on to add
that, even if the clause contained a legally
enforceable condition precedent, he
had no doubt that the claimants were in
breach of the alleged condition precedent
by failing to first seek settlement of the
dispute by way of mediation and they
could not rely upon their own breach to
now contend that the defendants had
failed to comply with it; alternatively,
compliance with the alleged condition
precedent was waived by the parties.
Accordingly, the judge would have
found that the arbitrator had jurisdiction
to resolve the dispute even if, contrary to
the judge’s conclusion, the requirement
to first mediate the parties’ dispute
concerned the arbitrator’s jurisdiction
to hear the dispute rather than the
admissibility of the claim.
In summary
It’s patently clear that disputes don’t
necessarily have to end up in a court.
The fact that arbitration exists is a bonus,
but for it to be relied upon as a solution
requires early consideration of dispute
resolution and the process being correctly
inserted into agreements.
Nick McQueen is a commercial dispute
resolution specialist at Walker Morris.
Brave | Curious | Resilient / www.cicm.com / July & August 2023 / PAGE 14