Matei Purice

1
Multi-tier Dispute Resolution
Mechanisms Enforcement Issues

• Matei Purice
• Associate
• Competence Competence Principle.
• Recurring Issues
• ICC YAF Conference, Bucharest
• 27 September 2010

2
Multi-tier Dispute Resolution Mechanisms -
Enforcement Issues

• What is a multi-tier dispute resolution clause?
• When should such a clause be inserted in a
  contract?
• Are all the tiers enforceable?
• Scenario I Final tier is arbitration
• Scenario II Final tier is state court litigation
  The Romanian case
• Special considerations for drafting the multi
  tier dispute resolution clause

3
What is a multi-tier dispute resolution clause
(MTDRC)

• Contractual clause dealing with the settlement of
  disputes between the contracting parties.
• Provides for distinct stages and separate
  procedures for solving the dispute.

4
The typical ingredients of a MTDRC

• Stage 1 good faith negotiations or
  consultations between the parties
  for a certain period of time
• Stage 2 Mediation, conciliation or other form of
  alternative dispute resolution (ADR)
  including binding but not final
  procedures such as expert determinations /
  dispute boards, etc.
• Stage 3 Arbitration or state court litigation.

5
Rationale of having a MTDRC in the contract

• Long term complex projects particularly in the
  construction sector.
• The complexity of such projects entails the
  possibility of having very different issues under
  dispute bearing very different monetary values.
• The advantages of having a MTDRC in such
  contracts
• Tailor-made system of dispute resolution
  encompassing appropriate methods of solving
  disputes for each type of disputes that might
  arise
• Various mechanisms aiming at solving the disputes
  as quick and cost effectively as possible.

6
Examples of MTDRC in very complex projects

• The Channel Tunnel project
• 2 stages
• A panel of three independent experts who would
  render a written decision within 90 days
• Arbitration
• The Hong Kong Airport Core Programme
• 4 stages
• Decision of the Engineer
• Mediation
• Adjudication through a formal evidentiary
  proceeding with a written decision within 42 days
• Arbitration

7
Examples of MTDRC in standard forms of contracts

• FIDIC Standard form of contracts (1999 edition)
• Adjudication
• Amicable Settlement
• Arbitration
• World Bank Standard Bidding Documents for the
  Procurement of Works
• Adjudication
• Amicable Settlement
• Arbitration

8
The Subject of Inquiry

• What are the consequences if a party leapfrogs
  the initial tiers going directly to arbitration
  or, as the case may be, state court litigation?
• Are the first tiers enforceable?

9
Scenario I Arbitration as the final tier the
ICC case

• Two degrees of control may be envisaged
• Dismissal of the claim by the ICC Court under
  Article 6.2
• In the few cases dealing with the issue, the
  Court either found that prima facie an
  arbitration agreement existed or that the issue
  did not relate to the existence or validity of
  the arbitration agreement and therefore referred
  the matter to the arbitral tribunal.
• Determination of the issue by the ICC Tribunal by
  virtue of the competence-competence principle
• Non fulfillment of a conciliation step
• generally depends on the wording of the clause
  (mandatory vs. optional) and on the facts of the
  case (conduct of the parties).
• Non fulfillment of an intermediary adjudication
  procedure such as expert determination / dispute
  board
• Inadmissibility (ICC Case No. 6238 and 6535)
• Prematurity (ICC Case No. 6276 and 6277)
• Staying of the proceedings and ordering the
  parties to go and fulfill the prior procedures.

10
Scenario I Arbitration as the final tier the
ICC case

• ICC Case No. 9977 (Final Award of 22 June 1999)
  prior amicable settlement procedure at senior
  management level for 14 days
• A prior process like the one set forth in the
  Agreement, rather implies a an attitude and
  behavior of the parties inspired in a true and
  honest purpose of reaching an agreement
• ICC Case No. 4840/1986 Clause 67 of the FIDIC
  Conditions of Contract (second Edition)
  mandatory prior recourse to an engineer
• Such submission of claims in the first place
  to the Consultant for settlement is required
  under Clause 67 and is a condition precedent to
  filing arbitration with the I.C.C., and that it
  appears, therefore, that the Plaintiffs claims
  for Phase II were prematurely and unduly referred
  to arbitration, and consequently this Tribunal
  does not have jurisdiction thereover.

11
Scenario I Arbitration as the final tier the
ICC case

• Particular circumstances
• The ICC ADR Model Clause 4 - Obligation to submit
  dispute to ADR, followed by ICC arbitration as
  required
• The ICC Dispute Board Model Clause

12
Scenario I Arbitration as the final tier - a
CCIR case

• The arbitral clause in the contract provided for
  a mandatory conciliation procedure prior to
  commencing arbitration.
• Respondent objected to Claimants request for
  arbitration arguing that such is premature given
  the non-fulfillment by Claimant of the prior
  negotiation procedures. The arbitral tribunal
  held
• By contrast to the mandatory conciliation
  procedure envisaged by Article 7201 of the Civil
  Procedure Code applicable in commercial disputes
  under the jurisdiction of the state courts, in
  arbitral matters the failure to fulfill the prior
  conciliation step, provided by the parties, does
  not entail a rejection of the claim as premature
  or, as certain state courts have held, as
  inadmissible but rather imposes, by virtue of the
  mandatory force of the contract, that such
  deficiency is remedied by ordering the claimant
  to first carry on the conciliation procedure.
• (CCIR Case no. 201/2007 Interlocutory award of
  November 1, 2007)

13
Scenario II State court litigation as the final
tier

• Romania - MTDRC providing for conciliation
  followed by state court litigation
• The issue Enforceability of the conciliation
  step
• Differences between the provisions of Article
  7201 of the Civil Procedure Code (mandatory
  conciliation procedure applicable in commercial
  cases) and conventional agreements for
  conciliation
• Article 7201 is the minimum requirement under the
  law
• The parties may provide for a more detailed
  conciliation procedure but have to follow at
  least the requirements of Article 7201
• The court may decide that the claim is
• Inadmissible
• Premature

14
Scenario II State court litigation as the final
tier

• Romania - MTDRC providing for mediation followed
  by state court litigation
• The issue Enforceability of the mediation stage
• Possible approaches
• May the judge stay the court proceedings?
• Law No. 192/2006 on mediation
• Article 6 provides that the judicial and
  arbitral authorities as well as other entities
  having judicial attributions inform the parties
  of the possibility and advantages of recurring to
  mediation and guides them to follow such means in
  order to settle their dispute.
• Article 62 provides that (in civil matters!) the
  judge will stay the proceedings in order to allow
  the pursuance of the mediation procedure
• The New Civil Procedure Code (Not yet in force)
  Article 21 The judge will recommend the parties
  the amiable resolution of the case through
  mediation, in accordance with the special laws.

15
Scenario II State court litigation as the final
tier

• Romania - MTDRC providing for expert
  determination / dispute board followed by state
  court litigation
• Poor case-law and doctrine on the matter.
• Possible approaches
• The court has no express legal grounds to dismiss
  the case either as inadmissible or premature
• The court has no express grounds to order the
  staying of the proceedings
• The parties agreement will be considered a
  contractual arrangement with no effects on the
  state courts jurisdiction
• The court may consider awarding damages for
  breach of contract
• It may be advisable to include a monetary
  evaluation of the prejudice for breach of the
  MTDRC in the contract

16
Concluding Remarks

• Special care when drafting the MTDRC
• Mandatory vs. optional stages may vs.
  shall
• Clear and objective criteria for moving from one
  stage to the next
• Possibility to provide for damages in case of
  breach of the MTDRC
• Choosing the final tier arbitration vs. state
  court litigation.
• Special care when following the MTDRC
• Supporting documents attesting that efforts to
  negotiate in good faith have been undertaken by
  Claimant
• Observe the time limits set up in the MTDRC.

17
Competence Competence Principle. Recurring
IssuesICC YAF Conference, 27 September 2010,
Bucharest, Romania

• Matei PURICE
• Associate
• E-mail matei.purice_at_tuca.ro 
• Tel [phone]
• Web www.tuca.ro