Are Multi-Tiered Dispute Resolution Clauses Be Regarded As A Rising Threat?

Adv. Muskan Pipania, Legal Associate, ZALVIE LEGAL LLP

Adv. Prakhyat Gargasya, Legal Associate, ZALVIE LEGAL LLP

ABSTRACT

In an age of burgeoning cross-border trade and transactions, modern commercial contracts often incorporate dispute resolution clauses, opting for arbitration as an efficient alternative to traditional litigation. However, the cost of arbitration can be prohibitive. To address this, many contracts include pre-conditions or escalation mechanisms designed to foster amicable resolutions before invoking arbitration. These clauses, referred to as 'Multi-Tiered Dispute Resolution,' provide a staged approach to dispute resolution, prioritizing conciliatory and cost-effective methods before resorting to arbitration.

Even though, the primary goal of alternative dispute resolution is to help contract parties resolve disputes without resorting to litigation. But, in today's context, these pre-requisites for arbitration have become a growing concern due to the many discrepancies they contain, often leading to misunderstandings in their interpretation. Consequently, parties find themselves investing significant amounts of time, effort, and money just to initiate what should have been a straightforward dispute resolution process, thus, making the process more intricate and convoluted. Therefore, this article aims to address this issue and analyse the debate by evaluating different arguments, and critically assess the legal status of these clauses in various countries.