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Dealing with Multi-Tiered Arbitration Clauses

Turkey October 16 2020
Multi-tiered arbitration clauses mandating amicable steps before escalating a dispute to arbitration have to be carefully constructed in order to serve their purpose – a cost, and time efficient solution for solvable disputes.

Modern day arbitration clauses mostly stipulate the pre-arbitral steps that parties must take before resorting to arbitration. The goal of these pre-arbitral steps is to provide for the amicable, timely, and cost-efficient settlement of disputes by offering parties the possibility of protecting the integrity of their existing and future relationships before filing for arbitration.

The use of multi-tiered clauses may be a double-edged sword, and the parties should carefully consider the benefits and drawbacks related to the use of the pre-arbitral steps included in such clauses. Some of the most frequently used pre-arbitral steps include wellknown alternative dispute resolution methods (“ADR”), such as negotiation and mediation. These methods may help parties avoid escalating their disputes and settle such disputes in a more time and cost-efficient manner without incurring the substantial costs associated with arbitration proceedings.1 Such methods may also help parties narrow the issues to be arbitrated even if they do not lead to a full scale resolution. However, pre-arbitral steps may sometimes also delay the commencement of arbitration by requiring the parties to go through various hurdles and may be a waste of time and money if there is strong doubt surrounding the potential effectiveness of the settlement negotiations.2

Crafting these multi-tiered arbitration clauses in a manner that enables the most efficient dispute resolution or escalation process is key to maximizing the benefit of these clauses rather than adding another time and money consuming hurdle for the disputing parties. If well crafted, these clauses would provide parties a contractual “cooling-off period” during which the parties can reassess their disputes and exert their best efforts to settle the issues before spending a significant amount of time and money on arbitration. In this article, we will take a closer look at the concept of multi-tiered arbitration clauses by walking you through the procedural considerations concerning these clauses and discussing the drafting points to take into account for a robust and efficient multi-tiered arbitration clause.

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Harvey Yan


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