Summary:
This article written by Aseel Zimmo and Umar Azmeh of Qatar International Court and Dispute Resolution Centre explores the enforceability and practical challenges of multi-tier dispute resolution (MTDR) clauses, which require parties to attempt negotiation and mediation before pursuing arbitration or litigation.

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Analysis:
In our first article of this two-part set, we covered the difficulties encountered with poorly drafted arbitration clauses, explaining how these might be treated under Bahrani law and Qatari law, respectively Arbitration Clauses in Qatar and Bahrain. This article will drill down deeper into arbitration clauses, focusing not on the jurisdictional provisions, but on the procedural aspects of some arbitration clauses. In today's complex commercial landscape, multi-tier dispute resolution (MTDR) clauses have become commonplace in crossborder contracts. These clauses require parties to follow a sequence of steps, such as negotiation and mediation before pursuing formal legal remedies; arbitration or litigation. They are intended to foster early resolution, preserve business relationships, and reduce time and cost. They often work very well. However, problems can occur when a party does not follow the tiering as set out in the contract. What, therefore, can happen when a party bypasses a preliminary step or claims that a condition precedent has not been satisfied?

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What are MTDR clauses?

MTDR clauses, also known as escalation or step clauses, structure the dispute resolution process in phases. A typical clause may require:

Tier 1: negotiation between senior executives within a set period.

Tier 2: mediation or conciliation.

Tier 3: arbitration or litigation as a last resort.

These clauses serve two goals: (1) to encourage amicable settlement at an early stage, and (2) to reserve formal procedures for intractable disputes.

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Enforceability:
MTDR clauses are clauses in a contract like any other. Courts generally uphold these clauses, particularly where the language is clear and unambiguous. Unless there is something unworkable or against public policy, as with any contractual clause,  courts will likely enable them. However, disputes often arise when one party initiates arbitration or litigation without completing a prior tier of the clause. Courts have acknowledged the enforceability of MTDR clauses where the preliminary steps are expressed as mandatory conditions precedent to arbitration or litigation. If the language used is clear (e.g. "must first attempt mediation within 30 days"), tribunals and courts may decline jurisdiction or stay proceedings until the clause is complied with. However, where the clause is ambiguous, non-specific, or expressed in aspirational terms (e.g., “parties may consider mediation” or “use reasonable endeavours”), courts may treat it as non-binding and proceed with the substantive claim. As ever, the key is in the language.

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Practical Challenges:

Despite growing recognition, MTDR clauses still pose practical and procedural challenges:

- Delay tactics: a party may invoke non-compliance tactically to delay arbitration or litigation.
-Unclear drafting: vague or open-ended clauses are difficult to comply with as well as enforce.
- No formal mediation culture: parties may not have access to structured mediation processes within a jurisdiction, undermining the practical effect of MTDR clauses.
- No explicit statutory provisions: arbitration laws often do not explicitly address MTDR clauses, leaving interpretation to tribunals and courts.

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Recommendations for Practitioners and In-House Counsel:

To maximise enforceability and minimise procedural disputes, MTDR clauses in contracts should be:
1. Clear and specific: mandatory language and fixed timeframes (e.g. “must mediate within 30 days”). Using non-imperative language such as “may” would inject ambiguity and increase the likelihood of the tier being deemed optional.
2. Well-structured: name the institution (e.g. CEDR), rules (e.g. ICC Mediation Rules) and method (e.g. in person, virtual, hybrid etc) applicable to each tier.
3. Include waiver triggers: state that if one party refuses or fails to participate, the condition is deemed waived.
4. Consider local context: ensure the clause is feasible under local practice (e.g. mediation institutions, language).
5. Record attempts: parties should document their efforts to comply, as evidence of good faith.

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Conclusion:

MTDR clauses are valuable tools in managing disputes, and courts across the world are increasingly accommodating of their role. However, their success depends heavily on precise drafting, genuine engagement in each step, and awareness courts and tribunals interpret such clauses.