Khóa luận tốt nghiệp: Multi-tiered dispute resolution clauses: Theory and practice

Bilateral Investment TreatyCivil Procedure Rules Dispute Avoidance/Resolution Board Dispute Adjudication Board Defects Notification Period Dispute Review Board Exhaustion of local remedi

MINISTRY OF JUSTICE MINISTRY OF EDUCATION

MULTETIERED DISPUTE RESOLUTION CLAUSES:

THEORY AND PRACTICE

Major: International Trade and Businesses Law

BACHELOR’S DISSERTATION

SUPERVISOR LLM Nguyen Mai Linh

Supervisor's certification

DISCLAIMER

I hereby declare that this dissertation is my

own work The conclusions and datas in theBachelor's Dissertation are truthful andreliable /

Author of the Bachelor s Dissertation

Gign and write full name)

Bilateral Investment Treaty

Civil Procedure Rules

Dispute Avoidance/Resolution Board

Dispute Adjudication Board

Defects Notification Period

Dispute Review Board

Exhaustion of local remedies

European Union

Vietnam - European Union Investment Protection Agreement

International Federation of Consulting Engineers

Free Trade Agreement

International Chamber of Commerce

International Covenant on Civil and Political Rights

International Centre for Settlement of Investment Disputes

International L aw Commission

Law on Commercial Arbitration

Organization for the Harmonization of Business Law in Africa

Small Case Commercial Mediation Scheme

Singapore International Arbitration C enter

Singapore International Commercial Court

Singapore International Mediation C entre

Singapore International Mediation Institute

Singapore Mediation C enter

Building and C onstruction Industry Security of Payment Act

Technology, Infrastructure and C onstruction

United Kingdom

United Nations Commission on International Trade Law

United State

Vietnam International Arbitration C entre

Vietnam Mediation C entre

1.2 Disp ute resolution methods in multi-tiered disp ute resolution clauses

1.2.1 Consensual alternative dispute resolution methods

1.2.2 Quasi-adjudicative alternative dispute resolution methods 10

13 Key characteristics of multi-tiered disp ute resolution clauses 121.3.1 Enforceability in Court and Arbitration 121.3.2 Scope of the duty to follow the agreed mutti-tiered dispute resolution

clauses 14

œ - ö

1.3.3 Means of enforcing uulti-tiered dispute resolution clauses 151.4 The role of multi-tiered disp ute resolution chuses 21

CHAPTER 2: IMPLEMENTATION OF MULTI-TIERED DISPUTE

RESOLUTION CLAUSES IN INTERNATIONAL PRACTICE 252.1 Practice of multi-tiered dispute resolution chuses in international

ề2.3.2 Civil law — England

CHAPTER 3: IMPLEMENTATION OF MULTI-TIERED DISPUTE

3.1 Legal framework regarding multi-tiered disp ute resolution clauses 473.1.1 Regarding law ou arbitration 473.1.2 Regarding law on construction 493.1.3 Regarding law ou international investment 503.2 Opinions of Court and Arbitration regarding the enforceability of multi-tiered disp ute resolution clauses $13.2.1 Regarding Court $13.2.2 Regarding Arbitration 553.3 Recommendation for Vietnam 56CONCLUSION FOR CHAPTER 3 62

Enterprises globally are increasingly turning to alternative dispute resolution(ADR) mechanisms amidst rising commercial disputes, favoring efficiency, security,and confidentiality over traditional litigation Notably, arbitration has gainedinternational acceptance, prompting countries like Vietnam to emphasize itsimportance through legislative measures like the Lay on Commercial Arbitration(LCA) While arbitration offers benefits, it has limitations, leading parties to oftenopt for amicable resolutions before resorting to arbitration, aiming to streamlineproceedings, minimize costs, and preserve relationships.

In civil and commercial law, pre-litigation resolution agreements, includingmulti-tiered dispute resolution (MDR) clauses, are common but pose legalcomplexities These agreements raise questions about their binding nature, proceduralcourses in cases of objection, and their impact on arbitration proceedings and awards.Uncertainties persist in Vietnam regarding the potential of MDR clauses to annularbitration awards due to the absence of explicit provisions in the 2010 LCA,underscoring the need for scholarly inquiry Hence, the author's chosen topic, “Multi-tiered dispute resolution clauses: Theory and Practice”, delves into thesecomplexities, aiming to contribute to refining legislative structures for alternative

dispute resolution mechanisms in Vietnam and beyond

2 Literature review

Through the process of surveying and researching the author has discerned that

the issue of MDR clauses has been extensively examined abroad and has been the

subject of discussion in a limited number of domestic research endeavors.Consequently, these scholarly works can be categorized as follows:

2.1 Domestic framework

@® Firstly, concerning scholarly works produced in the genre of monographs:

In his publication “Arbitration mechanism in the context of internationaleconomic integration” (2022), authored by Dr Do Van Dai, extensive insights intopre-arbitration agreements in dispute resolution are provided The authormeticulously presents practical legal applications and conducts comparative analyseswith the legal frameworks of several nations worldwide Notably, the work also

incorporates the latest provisions of the Organization for the Harmonization of

Business Law in Africa (OHADA), offering specific regulations on pre-arbitration

agreements These insights hold significant value for the development of Vietnamese

law

Another seminal contribution by Dr Do Van Dai, “Vietnam Commercial

Arbitration Law - Verdicts and Commentary (Volune 1)” (2017), merits scholarly

attention The commentator's discerning analysis distinguishes between arbitration agreements in scenarios characterized by voluntary and mandatory pre-arbitration procedures Through a comprehensive examination of practical cases and

pre-a meticulous comppre-arison with the legpre-al frpre-ameworks of Frpre-ance, Switzerlpre-and, pre-and theUnited States, the monograph offers pragmatic solutions to address instances where

a patty objects to arbitration proceedings due to the purported non-completion of arbitration procedures as stipulated The commentator's elucidation underscores thelack of uniformity in trial practicesin Vietnam and offers insightful recommendations

pre-for aligning Vietnamese law with international standards While the exploration of

various facets within arbitration law is thorough, the monograph does not delveextensively into the nuanced complexities of pre- arbitration agreement issues

Gi) Secondly, concerning scholarly articles published in legal journals:

Tran Viet Dung's article (2021) titled “Resolving breaches of Pre-arbitrationagreements: Global insights and legislative recommendations for enhancingArbitration Law in Iiemam”, featured in the Vietnam Joumal of Legal Sciences,Issue 01(140)/2021 In this paper, the author conducts an in-depth analysis of theessence and objectives of multi-tier dispute resolution clauses, drawing oninternational judicial practices and theoretical frameworks of arbitration law Throughcomparative examinations of diverse approaches adopted across various jurisdictions,the author constructs and advocates legislative reforms tailored to Vietnam's

arbitration landscape This meticulously crafted study not only lays the groundwork

for subsequent research endeavors by identifying nascent legal controversiessurrounding pre-arbitration agreements but also aims to delve deeper into the

theoretical underpinnings of such agreements, assimilate recent jurisprudential

developments, and proffer cogent insights applicable to Vietnam

Cao Anh Nguyens article (2017) titled “Pre-arbitration procedies:Theoretical and practical considerations in broadening arbitral jurisdiction”,published in the Journal of Legislative Research, Issue 21 (349) November 2017 Inthis scholarly exposition, the author elucidates the inadequacies inherent in the 2010Commercial Arbitration Law of Vietnam, which overlooks the imperative of pre-arbitration negotiation and conciliation, opting instead to acknowledge conciliationsolely within the arbitration process Furthermore, the article expounds upon the

pivotal role and consequential advantages of MDR clauses for disputing parties

Acknowledging the seminal contribution of this study in illuminating noveltheoretical insights into pre- arbitration procedures and delineating legislative lacunae

amendments in their dissertation

2.2 Global framework

In the global context, within the scope of the author's research, numerouscomprehensive studies are renowned for providing reliable information pertinent tothe subject matter Several notable works include:

Nigel Blackaby et al (2018), “International Arbitration - sixth edition” Thiswork stands as a comprehensive research endeavor on commercial arbitration law,wherein the authors offer commentary on various procedural aspects and arbitration

proceedings They also furnish illustrative examples to address practical challenges,

collating provisions, rules, and guidelines from the Model Law, arbitration laws, andarbitration rules of numerous jurisdictions worldwide Regarding pre-arbitrationagreements, the authors introduce ADR methods, delineate the concept and benefits

of MDR clauses, and analyze the approaches of courts in countries such as the UnitedKingdom, Switzerland, and Singapore regarding the enforcement of pre-arbitrationprocedures

Gu, W (021), “Mapping and Assessing the rise of Multi-tiered Approaches tothe Resolution of International Disputes across the Globe”, published in AnselmoReyes and Weixia Gu (eds), “Miulti-Tier Approaches to the Resolution ofInternational Disputes: A Global and Comparative Study” (forthcoming) This workserves as an invaluable reference for researching pre- arbitration procedures, offering

a global survey of multi-tier dispute resolution clauses in regions such as Asia-Pacific,

the OHADA, and the European Union (EU)

Kayali, D (2010), “Enforceability of Milti-fiered Dispute Resolution Clauses”,

published in the “Journal of International Arbitration”, Volume 27(6) This article

raises issues concerning the enforceability of multi-tiered dispute resolution clauseswhen one party fails to adhere to the prescribed procedures outlined in the contract

It provides definitions of MDR clauses, explores different perspectives of scholars,courts, and arbitral tribunals on the nature of such clauses, and elucidates the essentialelements for their validity

3 The scientific and practical contr ution

The research enriches theoretical frameworks by delving into the intricatedynamics of MDR approaches, illuminating their underlying principles and

mechanisms Drawing from multiple disciplines such as law, psychology, economics,

and sociology, the study fosters interdisciplinary dialogue and sets the stage forfurther theoretical development in Vietnam

In terms of practical contributions, the study offers actionable insights forstakeholders in Vietnam, including businesses, legal professionals, and policymakers,

to improve dispute resolution processes Through comprehensive analyses andpractical recommendations, parties can navigate disputes more effectively, reducingcosts and preserving relationships Furthermore, by pinpointing key factorsinfluencing the effectiveness of multi-tiered dispute resolution mechanisms, theresearch empowers stakeholders to tailor strategies to the Vietnamese context,whether negotiating contracts, drafting dispute resolution clauses, or resolvingconflicts, ultimately leading to fair and satisfactory outcomes in the Vietnamesebusiness environment

4, Research objectives

(Ò Firstly, to elucidate certain theoretical issues concerning MDR clauses

(ii) Secondly, to identify existing deficiencies and practical shortcomings in

Vietnamese law and legal practice concerning MDR clauses

(iii) Thirdly, to analyze and evaluate the global legal framework and practices

in international construction and investment areas, as well as several jurisdictionsrenowned for their legal systems, including common law and civil law systems such

as the United States, England, Singapore, with the aim of deriving pertinentexperiences and provisions adaptable to the legal framework and socio-economicrealities of Vietnam

5 Scope of research

In order to attain a more impartial and thorough grasp of the legal provisions

concerning MDR clauses, the author conducted an investigation based on legal

docum ents both domestically and internationally With regard to dom estic legislation,scrutiny was directed towards the stipulations outlined in the 2010 LCA, Resolution

No 01/2014/NQ-HDTP, issued by the Council of Judges, which offers guidance on

the implementation of specific provisions of the LCA, as well as Decree No.22/2017/ND-CP, promulgated by the Government, which provides detailedregulations pertaining to commercial mediation Furthermore, an analysis wasundertaken of pertinent provisions contained within the 2015 Civil Code andthe 2015Civil Procedure C ode In the realm of international law, meticulous examination wasconducted on the legal frameworks of various jurisdictions typified by common law

and civil law systems, such as England, the United States, Singapore, Hong Kong

Additionally, scrutiny encompassed the provisions of the United Nations

Commission on International Trade Law (UNCITRAL) Model Laws, including the

Model Law on International Commercial Arbitration 1985, as amended in 2006(Model Law 2006), the Model Law on International C omm ercial Conciliation 2002

international construction area, relevant cases and bilateral investment treaties (BITS)regarding the international investment area, in addition to the arbitration andmediation laws of various countries and the regulations of select internationalarbitration bodies.

6 Methodology

To conduct the inquiry, the author utilizes a methodology integratingdissertation, theoretical frameworks, and soft law provisions, along with expertinsights, to analyze the discussed issues International arbitration case studies are

incorporated to solidify theoretical underpinnings, resulting in a blend of theoretical

and empirical research methodologies Data is drawn from reputable reports, studies

by seasoned experts, and organizations within international arbitration Despitechallenges in gathering primary data due to confidentiality and limited access,evidence rules in this dissertation are deduced from research findings to ensureaccuracy and applicability

7 Dissertation disposition

Excluding the Introduction, Conclusion, References, Annexes and Table ofAbbreviations, the dissertation will be structured into three primary sections:

Chapter 1: Overview of Multi-tiered dispute resolution clauses

Chapter 2: Implementation of Multi-tiered dispute resolution clauses in

international practice

Chapter 3: Implementation of Multi-tiered dispute resolution clauses in

Vietnamese regulations

CHAPTER 1:

OVERVIEW OF MULTI-TIERED DISPUTE RESOLUTION CLAUSES

1.1 Definition of multi-tiered disp ute resolution chuses

Intemational commercial arbitration is often favored over court litigation due toperceived benefits like procedural flexibility, neutrality, and cost-effectivenessHowever, scrutiny reveals challenges, such as procedural complexities resemblingcourt litigation and issues with cross-border enforcement Some commentatorssuggest that arbitration is facing a crisis akin to litigation, questioning its efficiencyand finality

Despite these challenges, ADR methods continue to evolve Arbitration is nolonger seen as simply an “alternative method, but rather a distinct form of disputeresolution As a reflection of the above phenomenon, MDR clauses are gainingtraction, offering a structured approach involving various ADR procedures beforeresorting to arbitration or litigation as a last resort These clauses prioritizecooperation and practical solutions, aiming to preserve business relationships andminimize disruption to contract performance in complex contractual arrangements

MDR clauses are employed in complex contracts for their potential cost-savingbenefits and enhanced efficiency in resolving disputes Typically, as mentionedabove, litigation through arbitration is viewed as a final recourse in the disputeresolution process due to its comparative costliness and time-consuming nature whencontrasted with most ADR methods A widely accepted definition of an MDR clause

is provided by Michael Pryles, states: “A clause in a contract which provides fordistinct stages, involving separate procedures, for dealing with and seeking to resolve

disputes “! In addition, Nick Longley and Chris Cho offered a more comprehensive

definition of MDR clauses, emphasizing that they typically mandate parties to pursue

ADR before resorting to arbitration or court litigation These clauses involve

escalating levels of formality and cost, with each tier more formal and costly than thepreceding one Typically, the initial stage involves a meeting of senior managers,followed by mediation at the second stage, and ultimately arbitration or court at thefinal stage Such MDR clauses are prevalent in contracts related to large-scale and

intricate projects such as construction or energy ventures 2

In terms of nomenclature, MDR clauses are also referred to as “escalation

clauses”, “multi-step clauses”, or “ADR-first clauses.” In the construction area, a

commonly used approach is known as the “wedding cake approach’ For example,

‘M Prykes (2001), ‘2Miulti- Tiered Dispute Resokeion Clauses” , Journal of buernational Arbitration,p 159.

* Nick Longley and Chris Cho (2020), '2Mãttr-tiered Dispute Resohition Clauses: Part 3”, Arbitration nights:

Australia.

designed akin to a wedding cake with three or four tiers Compound terms, usingabbreviations such as “arb” and “med”, for instance, “Med-Arb”, are also frequentlyemployed To avoid confusion, the term “MDR’ will be used to refer to the concept

of MDR in general, while “Med-Arb” will be used to denote a specific MDR process(comprising mediation and arbitration) Essentially, the listed terms describe the samelegal framework It involves different “layers” of dispute resolution methods, eachlayer consisting of a specific method, starting with various ADR procedures, and ifparties are not satisfied with any procedure, the dispute will be escalated to the nexttier, until it culminates in arbitration, “a tailored fit for all”, as parties individuallydesign the number and methods of dispute resolution for each contract Within this,disputes may be resolved early if a satisfactory solution is reached in the pre-arbitration stage, making all parties content and willing to comply voluntarily Thus,not all steps need to be used before a dispute is resolved in every case

Hence, an MDR clause within a contract constitutes a multi-stage processinvolving various participants and employing diverse tools, with the ultimate aim ofachieving a resolution Should this prove unsuccessful, the procedure culminates inarbitration or, if necessary, litigation to address the disagreement

In summary, a MDR clause is a strategic feature in complex contracts, designed

to systematically address disputes through distinct stages and procedures Theseclauses aim to enhance efficiency, minimize costs, and provide a structured approach

to dispute resolution By offering various resolution avenues within a contractual

framework, MDR clauses empower parties to collaboratively manage conflicts beforeresorting to more resource-intensive options like arbitration or litigation

1.2 Disp ute resolution methods in multi-tiered disp ute resolution chuses

Based on specific factors, MDR clauses encompass two groups of disputeresolution methods The first group, involving consensual methods like mediationand negotiation, relies on the voluntary participation of the parties In this context,any third-party engagement serves a facilitative purpose, with a neutral personassisting the parties in reaching a settlement The second group pertains to quasi-adjudicative methods, including expert determination and dispute boards, where aneutral person issues a decision determining the dispute outcome This quasi-adjudicative ADR is adversarial, with non-voluntery participation, and becomes

binding only if uncontested in subsequent dispute resolution tiers These two clause

types are distinct in function and enforceability prerequisites, leading to separateexaminations in this dissertation

1.2.1 Couseusual alternative dispute resolution methods

(i) Negotiation

Negotiation entails direct discussions between the parties and is often

considered an initial step in the escalation ladder, given its cost- effectiveness This

stage of dispute resolution is primarily informal and can be conducted independently,without the need for a neutral third party and the associated expenses

Due to the flexible and informal nature of negotiation, drafting clauses for thisdispute resolution method can be challenging Insufficiently precise formulationsmay undermine the effectiveness of the entire ADR mechanism, potentially leadingcourts to refuse enforcement, citing uncertainty Furthermore, loosely definedlanguage in outlining parties duties may raise questions about the mandatory nature

of this step, as elaborated in the subsequent content of this dissertation Additionally,the parties duties are frequently defined in loosely worded terms, opening the door

to questioning the mandatory nature of this step, as illustrated below: “If a dispute

arises between the parties they shall discuss it in good faith and if the negotiationsare unavailing then either party may serve notice requiring the appointment of an

arbitrator “*

More meticulously drafted clauses incorporate a specific timeframe forundertaking negotiations Parties may also include an unequivocal statementaffirming the mandatory nature of preliminary negotiations: “Any controversy thatmay arise among the parties with respect to the legal relation arising out of thisAgreement shall be submitted to senior management representatives of the partieswho will attempt to reach an amicable settlement within fourteen (14) calendar daysafter submission If an amicable soÌtfion carmot be reached by negotiation, thedispute shall be finally settled by arbitration by a panel of one (1) arbitrator which

shall be appointed by both parties "5

Negotiations, typically initiated at the earliest stage of a dispute, precede moreformalized steps toward binding adjudication This is crucial when the partiesprioritize dispute avoidance over specific outcomes The contractual duty to negotiateprovides an opportunity for settlement while positions are flexible, preventingantagonism and conflict escalation Integrating negotiations into the disputeresolution framework allows parties to address issues early, minimizing the likelihood

"J Carter (2005), “Issues Arising from Integrated Dispute Resolution Clauses””n AJ văn den Berg (s4), New

Horizons in International Commercial Arbitration caxl Beyond ICCA Congress Series 2004, p.446; M Himter,

“Conmentary on Integrated Dispute Resolution Clauses” im AJ văn den Berg (¢d), 12id,p 470.

+M Pryles (2001), “Mai Tired Dispute Resolution Clauses”, Jonanal of uternationel Arbitration p 159, 160.

SICC (2003), ICC Buternational Cotzt of Arbitration Budletin.

conflict management.

(i) Mediation (Conciliation)

Mediation, also referred to as conciliation, plays a frequent role in MDRprocedures It involves a third party, acceptable to all involved parties, facilitating the

negotiation process to reach a mutually agreed-upon resolution for their dispute.

Alternatively, mediation can be viewed as negotiations between the parties facilitated

by a third person who does not make decisions The mediator lacks independentauthority and cannot issue a decision, all decision-making powers rest with the parties

involved’

The mediator, therefore, functions as a facilitator rather than an adjudicator,guiding the parties toward a resolution or settlement In a unique role, the mediator

can meet separately with each party, ensuring the confidentiality of discussions This

allows the mediator to gain an “insider” perspective on the parties needs, potentiallyidentifying areas of agreement or compromise that may elude the parties themselves.The mediator can then offer suggestions and, in many cases, facilitate a settlement.The ultimate outcome is often a written agreement, which, in situations where court

or arbitration proceedings are already underway, may take the form of an order or

award by consent ®

Mediation is highly regarded as a valuable contribution to dispute resolution,recogmzed for its well-developed process involving sophisticated techniques

employed by trained mediators In the Cable & Wireless,’ it was acknowledged as a

firmly established, significant, and growing facet of English procedure The court

highlighted a passage from the judgment of Brooke LJ in Diomett v Railtrack PleTM,underscoring the significance of mediation in the English legal system According to

the judgment, skilled mediators can achieve outcomes that go beyond the capacities

of lawyers and courts The court acknowledged instances, such as clinical negligenceclaims, where emotions run high However, when parties engage in mediation with askilled mediator on neutral ground, the mediator may successfully facilitate anagreement that leaves both parties satisfied The mediator's ability to offer solutionssurpassing the court's jurisdiction was emphasized The court also recognizedsituations, such as claims against the police, where emotions are intense, yet a simple

2 David Butler (1993), “‘Arbitration”, Lenvsat pa 553.

ˆ Pretorius, Paul (1993), Dispute Resolution, Juta & Co,Keraryn,p 4.

* hugp:/hew'e mipclaan.com , last access: 20 Jurwary 2024

* Cable & Wireless Ple v IRM United Kingdom Ltd (2002).

°© Diomett v Realrvk Plc (2002),p 2436-2437

apology from a senior police officer may be the claimant's primary request, rendering

the financial aspect less significant

1.2.2 Quasi-adjudicative alternative dispute resolution methods

(@ Expert determination

Expert determination (“expertise-arbitrage”, “Schiedsgutachten’) entails

submitting a contentious issue to an impartial third party Through the inclusion ofexpert determination in a contract, parties mutually consent to refer the dispute to anexpert for a binding determination This is often a key element in MDR clauses,especially in contracts involving intricate legal and factual matters or necessitating

valuation of specific issues.! In its contemporary form, expert determination has

notably evolved in common law countries Concurrent with the growth of ADR,

expert determination has also gained prominence in many continental legal systems.?

The fundamental legal framework for this method is either explicitly outlined in a

statute}? or deduced from the existing regulations governing analogous issues.*

Initially, the expert's role was limited to deciding narrow factual or technicalissues without involving legal interpretation Over time, expert determination evolvedinto a comprehensive ADR technique, resembling the role of an arbitrator when an.expert issues decisions on all aspects of a submitted claim Despite its binding nature,experts are not arbitrators, and their decisions lack the enforceability of arbitrationawards Expert determination operates outside the legislative framework ofarbitration, resulting in a contractual rather then legally enforceable binding force.Additionally, unlike arbitration, expert determination lacks a standardized normativeframework, leading to variations in legal foundations, particularly in continentaljurisdictions This contractual nature raises questions about enforceability and thevalidity of mandates for neutral third parties to make binding determinations

Despite the fact that expert determination shares a binding characteristic with

arbitration, it is essential to underscore their differences, a point frequently

emphasized in literature 15 In contrast to arbitration awards, the decisions rendered

"J Kendall, C Freedman, J Farrell (2015), Expert Determination, para 4 Off; M Pryles (2005), ‘‘Arbitrating

Disputes n the Resource Industries”, Arbitration Intemational, p 405; N Hom (2000), “‘Arbiration in

Intemational FEumcial Tansactions”, Arbitration Juternational, p 279-281; A Sessler, C LeEmsrt (2004),

“The Role of Expat Detemnimtion in Mergers and Acquisitions under Geman’ Law”, Arbitration Internationa’.

'? R Gerger, C Stubbe (2007), Schiedguachten: aupergerichtliche Snvitbeileging doch

Drittentscheichougen.

© Article 189 Swiss Civil Procedure Code.

'* Bg determination of the price by + neutral third party under Article 1592 French Civil Code (fixation du

prix poo 101 tiers).

‘SG Wagner (1998), Processverivige—Privatentonomie im Verfahrensrecht, p 663; J Lew, L Mistelis, S.

Kroll, Comparative Siternational Commercial Arbitration paras 1-34

through expert determination lack enforceability akin to court awards, as they do not

undergo recognition and enforcement proceedings before a national court Unlike

arbitration, expert determination operates outside the established legislativeframework of arbitration, resulting in the expert's decision holding a contractual,

rather than an enforceable, status Notably, arbitral awards may be subject to

challenges based on the law of the arbitral seat, a feature absent in expertdetermination, which may be subject to review in specific circumstances, contingent

on contractual provisions or legal systems variances Parties can either specifycriteria for review in the contract or declare the decision fully reviewable insubsequent stages of the dispute resolution process, creating a semi-binding expert

determination.

Furthermore, disparities exist in the scope of procedural safeguards betweenarbitration and expert determination The expert, operating within an informal andflexible procedure, contrasts with the arbitrator, who must adopt a judicial approach

guided by the presentations of the involved parties While parties can invoke judicial

control over arbitral procedure to rectify substantial irregularities, such aremedy doesnot extend to expert determination, where the procedure is largely unregulated and.typically shaped by the expert unless contractually dictated by the parties.Additionally, arbitrators benefit from immunity as part of their adjudicative mandate,

a safeguard not automatically granted to experts, who may face liability fornegligence

(ii) Disp ute boards

Dispute boards!’ are expert panels appointed at the contract's outset to monitor

performance and resolve disputes as they arise ® Similar to expert determination, the

legal nature of this ADR involves issuing decisions on submitted controversial issues

In the literature, dispute boards are occasionally seen as a specialized form of expert

determination or a umique variant thereof They are predominantly utilized in MDR

clauses within construction contracts.

Decisions from dispute boards are typically interim and binding subject topotential changes in later dispute resolution stages A board's decision, unchallenged,becomes final Dissatisfied parties may escalate the matter to a court or arbitration

\ Bg the procedure for challenge of am arbitral award on grounds of serious Zregnlarity under Article 68

Arbitration Act 1996.

`? Also referred to as “dispute adjudication boards”, ‘thispute review boards”, ‘dispute resokeion boards” or

“Gispute avoidance boards”.

'* Comprehensive on dispute boards C Chem (2011), Chern on Dispute Boards, Ind edn.

\ Dispute Boards were used in many large aefrastructure projects such as Hong Kong Airport Project or Cheamel Donel Project Extensively on the application of Dispute Boards in particular projects; J Jenkins, Construction Law Arbitration, p §8-59 and Chen on Dispute Boas ,para S6ff.

for aÑnal decision Dispute boards, akin to expert determination, derive their binding

force from the contract, making non-compliance a breach Unlike arbitral awards,

these decisions are not enforceable, lack judicial scrutiny, and do not constitutearbitration clauses, echoing distinctions from both arbitration and expertdetermination

The widespread use of dispute boards as an ADR technique has led manyinstitutional ADR providers to introduce standard clauses for pre-arbitral disputeboards These bodies often publish rules governing dispute board proceedings alongwith model clauses Notably, the International Chamber of Commerce (ICC) is aleading initiative in this regard, issuing rules and clauses Below is an example of aclause mandating the submission of a dispute to a dispute adjudication board followed

by ICC arbitrationTM

“The Parties agree to establish a Dispute Adjudication Board (DAB) in

accordance with the International Chamber of Commerce (ICC) Dispute Board

Rules Disputes under this Contract shall be first submitted to the DAB which willissue a Decision per the Rides If a Party fails to comply with a Decision, the otherParty may refer the matter to ICC arbitration Dissatisfaction with a Decision or theabsence of one within the specified time frame leads to final resolution through ICC

arbitration“?!

Dispute boards, as an ADR form, originated in the United States 2 Modern

dispute boards draw parallels with the statutory adjudication introduced in the UnitedKingdom under Part II of the Housing Grants, Construction and Regeneration Act

1996 In this framework, a party in a construction contract must first submit the

dispute to an independent expert before proceeding to arbitration or, in the absence

of an arbitration clause, court proceedings

1.3 Key characteristics of multi-tiered disp ute resolution chuses

1.3.1 Enforceability in Court and Arbitration

Common issues in both court and arbitration proceedings include determiningthe nature of consensual ADR, enforcing clauses mandating informal negotiations,defining obligations to participate in ADR processes, and fulfilling contractual ADRmechanisms Additionally, challenges arise in assessing the validity of expert

*° Qn the ICC Dispute Boards

2 This is reviritien by the author of this dissertation, wine iccwbe.ongfprodiucts-coxd services larbitration and

ar idispute- boards standard-icc-dispute-boards-clanses/ last access: 11 Jarmary 2024.

+ The construction of the Boundary Dam on the Pend Oreille river, Washington, is considered the earliest example of 4 dispute bomd (the Jomt Consukg Board) acting as 2 pemmment pamel empowered to provisionally determine disputes H, Brown, A Marriott, ADR Prowiples coud Practice, paras 7-028 On the history of dispute boards: Chern on Disprate Bocrds para 33; P Chapman (2011), “Dispute Boards mn Major Infrastructure Projects”, Disprate Resolution Boca Foraxdation Conference pars 3¢f

determination clauses, challenging expert decisions, validating time-bar provisions,

and enforcing ADR commitments either automatically or upon party assertion, with

limitations on raising claims

The difference between court and arbitral jurisdictions has profoundimplications for the repercussions of failing to adhere to ADR clauses Arbitraljurisdiction, grounded in contract, suggests that parties condition the effectiveness of

an arbitration clause on exhausting agreed pre- arbitral requirements, a concept known

asthe ‘jrwisdiction theory“ (contrasted with the “admissibility theory“) This raises

questions about whether breaching contractual ADR procedures affects thejurisdiction of an arbitral tribunal, a debate central to the enforceability of MDR

clauses in arbitration

The impact of non-compliance with ADR commitments on arbitral jurisdictiondetermines the extent of court oversight over arbitration If courts deem such non-

compliance affects jurisdiction, they may review arbitrators decisions, potentially

annulling or refusing to enforce awards if arbitrators proceed despite non- exhaustion

of pre-arbitral ADR by one party This controversy underscores challenges inharmonizing legal standards

The grounds for court review of arbitral awards vary depending on applicablelaw, typically covering tribunal jurisdiction Misjudging jurisdictional objectionsmaylead to award annulment or refusal of enforcement, raising complexities ininternational arbitration frameworks, especially regarding applicable laws to ADRclauses Inconsistent treatment of ADR breaches in different legal systems may lead

to undesirable outcomes, highlighting the need for harmonization to ensure

enforceability and challengeability of awards across jurisdictions

The matter of applicable law concerrrrng ADR clauses was addressed in the case

Stdamérica Cia Nacional De Seguros SA and others v Enesa Engenharia SA and

others.? In this case, the judge considered the possibility of applying different legal

systems to arbitration and mediation clauses However, the Swiss Biơidesgerichtconcluded that the law governing the arbitration agreement, as per Article 178 IPRG,

would also apply to the interpretation of any pre-arbitral procedures 3t

These cases primarily focused on whether the law governing the effects of an

ADR clause should align with that of the arbitration clause Additionally, thecomplexity of MDR mechanisms poses challenges ADR clauses often encompass

diverse components with varying procedural or substantive characteristics, affecting

» Sulamérica Cia Nacional De Seguros SA and others v Enesa Sngenharia SA and others (2012), EWCA Civ

638

3* Bundesgesetz uber das Intemationale Privatrecht (PRG), avrard of 7 July 2014.

the analysis of conflicts of laws involved The absence of a unified law on ADR and

the diversity of legal systems applicable in international arbitration present significant

challenges, particularly concerning arbitral jurisdiction To illustrate, consider ahypothetical scenario where an arbitral tribunal in Switzerland issues an award afterdismissing a defendant's plea regarding the claimant's non-compliance with ADRcommitments If the Swiss court supports the defendant's objection, based on thejurisdiction theory prevalent in Switzerland the award could be annulled there.However, French law does not subscribe to this theory, meaning a successful plea ofnon-compliance with ADR clauses would not strip the tribunal of jurisdiction to hearthe case

The New York Convention, which both countries have ratified allows for the

refusal of recognition and enforcement of an award annulled by the courts of itsarbitral seat Consequently, if the award is set aside in Switzerland, formal grounds

for refusal in France would only arise afterward This inconsistency can lead to the

enforcement of an award later annulled, as illustrated by the reverse scenario where

an award made in France may face refusal of enforcement in Switzerland due to

jurisdictional issues, despite not being annulled in its seat.

These scenarios underscore the importance of determining whether contractualADR commitments affect arbitral jurisdiction Arbitrators must weigh theimplications of their rulings on the enforcement or challenge of an award, consideringthe divergent standards of assessment Harmonizing legal systems on the impact ofnon-compliance with ADR procedures on jurisdiction would mitigate inconsistencies

and better uphold the primary objective of arbitration an enforceable arbitration

award

1.3.2 Scope of the duty to follow the agreed multi-tiered dispute resolutionclauses

Firstly, regarding Cousensnal ADR methods

Distinguishing consensual and quasi-adjudicative ADR methods hinges on thescope of the duty specified in each clause Two contrasting models emerge in judicialresponses one emphasizing the voluntary nature of consensual ADR, treatingit as anexpression of intention rather than a mandatory step; the other recognizing bindingobligations, despite voluntariness, viewing it as an opportunity for both parties to

amicably resolve disputes The enforceability of consensual ADR relies on the

specificity of language, demanding adherence to the “pacta stmt servanda” principle

Legal systems enforcing mediation clauses exhibit a consistent approach, not

expecting actual negotiations but fulfilling the contractual duty through initiating themediation process The duty extends to minimal actions like selecting a mediator and

presenting the case While additional duties to further the dispute resolution process

(Verfahrensforderimgspflicht’) under German lew and acting in good faith under

French law exist, they do not compel engagement in negotiations Exceptions toenforceability exist in English and French law, allowing discretion based on thelikelihood of mediation success or the futility of the process

In conclusion, legal systems vary in their approaches to the enforceability andscope of duties in consensual ADR clauses, with nuances in the interpretation ofvoluntariness, specificity, and exceptions

Secoudly, regarding Quasi-adjndicative ADR methods

The duty to undergo an agreed ADR process is clearer in quasi-adjudicative

methods such as expert determination and dispute boards These procedures do not

rely on voluntary participation, and a party seeking final adjudication can'tunilaterally thwart them Unlike consensual ADR, quasi-adjudicative methods

produce a final decision, eliminating ambiguity about when the process is considered

exhausted?’ As a result, expert determination and dispute board clauses are

enforceable without reservations, provided they are permitted under the applicablelegal system and the dispute has arisen when the prescribed procedure could be

fulfilled.

1.3.3 Means of enforcing wulti-tiered dispute resolution clanses

1.3.3.1 Contractual remedies

(i) Specific performance

Specific performance is deemed inadequate for breaching consensual ADR

clauses across jurisdictions due to challenges in defining the duty and the voluntary

nature of meckation or negotiations In France, discussions on specific performance

of ADR clauses primarily occurred concerning arbitration clauses, where it involves

court-nominating an arbitrator when a party refuses cooperation However, due to a

lack of statutory support for similar competence concerning mediation clauses,specific performance is rejected for consensual ADR and quasi-adjudicative ADRprocesses in the analyzed jurisdictions Specific performance is viewed as aninsufficient remedy for violating mediation clauses, as per Article 1184 of the FrenchCivil Code The unenforceable nature of commitments arising from consensual ADR

3° An example of a badly drafted clause in this respect cam de observed in the Shriss case

Handelsmactucheppyj Vekoma’ BV v Maran Coal Corporation Bodesgericht, 17 August 1995 (1996) 14 ASA

Bullet 673 The cast concemed arbitration procedure.

2 The proce tre may be mnpossible to fulfil sn expert is a person having « pamunent role under the contract (eg the Engineer in construction contracts), and thex mandate has come to an end, ar if the dispute board's appointment has tenminated and the dispute lus arisen after those events.

methods contributes to this inadequacy?’ Instead of specific performance,

commentators proposed a penalty remedy (“astreinte”), yet the judiciary has notembraced this suggestion While parties cannot be compelled to fulfill consensualADR commitments, breaching mediation clauses in France may indicate a lack ofgood faith under Article 1134 of the French Civil Code In Germany, judges rejectspecific performance for ADR clause breaches, highlighting the proceduralconsequences of pre-trial ADR agreements The notion of compelling a party toparticipate in agreed ADR processes is a minority view, and awarding such a remedyfaces obstacles

In continental jurisdictions, the challenge of determining the scope of duties in

consensual ADR methods makes specific performance impractical However, this

does not hinder procedural remedies for breach of mediation clauses, in contrast tothe pre-Cable & Wireless stance in English law The discrepancy arises from

fundamental theoretical differences between the legal traditions Unlike continental

judges, English law, applying contract law to dispute resolution clauses, faceddifficulties in ascertaining contractual considerations Legislative changes promotingADR shifted the approach, emphasizing the opportunity for settlement rather than.compelling it Although English law acknowledges the enforceability of ADRclauses, it does not allow specific performance, reserving it for exceptional

circumstances.

(i) Damages

Moreover, while damages represent a primary remedy for contract breaches inthe examined jurisdictions, their applicability may not be straightforward in thecontext of ADR clause violations Two key challenges emerge in this regard Firstly,determining the loss resulting from a party's failure to adhere to mediation or expert

determination procedures proves intricate Secondly, in jurisdictions highlighting the

procedural implications of ADR clauses, the very entitlement to damages is broughtinto question

Regarding the first challenge, courts consistently highlight the inherent

difficulty in determining the monetary compensation for breaching an ADR clause *Ê

The uncertainty surrounding the amount of loss resulting from a party's failure toengage in the ADR process makes the assessment of damages impractical It is not

feasible for a party seeking damages to assert that attempting mediation would have

led to a settlement, thereby avoiding specific losses

© © Jurrosson (2003), “Observations on Poiré v ThpierTM , Arbitration International ,(Vokmae 19),p 364

* Siovock Aircraft Corp v SAS (2007) Lloyd's Rep 612.

Similarly, difficulties arise in pursuing damages for violating an expertdetermination clause Firstly, establishing that adherence to the expert determinationprocedure would have yielded a more favorable outcome within a reasonabletimeframe is challenging to prove Secondly, quantifying the loss stemming from adelay in submitting a dispute to an expert is complex, as predicting the timing andoutcome of the decision under a tiered dispute resolution clause is uncertainMoreover, if referring to an expert is no longer an option, a party cannot claimdamages based on the assumption that the expert's decision would have been more

favorable than the court's decision.”

The availability of damages for breach of ADR clauses is also uncertain,

especially in continental legal systems like France, Germany, and Switzerland In

these jurisdictions, the analysis of contractual remedies for such breaches is entangled

in the distinction between substantive and procedural elements in dispute resolution

contracts A notable statement comes from the Swiss judiciary in the

Kassationsgericht Ztrich judgment of 15 March 1999,» which classified mediation

clauses as substantive contracts The duty arising from these agreements requiresrefraining from initiating court proceedings until the agreed procedure is completed,termed as a “non-aggression treaty” (‘“Nichtangriffspakt’) While the courtacknowledged contractual consequences, damages were not awarded due todifficulties in quantifying the extent of loss resulting from the breach Althoughsubsequent cases may not fully endorse this view, the judgment is regarded as asignificant pronouncement on the enforceability of ADR clauses in Swiss law

ADR clauses are often classified as contracts with negative duties, aligning with

the German concept of pactum de non petendo Unlike Kassationsgericht Ziirich'sinterpretation, German courts do not attribute substantive consequences to ADR

clause breaches Violating “pactian de non petendo” in Germany renders the claim

non-actionable, leading to inadmissibility of proceedings Despite scholarlydiscussions on substentive elements in dispute resolution clauses, German case law

consistently emphasizes procedural consequences of ADR contracts! Similarly,

French courts primarily consider procedural defenses in ADR clause violations.While French literature delves into the substantive components of mediation clauses,linking them to obligations of result and means, this identification does not directly

ea

`2 Kassationsgericht Zirich (2002), ASA Builenin p 373

` E, Fabian (2005), “The Exforcesbility of Mediation Clauses - the Approach of English and Gemun Counts

amd ICC Arbiral Finals”, SchiedsVZ p 250-253

correlate with the availability of contractual remedies 32 Damages for ADR clause

breaches are often considered unavailable or theoretical due to the challenge of

quantifying loss

In England, breaching ADR clauses is addressed within the general contractframework, allowing the parties to seek contractual remedies Despite this, damagesare not considered the preferred remedy for such breaches English law suggestsenforcing dispute resolution clauses primarily through injunctions rather thanmonetary compensation, with damages as a secondary option if quantifiable loss is

evident 33 While the English judiciary cautiously considers damage claims, they have

been allowed for breaches of arbitration or jurisdiction clauses However,

determining damages for ADR clause breaches remains unclear Potential damages

could include costs incurred in prematurely initiated proceedings Notably, Englishlaw permits both damages and stay of proceedings as remedies, and their availability

isn't mutually exclusive The procedural consequences of breaching ADR clauses do

not dictate the scope or availability of contractual remedies

(iii) Liquidated damages

To address challenges in gauging losses from breaching ADR commitments,parties can incorporate a liquidated damages clause into their MDR process This isgenerally acceptable across analyzed jurisdictions Swiss jurisprudence, for instance,sees liquidated damages as a way to alleviate uncertainty in judicial treatment of ADRclauses However, difficulties in including liquidated damages in MDR clauses ariseunder the English penalty doctrine, as outlined in Dimlop Pnetanatic Tyre Co Ltd v

New Garage & Motor Co Ltd3* English law prohibits parties from stipulating

punitive, non-compensatory sums in terrorem of the offending party The penaltydoctrine mandates that liquidated damages must be quantified for compensation,

reflecting a genuine pre-estimate of loss It is deemed a penalty if the stipulated sum

is extravagant and unconscionable compared to the greatest conceivable loss resultingfrom the breach Lord Watson in Lord Elphinstone v Monkland Iron and Coal Copresumed a provision as a penalty when “a single lhanp stan is made payable by way

of compensation, on the occurrence of one or more or all of several events, some of

which may occasion serious and others but trifling damage “35 The challenges in

` C Jarosson, “La sanction chinon- respect d'me clause instinunt un préliminaire obligatoire de conciliation

ou de medistion”,p 755

» OT Africa Line Ltdv Magic Sportswear Corp (2005), Lloyd’s Rep 170 (CA),p 33; Donohue v Armco By

(2002), Lloyd> Rep 425 (HL); D Joseph, Jiaisciction and Arbitration Agreements and their Brforcement

2010), 2! edn, para 12 308; R Fentimm, International Commercial Litigation, (2015),2" edn,para 16.42.

* Dinilop Pneumatic Bre Co Lidv New Grage & Motor Co Ltd (1914), UKHL 1

` Lord Biphinstone v Monkland Iron and Coat Co (1886), HL 1886.

determining damages for ADR clause breaches may hinder enforceable liquidated

damages in MDR mechanisms Yet, Lord Dunedin’s statement in Dưnlop Pneumatic

Tyre suggests that imprecise pre-estimation, due to the complexities of breachconsequences, is not an obstacle if a stipulated sum genuinely reflects the partie?

agreement The courts sensitivity to the difficulties faced by parties in MDR

mechanisms is uncertain

(iv) Dismissal of the claim

Non-compliance with pre-adjudicative ADR may lead to the dismissal of theclaim on the merits Although this sanction does not necessarily indicate the courtrelying on contractual liability rules, it resembles a ruling “tm merifi ” Consequently,the dismissal of the claim is categorized among other substantive enforcementmeasures for ADR clauses The German judiciary treats the dismissal of a claim asunfounded as a primary sanction for breaching an expert determination clause.According to established court decisions, when a premature claim is raised withoutreferring the issue to an expert, the court has the authority to dismiss the claim on themerits as temporarily unfounded (“cur Zeit unbegrimdet’) The principle has gained

approval in legal literature >”

InGerman lan, the treatment of quasi-adjudicative and consensual ADR clausesvaries, with consensual clauses seen as procedural contracts, focusing on their impact

on ongoing proceedings Conversely, expert determination is treated as a substantiveinstitution, resulting in substantive sanctions for non-compliance

(x) Injunctive relief

A unique stance taken by OLG Dủsseldorf suggested a consistent sanction for

both consensual and expert determination clauses, leading to the dismissal of a claim

as unfounded However, this approach was not widely adopted, with later judges

distinguishing between the two types of clauses Dismissal of a claim as unfounded

due to ADR clause breach is specific to German law, particularly concerning expertdetermination clauses In English lew, injunctive relief is a tool to enforce compliancewith contracts, including ADR clauses, restraining proceedings brought in breach ofsuch clauses This remedy reflects the enforceable nature of ADR clauses, distinctfrom damages, and is a characteristic feature of English law, unavailable in

continental jurisdictions.

1.3.3.2 Procedizal Consequences

“With reference to Castaneda coud Others v Clydebank Engineering cand Shipbualding Co Ltd (1905), AC 6

GL) 19 November 1904 (Lord Halsbuny) and Webster v Bosenguet (1912), AC 394 (Lord Mersey).

"J Mamch (2013), Miochener Kommentar zur Zvilprocessordung, p 31, para 60; P Hamam, A.

Baumbach, W Lauterbach, J Abers, P Hartmann 2016), Zviiprocessordbung,p 2737,para 17.

(i) Declaration of inadmissibility.

The declaration of inadmissibility ( ?rrecevabilité”, “Unculdssigkeit’) arises

from an impediment to adjudicating on the merits and typically concludesproceedings Recognized under both French and German law, each jurisdictionemploys distinct lines of reasoning In German lav, this declaration results from thelack of “actionability”, denoting the claim's suitability for adjudication Through a

“pactum de non petendo”, an agreement not to sue, parties may temporarily excludeactionability, leading to the court dismissing claims as inadmissible for breaching thisagreement ADR clauses are treated as such agreements, preventing merit-basedhearings until prescribed dispute resolution procedures are followed French law

mirrors this approach, deeming ADR clause breaches as grounds for inadmissibility,

invoking a procedural defense known as “fin de non-recevoir ” Successful pleading

of this defense results in the court declaring proceedings inadmissible without delving

into the case's merits In Swiss jurisprudence, while the concept of inadmissibility

due to breach of ADR clauses has been considered, scholars and courts predominantlyassert that such clauses are valid but not enforceable in litigation

(ii) Stay of proceedings

The stay of proceedings serves as an alternative procedural response to thebreach of an ADR clause Unlike a declaration of inadmissibility, which usuallyconcludes prematurely initiated proceedings, a stay temporarily halts the proceedings,allowing them to be resumed under appropriate circumstances This sanction forbreaching an ADR clause is applicable under English law, mirroring the sanction for

breaching an arbitration clause as per section 9 of the Arbitration Act 1996 Unlike

arbitration, the stay for ADR breaches is discretionary, providing the court withflexibility In continental jurisdictions like Germany and France, discussions around

stay of proceedings have occurred, seen as a practical tool to manage cases

prematurely initiated without fulfilling ADR commitments While German courtshave not adopted this due to legislative gaps, French law lacks explicit provisions,and some authors suggest codifying the stay as a sanction for ADR breaches

(0 Refusing Jurisdiction

A third model involves refusing jurisdiction until ADR procedures are compliedwith In continental systems, this is rejected for litigation, asserting that parties can’t

oust court jurisdiction English courts, dealing with non-compliance with ADR

clauses, do not refuse jurisdiction but enforce contractual agreements through stays

Refusal of jurisdiction is considered in arbitration due to the contractual nature of

arbitral authority, which can be conditioned by parties However, the inherentjurisdiction of courts cannot be fully removed based on compliance with contractual

duties, and refusal of jurisdiction in arbitration due to the breach of multi-step disputearbitration clauses is discussed separately.

(1v) Enforcement and timing of plea

Across these frameworks, courts do not enforce ADR clauses proactively, it

requires a plea by the defendant The lack of such a plea is considered a waiver of

ADR clause rights The timing of the plea varies, English and German courts expect

it early in proceedings, similar to arbitration clauses In French law, although breach

of an ADR clause is categorized as “fin de non-recevoir ”, the plea must be raised atthe outset, akin to arbitration clauses, or it's deemed waived In summary, proceduralconsequences resulting from breaches of ADR clauses exhibit nuanced variationsacross legal systems Declarations of inadmissibility, stays of proceedings, andrefusals of jurisdiction serve as diverse tools for courts to enforce ADR commitments,with each jurisdiction employing unique mechanisms German and French laws

employ concepts like ‘pacta de non petendo” and “fins de non-recevoir”

respectively, for effective enforcement, while English law opts for discretionary staysrather than outright refusal of jurisdiction The absence of proactive enforcementunderscores the significance of timely pleas by defendants, aligning with thetreatment of arbitration clauses The distinctive procedural responses outlinedcontribute to the ongoing discourse surrounding the enforceability and efficacy ofADR clauses in achieving efficient and just dispute resolution

14 The role of multi-tiered disp ute resolution clauses

The popularity of MDR clauses can be noticed globally In the settlement ofinternational investment disputes, the consultation/negotiation phase is prioritizedbefore resorting to arbitration, and the duration of this phase can range from 3 to 12

maonths 3 Depending on the parties agreement, negotiation/consultation may be anobligation of the parties, even a mandatory procedure before proceeding to

arbitration For example, the Vietnam - European Union Investment Protection

Agreement (EVIPA)® stipulates a mechanism for resolving disputes bebveen

investors and the host state, where the parties are required to use the most conciliatory

forms of dispute resolution, specifically mandatory consultation and notification ofintent to initiate proceedings, or voluntary mediation with each other, before

submitting the dispute to the investment arbitration tribunal?

” Tran Vit Dung, Nguyen Thi Lan Huong (2018), buernational Bmesment Dispute Resolution - Some Legal

Xe: coxd Practices in the Context of bue gration, Ho Chi Minh City Publisher,p 7.

ˆ° The Investment Protection Agreement betvreen Viet and the European Union, signed on Ame 30,2019,

EVIPA (not yet officially in effect).

* Tran Viet Dung, Nguyen Thi Lan Huong (2020), hiternational ðn'eatment Arbitration Mecheouisms: Rules,

Procechaes, and Practices, Ho Chi Minh City Publisher,p 225.

Furthermore, the majority of bilateral investment treaties (BITS) require foreign

investors to wait for a certain period of time (referred to as a “cooling-off period’)

before initiating arbitration * The most common duration of the cooling: off periodis

6 months During this time, arbitration proceedings cannot commence, and theinvestor and the host state should attempt to amicably resolve the dispute Forexample, Article 8 of the Agreement between Vietnam and France on the Promotionand Protection of Investments stipulates: “J Avy investment dispute [ ] mustendeavor to be resolved through conciliation between the two Parties concerned 2

If the dispute is not resolved within a period of 6 months from the date one of theParties raises the dispute, then at the request of one Party, the dispute shall be

submitted to arbitration [ ]° The widespread adoption of MDR clauses

underscores the significant roles they play as follows

Firstly, the utilization of MDR clauses underscores the foundational principle ofcontractual autonomy, empowering parties to tailor dispute resolution mechanismsaccording to their specific needs and preferences This autonomy extends not only tothe selection of dispute resolution methods but also to the crafting of procedural rules,granting parties full control over the resolution process

Secondly, MDR clauses serve asa strategic tool to streamline dispute resolution,particularly in the face of increasingly diverse and complex disputes By mandating

a pre-arbitration phase, these clauses effectively act as a “filter”, allowing parties toswiftly and efficiently address simpler disputes through less resource-intensivemechanisms, such as negotiation or mediation This helps to conserve both time and.costs, ensuring that valuable resources are allocated judiciously

Moreover, the staged nature of MDR clauses, often likened to a “wedding cakeapproach”, offers a structured patlrway for escalating disputes from informal

negotiations to more formal mechanisms like DABs, mediation, and ultimately

arbitration This tiered approach not only facilitates the progression of disputesthrough various stages of resolution but also ensures that the intensity of interventioncorresponds appropriately to the complexity and value of the dispute at hand

+! Bryan A Gamer (2009), Black's Law Dictionary 9" edn,p 384.

* According to a study by the Orgmisation for Economic Co-operation and Development (OECD) mn 2012,

nearly 90% of agreements containing Investor- State Dispute Settlement (ISD S) provisions require iwvestars to comply vith a cooling-off period before submitting a clam for arbitration Some agreements establish different

wraiing periods for international arbiration J Pohl, K Mashigo, A Nohen (2012), “Dispute Settkment

Provisions in Intemational Investment Agreements: A Large Smple Survey”, OFCD International boestuent Working Paper, (No 2012/2),p 17

* Ngo Nguyên Thao Vy, Nguyen Truong An (2020), “The effectiveness of umltitier arbitration clauses in

intemational arbitration and recommendations for Vietuam”, Joranal of Viememese Le gal Science p.95

Thirdly, MDR clauses provide a proactive means for parties to achieve early

resolution of their disputes By incentivizing engagement in pre-arbitration

procedures, these clauses encourage parties to actively seek mutually acceptablesolutions Successful completion of pre-arbitration procedures often results in aconsensual settlement, wherein both parties mutually agree to the terms of resolution.This voluntary acceptance of outcomes underscores the effectiveness of MDR clauses

in fostering cooperation and preserving commercial relationships

In summary, MDR clauses play a pivotal role in modern dispute resolutionframeworks by upholding principles of autonomy, efficiency, and proactiveengagement By empowering parties to design bespoke resolution mechanisms, theseclauses promote a culture of collaboration and facilitate the timely and cost-effectiveresolution of disputes, thereby enhancing the overall efficacy of arbitration processes

CONCLUSION FOR CHAPTER 1

In conclusion, this chapter has provided a comprehensive exploration of MDR

clauses, examining both consensual and quasi-adjudicative ADR methods and theirkey characteristics Consensual ADR methods, such as mediation, highlight theimportance of voluntariness and good faith in engaging parties to reach mutuallyacceptable resolutions, while quasi-adjudicative methods, like expert determinationand dispute boards, offer binding decisions on submitted disputes

The enforceability of MDR clauses in court and arbitration settings has beenanalyzed, revealing nuanced differences across legal systems and highlighting thechallenges in harmonizing legal standards While some jurisdictions treat breaches ofADR clauses as procedural defenses leading to dismissal or stays of proceedings,others recognize them as substantive agreements, warranting substantive sanctionsfor non-compliance

Procedural consequences for breaching MDR clauses vary, including

declarations of inadmissibility, stays of proceedings, and refusals of jurisdiction, witheach jurisdiction employing umque mechanisms for enforcement Despite differences

in approach, the overarching goal remains to incentivize compliance with ADRcommitments and promote efficient and just dispute resolution

Furthermore, the role of MDR clauses in modern dispute resolution frameworks

is significant, as they uphold principles of contractual autonomy, efficiency, andproactive engagement By providing structured patinvays for escalating disputes andencouraging early resolution through pre- arbitration procedures, MDR clauses foster

a culture of collaboration and contribute to the timely and cost-effective resolution of

disputes

In essence, MDR clauses play a pivotal role in enhancing the efficacy ofarbitration processes by empowering parties to design bespoke resolutionmechanisms and promoting a cooperative approach to dispute resolution Asbusinesses and legal systems continue to evolve, the importance of MDR clauses infacilitating efficient and effective dispute resolution cannot be overstated

CHAPTER 2:

IMPLEMENTATION OF MULTI-TIERED DISPUTE RESOLUTION

CLAUSES IN INTERNATIONAL PRACTICE

In contemporary legal frameworks, MDR clauses serve as indispensable toolsfor resolving intricate disputes, particularly in complex sectors such as internationalconstruction and international investment As analyzed above, these clauses arestrategically employed to navigate the intricacies of disputes that often arise in thesedomains Recognizing the significance of MDR mechanisms in facilitating efficientand effective dispute resolution, this chapter endeavors to delve into the pertinentregulations and practices governing the application of MDR clauses within these

specific realms By delineating the regulatory landscape and examining practical

applications, this chapter aims to provide comprehensive insights into the utilization

of MDR clauses for dispute settlement within the realms of (i) internationalconstruction and (if) international investment

2.1 Practice of multi-tiered dispute resolution chuses in internationalconstruction

One of the most prevalent methods for resolving integrated disputes is foundwithin the contractual frameworks established by the International Federation of

Consulting Engineers (FIDIC).** FIDIC's model MDR clauses incorporate various

ADR stages, culminating in arbitration administered by the ICC Court of ArbitrationThe pre- arbitral phases primarily adhere to the expert determination paradigm

The evolution of dispute resolution mechanisms in FIDIC contracts hasprogressed from initially resorting to arbitration following the engineer'sdetermination, to the introduction of a dispute board capable of providingrecommendations, and culminating in the establishment of the Dispute Adjudication

Board (DAB) in the 1999 edition of the FIDIC Red Book In the subsequent 2017

edition, the DAB has been enhanced to encompass a proactive role in disputeavoidance, leading to its renaming as the Dispute Avoidance/Resolution Board

(AAB)

The 2017 FIDIC Red Book, along with the rest of the updated FIDIC suite, hasrectified numerous deficiencies observed in previous revisions These improvementsencompass various aspects such as programming requirements, extension of timeprovisions, advance warning mechanisms, revised variation procedures, bolstered

34 Eetablished mn 1913 by Belgama, France and Switzerland, FIDIC acts as the representative body for national

associations of consulting engineers It brings together members from 68 countries spamming five continents, with the United Kingdom jong in 1949 and the United States mn 1958 FIDIC is headquartered mn Geneva, Switzerland.

regulations and responsibilities for the engineer, refined risk allocation strategies, andnotably, an enhanced dispute resolution procedure that emphasizes the promotion ofdispute avoidance

Accordingly, significant restructuring has occurred in the dispute resolutionclause, with the separation of the claims procedure from the dispute procedure Clause

20 now encompasses both parties claims, while Clause 21 is dedicated to dispute

resolution.

To ensure clarity and mitigate potential misinterpretation of claims or disputesunder applicable laws or other interpretative frameworks, the revised edition

furnishes precise definitions A claim is defined as*’ “a request or assertion by one

Party to the other Party for an entitlement or relief ( ) in connection with, or arising

out of the Contract or the execution of the Works.’ On the other hand, a dispute isdelineated as*° “any situation where: (a) One Party makes a claim against the other

Party; (b) The other Party (or the Engineer) rejects the claim; (c) The first Party does

not acquiesce (by giving a NOD).” With this clarification, it becomes evident that aclaim is distinct from a dispute, and “vice versa” A claim constitutes a request for

an entitlement under the Contract, while a dispute emerges if such a claim is rejected

or disregarded

Clause 20 now addresses both the Contractor's and the Employer's claimsutilizing the same procedure, marking a departure from previous revisions Thisapproach signifies a neutral position between the contracting parties Additionally,the clause employs a party-neutral term, “the claiming party’, to underscore theimpartiality maintained between the parties

Three scenarios are outlined as grounds for initiating a claim: if either partybelieves they are entitled to additional payment, an extension of time (including

extension of the DNP), or other forms of entitlement or relief from the other party

After a claim has been lodged, the dispute resolution procedure outlined in the 2017FIDIC typically comprises the following components or steps: (i) The Engineer'sdetermination, (ii) The Dispute Adjudication/Adjudication Board's (DAAB) decision,and (49) Arbitration

The Engineer 5 determination — the first step

The claiming party must submit a Notice of Claim within 28 days from

becoming aware of the event prompting the clam The Employer is tasked withappointing the Engineer to fulfill specific duties and exercise authority as outlined or

* Sub-Chuse 1.1 FIDIC Red Book 2017.

Tod.

implied by the C ontract The Engineer is considered to act on behalf of the Employerwhen executing these duties, unless explicitly stated otherwise Typically, it is theEmployer who bears the responsibility of reimbursing the Engineer for their services.Subsequently, the Engineer is required to respond within 14 days to confirm whetherthe Notice was submittedin a timely manner Failure to respond within this timeframeresults in the Notice being deemed valid.

Following the Notice of Claim, the party making the claim is required to submit

a fully detailed claim with particulars within 84 days Notably, for the first time,FIDIC has specified that if the claim has an “continuing impact”, the fully detailedclaim submission is considered interim, and subsequent monthly detailed

submissions are mandated until the cessation of the ongoing impact The final fully

detailed submission must be made within 28 days after the conclusion of the ongoingimpact

Upon receipt of the fully detailed claim, the Engineer proceeds with assessing

the claim by initially consulting both parties and facilitating efforts to reach amutually binding agreement within 42 days In the event that no agreement 1s reached,the Engineer is then tasked with rendering a fair and impartial determination within

42 days Failure to reach an agreem ent within this tim eframe results in the claim beingdeemed rejected Subsequently, the dissatisfied party must submit a Notice ofDissatisfaction (NOD) within 28 days; otherwise, the engineer's determinationbecomes final and binding Following the submission of the NOD, the dispute may

be referred to the DAAB

The DAAB - the second tier

The dispute must be formally referred to the DAAB within 42 days from thedate of the NOD Failure to do so results in the expiration of the NOD, rendering the

Engineer's determination final and binding Various options exist for the composition

of the DAAB, including the choice between one or three members, as well as options

such as a “standing DAAB” or an “ad hoc DAAB” 4”

Upon referral, the DAAB is obliged to reach a decision on the dispute within 84days from the date of referral The decision rendered by the DAAB carries bindingforce on the parties involved This means that regardless of whether any party issues

a NOD concerning the decision, prompt compliance with the DAAB's decision is

mandatory for both parties and the Engineer This aspect of the DAAB's decision is

commonly referred to as being “binding, but not final”

3! Sub-Clause 21.1 and 212 FIDIC Yellow Book 2017,

Alternatively, the parties involved in the dispute may jointly request the DAAB

to offer an informal opinion or advice on the disputed matter This collaborative effort

aims to aid in the avoidance of disputes It's important to note that while this advice

is not legally binding on either party or the DAAB itself, this process cannot beinitiated if the claim is currently under consideration by the engineer for

determination *

If a NOD concerning a DAAB decision is issued within the prescribedtimeframe, a mandatory 28-day period must be allowed for the parties to attempt toamicably resolve the dispute before referring it to arbitration Once the dispute hasbeen formally referred to arbitration, meaning all preceding steps in the procedure

have been adhered to within the specified timeframes, the Arbitral Tribunal is vested

with full authority to review and reconsider both the DAAB's decision and theengineer's determination on the disputed matter, provided they have not attained finaland binding status

If no agreement is reached within the said 28-day negotiation period for anamicable settlement, either party is entitled to refer the dispute to arbitration It'scrucial to note that in cases where a dispute has been referred to a DAAB, theexistence of a DAAB decision is a prerequisite for initiating further arbitrationproceedings

Arbitration — the third tier

Should any decision not be promptly implemented, the parties retain the option

to refer the dispute to arbitration Additionally, if there is no functioning DAAB for

any reason, the parties have the alternative to directly refer the dispute to arbitration !Ê

Additional scenarios where parties may refer a dispute to arbitration include:

(@® If the party who loses in the DAAB decision fails to comply with the finaland binding decision, the other party reserves the right to refer the non-complianceitself to arbitration This allows the Arbitral Award procedure to be applied to enforcethe DAAB decision

(ii) If a dispute arises while there is no functioning DAAB due to the expiration

of the DAAB appointment or failure to constitute the DAAB, either party has theoption to refer the dispute directly to arbitration In such cases, there isno prerequisitefor a DAAB decision or amicable settlement

* Stephenson Harwood (2018), “Dispute resokeion under FIDIC 2017”.

“Did.

ˆ° Stavros Brekoulakis , David Brynmor Thomas (2017), The Guide to Construction Arbitration, Law Business

Research,

Upon referral of the dispute to arbitration, the arbitration proceedings shall

commence in accordance with the Rules of Arbitration of the ICC (hereinafter

referred to as “ICC’s Rules”) The Arbitral Tribunal may consist of either one or three

atbitrators‘! The Hearing(s) for settlement of dispute shell be conducted in

accordance with Article 26 of the ICC’s Rules

Upon the initiation of the arbitration process, the Tribunal is vested withcomplete authority to review, reconsider, and revise any determination, valuation, orcertificate issued by the engineer, as well as any decision rendered by the DAABconcerning the dispute, unless such determination by the engineer or the DAAB

decision has achieved final and binding status.

Furthermore, the parties are not restricted to utilizing the evidence or argumentspresented before the DAAB when pursuing arbitration, additionally, the DAABdecision is regarded as admissible evidence in the arbitration proceedings

In the event that the Arbitral Award mandates payment of any amount, such

amount becomesimmediately payable without the necessity for additional certificates

or notices However, it's important to note that the obligations of the parties, theengineer, and the DAAB shall remain unaffected if the arbitration proceedings occur

during the course of the project's execution 53

The case of State Road Agency of Ukraine - Ukravtodor v Todini CostrucioniGenerali Spa, 9 March 2021

Inthe case of State Road Agency of Ukraine - Ukravtodor v Todini CostrucioniGenerali Spa, 9 March 2021, the dispute centered around a road rehabilitation project

in Ukraine, governed by two contracts Both contracts stipulated that disputes should

initially be submitted to a DB, and if necessary, to ICC arbitration, as outlined inclauses 20.4 to 20.7 of the contracts Disputes were duly escalated to both a DB and

ICC arbitration

The arbitral tribunal issued a first partial award, which included a determinationthat decisions of the DB should be executed Subsequently, Uktravtodor initiatedannulment proceedings in the Cour dappel de Paris challenging this first partialaward Arguments before the court encompassed alleged breaches of the right to afair trial, jurisdiction of the arbitral tribunal, and the application for amrulm ent of thefirst partial award, among others

2t Article 12 ICC’s Rules 2021

`? Bagenio Zoppis (2018), DAAB enxd Dispute Resolution Under the 2017 FIDIC Forms of Contract, King’s College , Landen

SD.

The crux of the matter lies in the interpretation of the DB phase within the

contractual dispute resolution mechanism While the DB tier is typically regarded as

a pre-arbitral procedure, it serves a crucial role in attempting to resolve disputesbefore resorting to arbitration However, the opinions of both the arbitral tribunal and

the Cour đappel de Paris regarding the DB in this particular case are not explicitly

stated,

Nevertheless, the fact that the arbitral tribunal issued a first partial awardaffirming the execution of decisions made by the DB suggests that the tribunalrecogmzed the DB as an integral part of the contractual dispute resolution process.Similarly, the Cour đappel de Paris's rejection of the application for annulment of thefirst partial award implies that the court may have upheld the validity andenforceability of decisions rendered by the DB within the contractual framework

In conclusion, while the specific opinions of the arbitral tribunal and the Cour

dappel de Paris regarding the DB in this case are not explicitly provided, the actions

taken by both entities indicate a recognition of the importance and legitimacy of the

DB as a pre-arbitral procedure within the contractual dispute resolution mechanism

2.2 Practice of multi-tiered dispute resolution chuses in internationalinvestment

The provisions governing the settlement of disputes through escalation in BITsexhibit a remarkable stringency, underscoring the mandatory nature of MDR clauses.Anotable example of such provisions is found in the exhaustion of local remedies(ELR) clauses, which impose rigorous requirements on investors before resorting tointernational arbitration

The exhaustion of local remedies clause

The ELR rule mandates that foreign nationals seeking redress for harm allegedlycaused by a state must initially seek resolution through the administrative and judicialsystems of that state This requirement persists until a final decision is rendereddomestically, ensuring that the state has the opportunity to rectify the alleged violationwithin its own legal framework before facing international accountability While ELRrequirements aim to uphold host state sovereignty and provide opportunities fordomestic resolution, the most-favoured-nation (MFN) clause, when broadly

interpreted, can allow investors to bypass these requirements.

The requirem ent for the ELR before initiating ICSID arbitration or conciliationwasincorporated, with slight variations, into three BITs concluded by the Netherlands

in the early 1970s: with Malaysia (1971), Singapore (1972), and South Korea (1974,

currently terminated) ** Additionally, the 1976 Germany-Israel BIT stipulated that:

“Local judicial remedies shall be exhausted before any dispute is submitted to an

arbitral tribunal “** Similarly, the 1978 Egypt-Sweden BIT explicitly included the

ELR rule but excludedit when “the application of such remedies [was] unreasonably

prolonged 2É, echoing the language of the International Covenant on Civil and

Political Rights TCCPR) Furthermore, the 1981 Romamia-Sri Lanka BIT mandatedELR by employing language akin to that foundin Article 26 of the ICSID Convention,stating that each contracting party mandates the ELR as a prerequisite for its consent

to conciliation or arbitration by the C entre.*?

Even though certain investment treaties stipulate the pursuit of ELR over a

specified period before initiating international proceedings, they do not always

necessitate a final decision by domestic courts Nonetheless, these provisions alignwith the purpose of the ELR rule by upholding the sovereignty of the host state and

affording its legal system the chance to resolve disputes domestically before resorting

to international arbitration

In this dissertation, the term “ELR” is used broadly to encompass bothtraditional ELR requirements and time-limited pursuit of local remedies However,it's important to differentiate ELR from similar provisions in investment agreements

(2 Cooling-off period: Approximately 90% of all investment treaties,encompassing BITs, multilateral investment treaties as well as Free Trade Agreements(FTAs) with investment chapters, are believed to incorporate clauses mandating a

cooling: off period for investors *Š These provisions are also present in many national

investment laws The requirement to attempt an amicable settlement of disputes hasbeen characterized as an obligation of means rather than an obligation of result This

St The Agreement on Economic Co-operation between the Kingdom of the Netherlinds and Malaysia, dated

Jae 15,1971.

The Agreement on Economic Cooperation between the Government of the Kingdom of the Netherbnds and the Goverment of the Republic of Singapore , dated May 16, 1972.

Additionally, the Agreement on Encouragement and Reciprocal Protection of Investments between the

Kingdom of the Netherlands and the Republic of Korea, dated October 17, 1974.

Subsequent teaties benreen the Netherlands and Senegal (1979), the Philippines (1985), and other BIT parturs maintained essentially the same language , with the exception of excluding the requirement to exiuust

“all local end ackninas trative judicial remedies”

The Accord relanf @l'encowagement et la Protection des Investissements entre le Roveumne des Pays-Bas et

Ja République che Sénégal dated August 3, 1979

% article 10.5 Treaty benyeen the Federel Republic of Gemway and the State of Israel conceming the

Encouragement and Reciprocal Protection of Investments, dated Ame 24, 1976.

® Article 8 Agreement betvreen the Govermant of Sweden and the Governmant of the Arab Republic of Egypt

on the Manual Protection of Investments (July 15, 1978).

* Artick 7.2 Agreement on the Munul Promotion and Guarantee of Investments, Rom -Sri Lanka dated 9

February 1981.

** Mashigo (2012), Dispute Settlement Provisions in bưếmationl bwestuent Agreements: A Large Sauple

Swvey, OECD Working Papers on Intemational nvestment,p 17.

suggests that both parties are expected to engage in genuine and sincere negotiations,exerting reasonable efforts to resolve the dispute, or to have exhausted the remediesavailable in the national courts but do not include local administrative or judicial

remedies.” However, it's worth noting that some tribunals have interpreted and

applied this standard with varying degrees of stringency

(ii) Fork-in-the-road clauses: When a State has conditioned its consent on theELR, when a BIT specifies that once a choice is made between domestic courts andinternational arbitration it is final and irreversible (referred to as a “fork-in-the-road”provision), when a specific forum like the ICSID is selected, or when reference ismade to a highly institutionalized system of arbitration with precise rules of

procedures like the North American Free Trade Agreement (NAFTA), the MEN

clause may not be utilized In such situations, the Tribunal has held that certainprovisions, such as the ELR, cannot be bypassed by invoking the MFN clause For

instance, if one contracting party has mandated the ELR as a prerequisite for

arbitration, this requirement cannot be overridden by invoking the MFN clause inrelation to a third-party agreement lacking this requirement

Emilio Augustin Maffezin’ v Kingom of Spain, ICSID Case No ARB/97/7,Decision on Jurisdiction of Jan 25, 2000

Emilio Agustin Maffezini — the Claimant, an Argentine investor, filed a caseagainst Kingdom of Spain — the Respondent under the Argentina-Spain BIT of 1991The ICSID arbitral court allowed Maffezini to bypass the 18-month waiting periodstipulated in the treaty, citing the more favorable 6-month waiting period in the Chile-Spain BIT This decision was based on the unusually broad MFN provision in theArgentina-Spain BIT, which encompassed “all matters subject to the agreement”The Tribunal reasoned that this provision extended to rights and obligations regardinginvestor protection, including dispute settlement, from other agreements related to thesame subject matter as the basic treaty

3° Certain investment treaties, such as the Azerbaijan- Georgia BIT 1996, mchade provisions requiring State negotiation as a prerequisite for investors to utiate arbitration agamst + State party In the case of

inter-Hasamwv v Georgia,the Trồyma] determined that failure to fulfill the mứer- State negotiation condition would

prevent # from considering the naerits of the dispute This decision underscores the sign#icance of compliance with teaty provisions regarding pre-arbitration procedures, highlightmg the muportance of inter- State negotiation as a prelminary step m the dispute resohition process Hasmov vì Georgia, Decision on Respondent's Inter- State Negotiation Objection, 19 April 2022, para 99

°° Chapter 11 of the NAFTA auplicitly waives the ELR mule ‘This is evident in the text, which necessitates

investors or investments to renounce their entitlement to commence or pursue proceedings before my

administrative tribunal or cout under the lay of any Paty, or utilize other dispute settlement procedures, regarding the alleged breach of the disputing Party's measure However, this waiver does not extand to proceedings for mpmctive, declaratory, or other extraordinary relief that do not involve the payment of damages, before an administrative trivumal or cout under the lav of the disputing Party.

The Tribunal addressed Spain's argument that Maffezini failed to comply with

the ELR requirement outlined in Article X of the Argentine-Spain BIT Spain argued

that Maffezini should have first submitted the case to Spanish courts before resorting

to international arbitration, citing Article X(2) of the BITế! However, the Tribunal

invoked the MFN clause, relying on more favorable provisions in the Chile-SpainBIT Consequently, it ruled in favor of Maffezini's right to arbitration without priorrecourse to Spanish courts Therefore, the Tribunal rejected the Respondent'scontention, asserting the Claimant's right to pursue arbitration without firstexhausting local remedies

The Tribunal addressed additional objections raised by Spain, including

Maffezini's standing to file the case, the involvement of “Sociedad parael DesarrolloIndustrial de Galicia Sociedad Anonima” (SODIGAS.A)® as a state entity, and the

timing of the dispute concerning the entry into force of the BITs Ultimately, the

Tribunal found in favor of Maffezini, affirming its jurisdiction to consider the dispute

in accordance with the Argentine-Spain BIT

In the context of analyzing the ELR clause, the Tribunal's deliberations in theaforementioned case are pertinent The Tribunal confronted the argument that failure

to adhere to the local court referral requirement stipulated in the BIT would renderthe international arbitration process invalid This contention, if viewed in isolation,would indeed lead to the dismissal of the claim However, the Tribunal recognizedthe Claimant's alternative argument invoking the MFN clause, necessitating athorough ex amination

The MEN clause, as articulated in the relevant BIT, guarantees treatment no less

favorable than that afforded to investors of a third country This clause, oftencontentious, raises complex legal questions, particularly conceming dispute

resolution mechanisms The Claimant argued that the BIT's reference to “all matters

subject to this agreement” encompassed dispute settlement provisions, thus grantingthem the right to bypass domestic court proceedings

Spain countered this interpretation by asserting that MFN clauses should onlyapply to substantive economic matters, not procedural or jurisdictional issues such as

*! Article X Argentiva- Spain BIT 1991

© Sociedad para e1 Desarrollo Industrial de Galicia Sociedad Andnima (SODIGA) is « Spanish company

focused on promoting industrial development in the Galicia region SODIGA was established to support and foster anhustrial growth, iwestuent, and imovation within Galicia which is m rutonomous conmumuty inthe

northirest of Spam The company works to attract auvestment, facilitate the establichument of new industrial projects, and promote economic development in the region Its activities may inchude providing fiuncial support, offering business consuking services, and collaborating with public and private entities to advance andhustrial nuitixtives mn Galicia