Overview

On May 2, 2022, the Young Canadian Arbitration Practitioners (“YCAP”) hosted its 2022 Spring Symposium in Calgary, Alberta. YCAP is an organization with an interest in promoting international arbitration in Canada and around the world.

This blog post underscores four key takeaways from YCAP’s 2022 Spring Symposium (the “Spring Symposium”), that may be of interest to clients, counsel, and arbitrators as it provides useful insights into recent trends in the arbitration world and on the hot questions of admissibility and jurisdiction in international arbitration.

The Spring Symposium consisted of two panels. The first panel, titled “The Next Generation of Arbitrators, Arbitration 201”, which was moderated by McCarthy Tétrault’s Jocelyn Turnbull Wallace, featured insights from Joanne Luu, Partner at BD&P, and Myriam Seers, Partner at Savoie Laporte, on the next generation of arbitrators. The second panel, titled “Should I Stay or Should I Go? Pre-Conditions to Arbitration and the Jurisdiction of the Tribunal” provided insights into multi-step dispute resolution clauses with perspectives from Romeo Rojas, Independent Arbitrator at Rojas Arbitration; Chris Elrick, Associate at Fasken; and McCarthy Tétrault’s Sandra Aigbinode Lange. The second panel was moderated by Kylan Kidd, Associate at BD&P. The four key takeaways are detailed below:

1. The Next Generation of Arbitrators - Case for Diversity in International Arbitration

The first panel discussed the international arbitration community’s growing interest in increasing age, gender, and ethnic diversity across the profession. Diversifying the pool of potential arbitrators presents many benefits including cost savings, allowing new perspectives, and limiting client conflicts as a result of repeat appointments, among others. To this end, arbitral institutions like Arbitration Place have launched a roster of young arbitrators called NextGen Arbitrators. This NextGen roster provides a pool of less expensive arbitrators who can adjudicate smaller disputes economically and handle urgent matters in a more expedited fashion.

Alongside institutional pledges, the Canadian government has also implemented policies that ensure the list of arbitrators submitted in the context of investor-state arbitrations are diverse. See for example, Article 30(1) of the Foreign Investment Promotion and Protection Agreement Model, which encourages disputing parties to “consider greater diversity in arbitrator appointments, including through the appointment of women.”[1]

The panelists also provided helpful guidance to young practitioners interested in being appointed as an arbitrator, including encouraging them to take on cases involving smaller organizations or foreign enterprises as a way to gain exposure without triggering conflict with existing work and to seize arbitration opportunities to gain the adjudication experience (even if it means doing so on a non-billable basis).

2. Risk and Reward in Using Multi-Step Dispute Resolution Clauses

In the second panel, the panelists discussed multi-step dispute resolution clauses. Multi-step dispute resolution clauses are commonplace, particularly in complex commercial contracts and joint venture agreements. They are clauses that require parties to engage in one or more preliminary dispute resolution procedures prior to initiating arbitration. Preliminary procedures may include optional or mandatory negotiation, consultation, mediation and/or the use of a “cooling off” period prior to filing a notice of arbitration (“pre-arbitral condition(s)”).

In the right circumstances, multi-step dispute resolution clauses offer certain benefits. They encourage parties to resolve their disputes early, maintain (or salvage) ongoing business relationships, and can assist parties with narrowing the dispute to a critical subset of issues prior to arbitration.

On the other hand, multi-step dispute resolution clauses can add complexity and ambiguity to an agreement. They may lengthen the course of proceedings, potentially triggering a limitation period. Further, parties who are faced with issues that cannot be resolved outside of an arbitration may be forced to spend additional time (and money) on fulfilling the pre-arbitral conditions. In addition, multi-step dispute resolution clauses make it difficult to address counterclaims and other issues that appear following completion of the pre-arbitral conditions or after arbitration has begun.

Taken together, the effectiveness of multi-step dispute resolution clauses is fact-specific and dependent on the relationship between the parties. In certain circumstances, it may be useful to force parties to resolve conflict before escalating issues into arbitration; on the other hand, these clauses must be approached with serious caution, as they may detract from a timely resolution.

3. Navigating Jurisdiction versus Admissibility in Multi-Step Dispute Resolution Clauses

A major issue that comes up with multi-step dispute resolution clauses is what happens when a party fails to carry out a contractually mandated pre-arbitral condition in a multi-step dispute resolution clause. Should the arbitral tribunal decline to proceed because it lacks jurisdiction to hear the arbitration or does the arbitral tribunal have jurisdiction and instead the question is one of admissibility? A number of arbitrators and courts have struggled with this question. The difference between jurisdiction and admissibility is a delicate one, with vastly different outcomes.

The Singapore Court of Appeal in BBA v BAZ, noted that “jurisdiction… is commonly defined to refer to the power of the [arbitral] tribunal to hear a case”,[2] whereas admissibility refers to “whether it is appropriate for the [arbitral] tribunal to hear it”.[3] In essence, jurisdiction refers to the authority of the arbitral tribunal to make a decision affecting the merits of the case. While admissibility refers to whether a claim is ripe for arbitration and capable of being examined judicially, and a party’s legal right to bring its claim before arbitrators.

If a pre-arbitral condition is viewed as a condition precedent to arbitration, and an issue of jurisdiction, then a failure to complete these steps before commencing arbitration means the arbitrator lacks jurisdiction to hear a case and cannot make an award on the merits of the case. Where a party is challenging the arbitrator’s jurisdiction because a pre-arbitral condition has not been fulfilled, per the competence-competence principle, an arbitrator can rule on his or her own jurisdiction. On the other hand, if a failure to meet a pre-arbitral condition to arbitration is a matter of admissibility, the arbitral tribunal can choose to stay the arbitration until pre-arbitral conditions are fulfilled.

Most jurisdictions have adopted the approach that in interpreting the parties’ arbitration agreement, absent contrary evidence, the pre-arbitral conditions are a matter of admissibility not jurisdiction. As a consequence, these requirements would presumptively be both capable of resolution by the arbitrators and required to be submitted to the arbitrators (as opposed to a national court) for their initial decision.

4. Practical Tips for Drafting Multi-Step Arbitration Clauses

Finally, the panelists walked through some concrete examples of multi-step dispute resolution clauses from recent court decisions and provided useful tips for drafting such clauses. 

In Republic of Sierra Leone v ­SL Mining Ltd [2021] EWHC 286 (Comm.), the parties’ arbitration clause included that:

[i]n the event that the parties shall be unable to reach an amicable settlement within a period of 3 (three) months from a written notice by one party to the other specifying the nature of the dispute and seeking an amicable settlement, either party may submit the matter to the exclusive jurisdiction of a Board of 3 (three) Arbitrators …[4]

In this case, an arbitration was commenced some six weeks before the expiry of the 3 months cooling off period. The Court held that the matter was one of admissibility, and the cooling off period was not a condition precedent to bringing arbitral proceedings. Instead, the 3 months period was tied to the objective of reaching amicable settlement, and the commercial purpose of arbitration would be frustrated by insisting on compulsory mediation. As such, the Court declined to set aside the arbitral award.[5]

On the other hand, in Emirates Trading Agency LLC v Prime Mineral Exports Pte Ltd [2015] 1 WLR 1145, the following excerpt of the dispute resolution clause was found to be a matter of jurisdiction:

…the parties shall first seek to resolve the dispute or claim by friendly discussion. Any party may notify the other Party of its desire to enter into consultation to resolve a dispute or claim. If no solution can be arrived at in between the Parties for a continuous period of 4 weeks then the non-defaulting party can invoke the arbitration clause and refer the disputes to arbitration.[6]

In this case, the court found that the clause included a mandatory obligation to enter “friendly discussions”, and was a valid condition precedent to arbitration, and thus a matter of jurisdiction. In effect, however, the court found that the condition precedent was fulfilled because the parties previously met “to explore possibilities by friendly discussions”.[7] The arbitral award was not set aside.

Even when presented with two different clauses with similar mandatory language (e.g. the use of the word “shall”), the above-noted decisions demonstrate the varied approach that arbitral tribunals and courts are taking to the interpretation of pre-arbitral conditions. Had the parties in Emirates been unsuccessful in meeting for friendly discussions, the parties risked having an arbitral award dismissed due to lack of jurisdiction.

That being said, there are a number of approaches that can be used to reduce or eliminate ambiguity in multi-step dispute resolution clauses:

• First, parties may wish to specify that a pre-arbitral condition is truly and explicitly a condition precedent to arbitration, and that failure to follow these conditions is an issue of admissibility.
• Second, parties should think about cases of urgency and emergency, and make carve-outs to disregard the pre-arbitral negotiation obligations.
• Third, parties should avoid ambiguous language like “friendly discussions” in drafting such clauses.
• Fourth, it is important for parties to perform the steps agreed upon to prevent issues. Failure to follow agreed upon pre-arbitral conditions will have some repercussions.
• Finally, it is important for parties to explicitly clarify how time spent in the pre-arbitral phases will contribute to the limitations period affecting the dispute.

From a practical standpoint, most commercial entities will have engaged in some sort of dialogue prior to delivering a notice of arbitration, so to mandate a second more formalized discussion period through multi-step dispute resolution clauses is likely not necessary.

McCarthy Tétrault’s international arbitration team is well-versed in arbitral disputes involving such complex contractual issues, as well as in drafting multi-step dispute resolution clauses. If you have any questions about your arbitration disputes and/or clauses, please reach out to your trusted McCarthy Tétrault advisor.

[1] Art 30(1), 2021 Model FIPA, online: bit.ly/FIPA_GC. 

[2]BBA v BAZ [2020] 2 SLR 453 at para. 74 [BBA].

[3]BBA at para. 74.

[4]Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 at para. 3 [SL Mining].

[5]SL Mining at para. 22.

[6]Emirates Trading Agency LLC v Prime Mineral Exports Pte Ltd [2015] 1 WLR 1145 at para. 3 [Emirates].

[7]Emirates at para. 15.