3. Staged dispute resolution (multi-tiered clauses)

3. Staged dispute resolution (multi-tiered clauses)

Definition and industry practice 

Commercial agreements increasingly incorporate “staged” or multi-tiered dispute resolution clauses, which require parties to attempt interim steps such as negotiation, mediation, or adjudication before an arbitration can be commenced.  

These procedures are common in construction and engineering contracts, where a dispute might first be submitted to an engineer or architect, project manager or other professional for a preliminary decision within a fixed time period. 

Drafting requirements and enforceability 

To ensure such clauses are enforceable rather than “pathological”, they must be drafted with certainty and completeness. While mediation and adjudication are widely accepted, clauses requiring “negotiation” or “consultation” are traditionally viewed as unenforceable for uncertainty unless they provide an unequivocal commitment with clear entry and exit mechanisms. 

When drafting such clauses, it is essential to specify whether these interim steps are intended as mandatory conditions precedent to the right to arbitrate and to define clear entry and exit mechanisms for each stage. The clause should state: 

• when the pre-arbitration step begins; 
• who must participate; 
• how long the step lasts; 
• what happens if a party refuses to participate;  
• what objective criteria to determine when the process is exhausted or terminated are; and 
• when a party is entitled to commence arbitration. 

Failure to comply: admissibility vs. jurisdiction 

If a party fails to comply with a mandatory pre-condition, modern Hong Kong jurisprudence clarifies that this is generally a question of the admissibility of the claim for the tribunal to decide, rather than a jurisdictional issue for the court. This is a critical distinction: because it is an admissibility issue, the tribunal’s ruling on whether the pre-conditions were met is generally final and cannot be reviewed or set aside by the court. An exception only exists if the parties expressly and clearly provide that failure to comply with the interim steps will exclude the tribunal’s jurisdiction entirely. 

Procedural consequences 

If a party ignores mandatory pre-conditions and commences litigation (court proceedings), the court will typically grant a stay under section 20 of the Arbitration Ordinance (Cap. 609). This refers the parties back to the agreed resolution process, requiring them to complete the missing interim steps before proceeding. 

If arbitration is commenced prematurely, the arbitral tribunal has the authority to determine the consequences of the non-compliance. This may include staying the arbitral proceedings until the parties complete the required step or, in some cases, finding the claim currently inadmissible without prejudice to it being refiled once the conditions are satisfied.