Effect of non-compliance with a pre-arbitral obligation to mediate: who decides?

A multi-tiered dispute resolution clause

The contract in question contained a multi-tiered dispute resolution clause. Clause 10.2(a) provided that, in the event of a dispute, the parties “shall first seek settlement of that dispute by mediation in accordance with the [LCIA] Mediation Procedure”. Clause 10.2(b) followed, which said that “[i]f the dispute is not settled by mediation within 30 days of the commencement of the mediation … the dispute shall be referred to and finally resolved by arbitration under the LCIA Rules”.

Clause 10.2 also provided for expedited arbitral proceedings and that, if a further dispute arose once arbitral proceedings were underway, the tribunal could consolidate the disputes, in which case “there shall be no obligation on the parties to first refer those disputes to mediation before they are so consolidated”.

The seat of the arbitration was evidently London since the eventual award was challenged before the English court; the governing laws of the contract and arbitration agreement were not specified in the judgment.

When a dispute arose, the defendants (claimants in the arbitration) filed a Request for Arbitration. At the same time, they sought an immediate stay of the arbitration, to try to settle the dispute by mediation in accordance with clause 10.2(a). Despite multiple invitations by the defendants to mediate, the claimants refused to engage.

The arbitration eventually proceeded, with the tribunal, in a partial award, holding that it had jurisdiction to determine the dispute – notwithstanding the Request for Arbitration having been issued on the same date as the first invitation to mediate.

Even though they had refused to participate in a mediation, the claimants proceeded to challenge the award under s67(1)(a) of the Act on the basis that the tribunal lacked jurisdiction since no mediation had taken place before the arbitration was started.

Admissibility or jurisdiction?

The key issue was whether the defendants’ alleged non-compliance with the requirement to mediate went to: (i) the admissibility of the claim; or (ii) the tribunal’s substantive jurisdiction to determine the claim. “Admissibility” refers to whether pre-arbitration procedural requirements have been complied with. This is regarded as an issue for the tribunal; it concerns whether a claim is “ripe” for arbitration rather than whether the tribunal has jurisdiction (the legal right or competency) to decide the claim at all. The distinction between issues of admissibility and jurisdiction is important because only issues of jurisdiction can be the subject of a challenge to the court under s67 of the Act.

In line with numerous academic commentaries which were cited in the judgment, the court was firmly of the view that non-compliance with the requirement to mediate went to admissibility:

• First, when construing an arbitration agreement, one must bear in mind its commercial purpose. Here, the parties clearly intended that, in terms of binding proceedings, their disputes be arbitrated, rather than litigated, and swiftly (hence only a 30-day window for mediation, and provisions for expedited arbitral proceedings). They could not have intended that one party’s refusal to engage in mediation should frustrate the arbitral process.
• Second, the tribunal’s express power to consolidate an existing arbitration with a new dispute, without the new dispute being referred first to mediation, demonstrated that the requirement to mediate was merely a procedural matter for the tribunal to rule on (and presupposed that the tribunal had jurisdiction to do so).
• Third, non-compliance with the pre-arbitration procedure did not affect whether the dispute was of the kind which could be submitted to arbitration.
• Finally, this accorded with the English court’s 2021 decision in Sierra Leone v SL Mining Ltd, in which it had been held that non-compliance with a requirement to “in good faith endeavour to reach an amicable settlement” prior to arbitrating was a matter of admissibility for the tribunal to resolve.

Given this ruling in NWA v NVF, it was not necessary for the court to consider the tribunal’s decision on the alleged non-compliance with the mediation obligation.^[1] Nonetheless, the court indicated that even if clause 10.2(a) (“the … parties … shall first seek settlement … by mediation”) was enforceable (the tribunal did not think so), it would have held that the tribunal had jurisdiction: the claimants were in breach of the obligation to mediate and could not now rely on that breach to claim the defendants had failed to comply with it; alternatively, the parties had waived compliance with the obligation.

The challenge was therefore dismissed.

Comment

NWA v NVF, in conjunction with Sierra Leone v SL Mining Ltd, clarifies that compliance with pre-arbitration procedure is a matter of admissibility, and is therefore a matter for the tribunal. It should now be beyond doubt that a challenge cannot be made to a tribunal’s jurisdiction on the basis that the pre-arbitration procedure has not been complied with.

This is not to say that pre-arbitral obligations in a multi-tiered dispute resolution clause are unimportant. On the contrary, it has become increasingly clear (especially since the decision in Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd [2014] EWHC 2104 (Comm)) that such provisions may well be enforceable. (In this respect, the tribunal’s decision may be regarded as controversial, but the court’s decision on admissibility meant that it did not have to consider this question.) While regulating compliance is a matter for tribunals rather than courts, one should, at least for caution’s sake, assume that tribunals will enforce them.

Complying with these procedural steps also avoids undesirable satellite disputes such as the one seen in this case. The defendants could have commenced a mediation by filing a Request for Mediation, and waited the 30 days before commencing the arbitration. They did not do so and, while they were successful in these court proceedings, they were still arguing about the consequences of their approach before court two and a half years after commencing the arbitration.

^Footnote:

^{[1] The tribunal had held that the obligation to mediate was insufficiently clear to be enforceable; the defendants (NVF) were arguably not in breach in any event due to their efforts to mediate; and to give business efficacy to clause 10.2(b), it should not be read literally.}

Further information

For more information please contact Amy Edwards, amy.edwards@allenovery.com.