It is common for major commercial contracts to contain 'staged' dispute resolution clauses, culminating in the issue of court or arbitration proceedings as a final step. The English High Court has recently provided guidance as to the extent to which parties are bound to follow the preliminary, 'conciliatory' steps in such clauses, before seeking relief from a court or arbitrator.

In Tang v Grant Thornton International & Ors [2012] EWHC 3198 (Ch), the contract between the parties provided for two steps to be taken before either of them was able to refer a dispute to arbitration (Preliminary Steps).

After a dispute arose, the Chief Executive recused himself from attempting to resolve it, meaning that step one of the Preliminary Steps was not fulfilled. Moreover, as no board members put themselves forward to act as the panel, the panel contemplated by step two was not constituted. After the defendants referred the dispute to arbitration, the plaintiffs claimed that the Preliminary Steps were conditions precedent to arbitration and that, as they had not been fulfilled, the arbitral tribunal had no jurisdiction to determine the dispute. The tribunal disagreed and the plaintiffs appealed to the High Court.

The Court upheld the tribunal's jurisdiction, holding that the relevant test as to whether a clause such as those setting out the Preliminary Steps ought to be given legal effect is:

  • Whether the provision prescribes without the need for further agreement a sufficiently certain and unequivocal commitment to commence a process
  • From which may be discerned what steps each party is required to take to put the process in place
  • And which is sufficiently clearly defined to enable the court to determine objectively:
    • what under that process is the minimum required of the parties to the dispute in terms of their participation in it; and
    • when or how the process will be exhausted or properly terminable without breach.

Applying those principles to the case before it, the Court found that the Preliminary Steps were not a condition precedent to arbitration. In particular:

  • The relevant clause was too nebulous in terms of the process and too equivocal in terms of content. In particular, there was no guidance as to the quality or nature of the attempts to be made to resolve a dispute or difference
  • The two month 'delay' period referred to in the clause should not be interpreted as a permanent bar on commencing arbitration if no panel was established, or seized of the dispute
  • It was unrealistic to contend that if no panel was constituted, no arbitration could be commenced, even long after the request for conciliation would have been required to be referred to the second stage.

While decisions of the English High Court are not binding in New Zealand, this judgment is relevant to those involved in drafting dispute resolution clauses in this country. It reinforces that if multi-tiered clauses are to have teeth, they must be expressed unequivocally and in sufficient detail to enable a Court to enforce them without having to 'fill in the gaps'. This will mean specifying not only timeframes, but also clear and detailed procedures.