Dispute resolution clauses are becoming increasingly more sophisticated and are typically now in a tiered form with parties "obliged"1 to perhaps meet at an operational level, then at a senior management level and, thereafter, mediate and only then pursue arbitration.
The status of a reference commenced in breach of such a clause raises important questions of both substantive jurisdiction and costs.
If the clause is construed as a true condition precedent—i.e., the right to refer a dispute to arbitration is truly conditional upon compliance with the lower “tiers” of the dispute resolution process—then any reference commenced before full compliance with the lower tiers should never have existed. It may be tempting to stay the reference so as to permit the lower “tiers” to be complied with but that is to ignore the plain breach of contract that the referring party has committed. The innocent respondent has no adequate remedy in damages—the particular constitution of the tribunal might well, perhaps almost inevitably, not be replicated in a properly constituted tribunal after the lower “tiers” had been complied with. Moreover, the earlier “tiers” might have resulted in a settlement that would have made the reference a nullity—it should never have existed.
Equally, a referring party may be facing limitation problems that necessitate commencing the reference. On the basis that the party would have had plenty of time and must have known of the contractual provisions, it has only itself to blame if it fails to allow for the time required to explore the earlier tiers. The maxim that a party cannot take advantage of its own breach of contract may come into play.