Multi-tiered dispute resolutions clauses (MTDR clauses), also known as waterfall clauses or escalation clauses, provide for one or more alternative dispute resolution (ADR) processes, typically negotiation or mediation, before resorting to litigation or arbitration. MTDR clauses are built on a desire to resolve a dispute in the quickest, most cost-effective way and to provide for binding third-party determination in the event that simpler procedures are not successful

They provide a number of pitfalls for the unwary, particularly where the last resort is arbitration. They can, therefore, be used to minimise issues in dispute but, alternatively, they can be deployed to delay the process of dispute resolution. The stages can be binding or non-binding on the parties. Clauses can, for example, provide for expert determination or adjudication, as a way to get an interim result to assist further settlement negotiations between the parties.

In a commercial setting, few parties enter a contract intending to end up in court or arbitration, and MTDR clauses are often inserted at the request of the business people involved in the negotiations. When they work well, they remind parties of their dispute resolution options prior to formal proceedings, such as negotiation or mediation, and so can reduce the time and expense needed to achieving a resolution – multi-tiered dispute resolution clauses may help to facilitate effective dispute management and reduce time and costs. In addition, the encouragement or requirement to use consensual methods of resolving differences can help maintain ongoing commercial relationships.

Jul-Sep 2017 issue

6 St James’ Hall International