Stay or close of proceeding: the question of unfulfilled pre-arbitral steps

>>Stay or close of proceeding: the question of unfulfilled pre-arbitral steps

Stay or close of proceeding: the question of unfulfilled pre-arbitral steps

In the last few days, I was dealing with a multi-tiered dispute resolution clause, with ICC arbitration as the last step, and again, many questions regarding pre-arbitral steps started to whirl in my mind!

In multi-tiered dispute resolution clause with arbitration agreements as the last step, while it is accepted that arbitral tribunal is competent for deciding about fulfillment or non-fulfillment of early steps, the nature of such decision is still a question. That is to say, in dealing with MTDRCs that has not passed pre-arbitral steps, arbitrators have two principal tools for sanctioning parties from arbitration. These tools are to stay or close the arbitral proceeding. While both of these solutions deprive parties from proceeding the arbitration, they might have different effects and consequences.

To be frank, when tribunal faces with the situation that pre-arbitral steps are obligatory and the wording of clause is definite, but parties (or one of them) have not passed these steps, it should close the arbitral proceeding with no prejudice. This is mainly because obligatory steps of MTDRCs act as procedural requirements of arbitration and thus, when these requirements are not met, indeed, no party can initiate arbitration. In this situation, even if parties trigger arbitration, tribunal should close the proceeding when it is prima facie persuaded that procedural requirements of the proceeding are not complied with.

This solution, however, is very unlikely to be of interest of parties. Because this close means that the mandate of arbitrators are over and thus, if parties go back and complete early steps and again reach to the arbitration stage, they have to restart arbitration from all beginning, including appointment of arbitrators and so on. This situation, not only wastes a considerable time of parties and prolongs the resolution process, but also might raise some new problems. By way of example, a question and dispute might raise that whether, the previous arbitrators can be reappointed in the second round or not. In addition, when arbitral proceeding is closed, it means that the disputed issue is no longer lis pendens and therefore, some questions might raise in regard to time limitation.

In order to avoid all these problems and prevent time and money waste of parties, perhaps one solution is to stay the arbitral proceeding, instead of closing it. Stay of proceeding preserves the current status of parties and just gives a pause for completing early steps and come back to arbitration. Thus, by this way, there is no need for reappointment of the tribunal and concerns about limitation period.

Stay of proceeding of course, has its own downsides. One problem with this solution is that when pre-arbitral solutions are triggered after a stay is granted, there is always a psychological pressure on parties –as well as third party- that the tribunal is awaiting and a result should come out as soon as possible. Although sometimes this pressure might result in an early solution, many times and especially in ADR methods that necessitate amicable cooperation of parties, like negotiation and mediation, it is undesirable.

In order to mitigate the disadvantages of stay, it is the best that tribunal explicitly makes the frame of stay clear and announce its details to parties in plain words. These details can be the time of stay, the pre-arbitral steps that parties should go through, participation of parties, etc. It is also very important that tribunal has a general supervision on the process in order to have a better judgment in regard to participation or non-participation of each party. In addition, when tribunal is faced with a request of stay, it should be careful that this request is not an abuse for prolongation of the resolution period.