On 15 February 2021, the English Commercial Court in Republic of Sierra Leone v. SL Mining Ltd  EWHC 286 (Comm) ruled on the effect of non-compliance with a multi-tier dispute resolution provision. The decision (available here) settles a difficult question of English arbitration law.
In summary the English Commercial Court held that:
- Non-compliance with a multi-tier dispute resolution provision is an issue of admissibility (i.e. whether the claim is ripe to be heard) rather than jurisdiction (i.e. whether the tribunal is competent to hear the claim at all).
- Whether a party has complied with a multi-tier dispute resolution provision is a procedural matter which falls within the competence of the tribunal rather than the English Court to determine.
- Non-compliance with a multi-tier dispute resolution provision does not give rise to a basis to challenge the jurisdiction of the tribunal before the English Court under section 67 of the Arbitration Act 1996.
This decision, which cites with approval the third edition of Gary Born’s International Commercial Arbitration (3rd edn, 2021), provides important certainty that questions of compliance with multi-tier dispute resolution provisions will be determined by the tribunal, and the English Court will not interfere with that determination. In doing so, the decision brings English law in line with the position in the United States (BG Group v. Argentina 572 U.S. 25 (U.S. S.Ct. 2014)) and Singapore (BBA v BAZ  2 SLR 453). The background to the decision and the key points emerging from the ruling are considered in more detail below.
The underlying dispute arose out the suspension and subsequent cancellation of a large-scale 25-year mining license agreement granted by the Republic of Sierra Leone (Sierra Leone) to SL Mining Ltd (SL Mining). The mining license agreement contained a multi-tier dispute resolution provision which stated that:
"b) The parties shall in good faith endeavour to reach an amicable settlement of all differences of opinion or disputes which may arise between them in respect to the execution performance and interpretation or termination of this Agreement, and in respect of the rights and obligations of the parties deriving therefrom.
c) In the event that the parties shall be unable to reach an amicable settlement within a period of 3 (three) months from a written notice by one party to the other specifying the nature of the dispute and seeking an amicable settlement, either party may submit the matter to the exclusive jurisdiction of a Board of 3 (three) Arbitrators who shall be appointed to carry out their mission in accordance with the International Rules of Conciliation and Arbitration of the ... ICC ...".
Following the cancellation of the mining license agreement, SL Mining issued a formal Notice of Dispute on 14 July 2019. On 20 August 2019, SL Mining filed an Application for Emergency Measures under the International Chamber of Commerce (ICC) Emergency Arbitration Rules. The ICC Emergency Arbitration Rules required SL Mining to file its Request for Arbitration (RFA) within 10 days of the Application for Emergency Measures i.e. by 30 August 2019. SL Mining proposed to defer service of its RFA to 14 October 2019 which was the end of the three-month cooling off period in the dispute resolution provision. Sierra Leone refused to agree to this proposal. Therefore, SL Mining filed its RFA on 30 August 2019. As a result, the substantive arbitration commenced around 5 weeks before the expiry of the cooling-off period.
After the Tribunal was constituted, Sierra Leone challenged the jurisdiction of the Tribunal on the basis that no arbitration proceedings could be commenced before 14 October 2019 (three months from the Notice of Dispute). The Tribunal rejected this challenge in a Partial Final Award, finding that the multi-tier dispute resolution provision had been complied with.
Sierra Leone challenged the Partial Final Award in the English Commercial Court under section 67 of the Arbitration Act 1996 which allows a party to challenge the substantive jurisdiction of the tribunal. The four issues the English Commercial Court was asked to determine were: (i) whether Sierra Leone’s challenge to the alleged prematurity of the RFA was a challenge to the substantive jurisdiction of the Tribunal and thus within section 67; (ii) if so, had Sierra Leone waived non-compliance by SL Mining; (iii) what was the proper construction of the multi-tier dispute resolution clause; and (iv) did SL Mining breach that clause.
The Decision of the English Commercial Court
The judgment was handed down by Sir Michael Burton who found that there was no basis for a challenge to the Partial Final Award under section 67 of the Arbitration Act 1996.
On issue (i), it was common ground that a challenge under section 67 must be a challenge to the substantive jurisdiction of the tribunal as defined by section 30 of the Arbitration Act 1996. Section 30 of the Arbitration Act 1996 defines questions of substantive jurisdiction as: “(a) whether there is a valid arbitration agreement (b) whether the tribunal is properly constituted and (c) what matters have been submitted to arbitration in accordance with the arbitration agreement”. Sierra Leone relied on Section 30(c) of the Arbitration Act 1996 to argue that any case not submitted in compliance with a multi-tier jurisdiction clause was not “submitted to arbitration in accordance with the arbitration agreement” and, therefore, was subject to a section 67 challenge. Sir Michael Burton disagreed with Sierra Leone’s position for the reasons set out below.
First, under English law there is an important distinction between jurisdiction and admissibility. Where an issue relates to whether a claim can be brought to arbitration, the issue is ordinarily one of jurisdiction and, therefore, a challenge under section 67 is available. Where, however, an issue relates to whether a claim should heard by the arbitrators at all, or at least not yet, the issue is ordinarily one of admissibility, and the decision of a tribunal is final. The question of compliance with multi-tier dispute resolution clauses is not a question of whether a claim is arbitrable or can be brought in arbitration. Instead, it is a question of whether a claim is premature i.e. whether a claim is presented too early. This is a question of admissibility.
Second, the distinction between jurisdiction and admissibility was supported by international commentaries and authorities. These commentaries included Gary Born’s International Commercial Arbitration (3rd edn, 2021) and the Chartered Institute of Arbitrators’ International Arbitration Practice Guideline. In particular, Sir Michael Burton relied on Born’s opinion at pp. 1000 that:
“In interpreting the parties' arbitration agreement, the better approach is to presume, absent contrary evidence, that pre-arbitration procedural requirements are not "jurisdictional". As a consequence, in most legal systems, these requirements would presumptively be both capable of resolution by the arbitrators and required to be submitted to the arbitrators (as opposed to a national court) for their initial decision.”
Sir Michael Burton held that international authorities are “overwhelmingly” in support of a case that alleged non-compliance with multi-tier dispute resolution provisions does not relate to the tribunal’s threshold jurisdiction. Instead, it is a question of admissibility for the tribunal to determine.
Third, recent decisions in the United States and Singapore support regarding compliance with pre-conditions to arbitration as matters of admissibility. In particular, Sir Michael Burton cited the opinion of Justice Breyer of the U.S. Supreme Court in BG Group v Republic of Argentina 134 S.Ct.1198. In that decision, Justice Breyer considered that parties are presumed to intend that arbitrators, not courts, will “decide disputes about the meaning and application of particular procedural preconditions for the use of arbitration.” In addition, Sir Michael Burton referred to two recent decisions of the Singapore Court of Appeal in BBA v BAZ  2 SLR 453 and BTN v BTP  SGCA 105 which found that objections regarding pre-conditions to arbitration, like time limits and the fulfilment of conditions precedent to arbitration, are matters of admissibility not jurisdiction.
Fourth, Sir Michael Burton declined to follow the controversial decision in Emirates Trading Agency LLC v. v Prime Mineral Exports Pte Ltd  1 WLR 1145. In that decision, the English Commercial Court treated a time condition precedent in a multi-tier dispute resolution clause as a matter of jurisdiction under section 67 of the Arbitration Act 1996. However, in Emirates Trading the distinction between jurisdiction and admissibility was never considered, it was just assumed that the issue was one of jurisdiction. Sir Michael Burton referred to the criticism levelled at Emirates Trading in leading arbitration commentaries and held that the decision was not binding.
Fifth, Sir Michael Burton rejected the submission that the precise language of the multi-tier dispute resolution provision is relevant. There was no difference between a multi-tier dispute resolution clause that provided that “[n]o arbitration shall be brought unless X” and a clause that provided that “[i]n the event of X the parties may arbitrate”. In other words, the wording of a particular condition precedent to arbitration will not affect the fact that the question is one of admissibility rather than substantive jurisdiction.
On issue (ii), Sir Michael Burton found obiter that Sierra Leone had waived its right to assert non-compliance with the three-month cooling off period in the dispute resolution clause. By insisting on service of the RFA on 30 August 2020, Sierra Leone had waived the effect of the three-month period (if it otherwise applied).
On issues (iii) and (iv), Sir Michael Burton also found obiter that there was no breach of the multi-tier dispute resolution clause. On its proper construction, the three-month cooling-off period was not an independent condition precedent to commencing arbitration. Instead, the cooling-off period was “tied to the objective … of reaching an amicable settlement.” As such, the clause was not an absolute bar to bringing proceedings for three months. Instead, proceedings could be brought before the end of the cooling-off period if the objective of amicable settlement could not be achieved.
On the evidence before him, Sir Michael Burton considered that “there was not a cat’s chance in hell of an amicable settlement” within the three-month window. Accordingly, if the three-month period was not waived by Sierra Leone, as at the date the RFA was issued, the parties would have been unable by 14 October to reach an amicable settlement. Therefore, SL Mining did not fail to comply with the multi-tier dispute resolution clause.
The English Commercial Court’s decision in Sierra Leone v. SL Mining provides important clarity regarding the distinction between jurisdiction and admissibility in English arbitration law. The decision confirms that compliance with a multi-tier dispute resolution clause is not an issue of substantive jurisdiction that should be challenged in the English Court under section 67 of the Arbitration Act 1996. Instead, it is a question of admissibility and, therefore, is for the tribunal to determine. This position was previously uncertain in light of the controversial decision in Emirates Trading. The clarity provided by Sierra Leone v. SL Mining is especially welcome because it brings English arbitration law in line with the position taken in the United States and Singapore and favoured by international commentary.
The judgment is also noteworthy for the purposive and commercially-sensible approach Sir Michael Burton endorsed to the interpretation of the multi-tier dispute resolution clause in question. A cooling-off period is ultimately designed to facilitate settlement. Where that purpose is not possible, the parties are unlikely to have intended to bar the commencement of arbitral proceedings. Sir Michael Burton’s judgment shows that the English Commercial Court is loathe to find that a cooling-off period constitutes an absolute bar to the commencement of arbitral proceedings, especially where “there is not a cat’s chance in hell of an amicable settlement”.
It now remains to be seen whether the decision will embolden aggressive claimants to ignore escalation requirements in a dispute resolution clause entirely. The authors’ view is that such a course of action would be fraught with risk. Sierra Leone v. SL Mining does not suggest that escalation clauses will always be unenforceable in circumstances where settlement is not objectively likely. An aggressive claimant, therefore, still runs the risk of a tribunal determining that it has breached the terms of the escalation clause.
The consequences of such a breach could, in theory, be far-reaching. Perhaps the most obvious remedy is for a tribunal to order a stay of proceedings pending compliance with the escalation clause. This may be combined with cost sanctions. However, a tribunal will retain a broad discretion as to how to enforce a multi-tier dispute resolution clause. A tribunal could, in theory, dismiss an RFA on the grounds that it is premature if it concluded that an escalation clause imposed an absolute bar to the commencement of proceedings (as occurred in ICC Case 6276). In such circumstances, a claimant runs a risk that proceedings will be closed (without prejudice) rather than stayed. The effect of such a ruling would have serious consequences. It would bring the tribunal’s mandate to an end and the parties would have to reappoint the tribunal, or appoint a new tribunal, following compliance with the escalation clause. This could, in turn, have adverse consequences for the suspension of limitation periods. Parties are, therefore, advised to comply with multi-tier dispute resolution provisions where possible.1
1 For an excellent, more detailed discussion of this topic see Born & Scekic, Pre-Arbitration Procedural Requirements: ‘A Dismal Swamp’, in Practising Virtue: Inside International Arbitration (D. Caron et al. eds., 2015) where the authors advocate a restrictive reading of pre-arbitration requirements and conclude that mandatory pre-arbitration requirements should only be seen as affecting the admissibility of claims, rather than constituting bars to arbitral jurisdiction. See also A. Jolles, Consequences of Multi-Tier Arbitration Clauses: Issues of Enforcement, 72 Arbitration 329, 336 (No. 4, 2006).