Portfolio Gallery: Alternative Dispute Resolution

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Power of the Court to extend the time for referring a matter to arbitration

 

An arbitration clause in a contract may state a specific time within which a dispute may be referred to arbitration. When this time has passed, it may be considered that the referral to arbitration is out of time and therefore the party requesting that the dispute be referred to arbitration may not be able to do so. Time may be extended by the arbitrators for referring a dispute to arbitration.

 

An arbitration clause in a contract may state a specific time within which a dispute may be referred to arbitration. When this time has passed, it may be considered that the referral to arbitration is out of time and therefore the party requesting that the dispute be referred to arbitration may not be able to do so.

The possibility of extending the time to submit a dispute to the Court is based on Article 24(5) of the Arbitration Law (Chapter 4). This article states the following:

“Where the terms of an agreement to refer future disputes to arbitration provide that any claims to which the agreement applies shall be barred unless notice to appoint an arbitrator is given or an arbitrator is appointed or some other step to commence arbitration proceedings  is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may, on such terms ( if any) as the justice of the case may require, but without prejudice to the foregoing provisions of this section, extend the time for such period as it thinks proper. “

Although the above article has not yet been interpreted by Cypriot Courts, there are a number of English decisions that interpret the article in question. Thus, the words “undue hardship” have been interpreted in the English judgment of Libra Shipping and Trading Corporation Ltd. v. Northern Sales Ltd. (The Aspen Trader) [1981] 1 Lloyd’s Rep. 273, by Justice Brandon L.J. as follows:

(1) The words ‘undue hardship’ in section [24(5)] should not be construed too narrowly. (2) ‘Undue hardship’ means excessive hardship and, where the hardship is due to the fault of the claimant, it means hardship the consequences of which are out of proportion to such fault. (3) In deciding whether to extend time or not, the court should look at all the relevant circumstances of the particular case. (4) In particular, the following matters should be considered: (a) the length of the delay; (b) the amount at stake; (c) whether the delay was due to the fault of the claimant or to circumstances outside his control; (d) if it was due to the fault of the claimant, the degree of such fault; (e) whether the claimant was misled by the other party; (f) whether the other party has been prejudiced by the delay, and, if so, the degree of such prejudice.”

The critical factors as to the time that the said article is invoked should be related to the circumstances in which the delay arose, the length of the delay and the degree of fault of the party referring the dispute to arbitration with respect to the delay.

Note that the provision applies broadly to any arbitration clauses and any claims covered by arbitration clauses (see Sioux Inc. v. China Salvage Co., Kwangchow Branch and Another [1979] S. No. 785). Where the term does not form part of the arbitration clause and relates to a separate time limit stated within the contract then Article 24 does not apply. Thus, in Richurst Ltd v Pimenta, [1993] 1 W.L.R. 159 (1992)) where the contract provided for the landlord to send a notice to the tenant in relation to a rent increase and where the notice was sent 3 weeks late, the landlord could not proceed with an application for an extension of time to send the notice in order to refer the matter to arbitration.

It should be noted that the extension of time for referring a dispute to arbitration can also be done by the arbitrators where this is provided for based on the Regulations to be followed and/or based on the referral to arbitration agreement. It should be noted that, where it is foreseen that the matter can be decided by the arbitrators, this does not affect the possibility of the court to extend the time based on the relevant article of Chapter 4. In fact, even if the matter has already been decided by the arbitrators, the Court has the duty to make its own assessment, with due regard to the arbitrators’ decision to extend the referral time.

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Conciliation Rules of the Cyprus Center for Alternative Dispute Resolution 

The Conciliation Rules of the Cyprus Center for ADR are based on the International Chamber of Commerce Rules. You may view the detailed rules by clicking on the following link.

Generally speaking the following steps must be followed in order for a dispute to be resolved between two parties through the conciliation procedure of the Center.

  1. STEP ONE

After the filing fee is deposited (see Notes below) the complaint is examined by the Cyprus Consumer Center for ADR (“Center”) in accordance with the requirements of article 1(4) of the Conciliation Rules (“Rules”) and in case these are complied with, the complaint will then be forwarded to the other party.

  1. STEP TWO

The Center will invite the other party to conciliate under the Rules. As soon as it accepts, the conciliation proceedings commence. If it does not respond within 20 days, then this will be taken as a rejection of the invitation to the Conciliation proceedings.

  1. STEP THREE

The Conciliator is appointed by the Center. The Conciliator does not act as an arbitrator or as a representative or legal representative of the parties.

  1. STEP FOUR

The Conciliator requests each party to submit a brief written statement describing the general nature of the dispute and the point in issue, and each party sends a copy of his statement to the other party and may request further written statements and relevant documents.

The parties co-operate with the Conciliator and shall attempt to comply with the requests of the Conciliator to submit written materials, provide evidence and attend meetings.

Each party may, on his own initiative or at the invitation of the Conciliator, submit to the Conciliator suggestions for the settlement of the dispute.

When it appears to the Conciliator that there exist elements of a settlement which would be acceptable to the parties, s/he formulates the terms of a possible settlement and submits them to the parties for their observations helping them reach an amicable agreement.

  1. STEP FIVE

The Conciliator may meet with the parties and may elect the place where meetings are to be held.

  1. STEP SIX

The outcome of the Conciliation is made available to the Parties.

It should be noted that Confidentiality is observed at all stages of the proceedings. The costs are borne in accordance with Appendix A of the Rules depending on whether the dispute is between a consumer and a trader or whether it is a civil/commercial dispute. You can see the conciliation fees by clicking on this link.

Evidence used during the Conciliation procedure cannot be used in other proceedings in accordance with Article 20 of the Rules.

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Mediation Rules of the Cyprus Center for Alternative Dispute Resolution 

The Mediation Rules of the Cyprus Center for ADR are based on the UNCITRAL Mediation Rules. You may view the detailed rules by clicking on the following link.

  1. STEP ONE

After the filing fee is deposited (see Notes below), the complaint is examined by the Cyprus Consumer Center for ADR (“Center”) and if it passes Article 1(6) requirements it will then be forwarded to the other party.

  1. STEP TWO

The Center will invite the other party to mediate under the Rules. As soon as it accepts, the Center sends a written confirmation to the parties that such an agreement has been reached, the mediation proceedings commence. The Center notifies the parties as soon as it has received all the documents containing the relevant information relating to the complaint.

  1. STEP THREE

The parties may jointly nominate a Mediator for confirmation by the Center. In the absence of a joint nomination of a Mediator by the parties, the Center shall, after consulting the parties, either appoint a Mediator or propose a list of Mediators to the parties. All of the parties may jointly nominate a Mediator from the said list for confirmation by the Center, failing which the Center shall appoint a Mediator.

  1. STEP FOUR

The Mediator and the parties shall promptly discuss the manner in which the mediation shall be conducted.

In establishing and conducting the mediation, the Mediator shall be guided by the wishes of the parties and shall treat them with fairness and impartiality.

  1. STEP FIVE

The Mediator may meet with the parties and may elect the place where meetings are to be held.

  1. STEP SIX

The outcome of the Mediation is made available to the Parties.

It should be noted that Confidentiality is observed at all stages of the proceedings. The costs are borne in accordance with Appendix A of the Rules depending on whether the dispute is between a consumer and a trader or whether it is a civil/commercial dispute. You can see the mediation fees by clicking on this link.

Evidence used in the Mediation cannot be used in other proceedings in accordance with Article 9 of the Rules.

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Arbitration Rules of the Cyprus Center for Alternative Dispute Resolution 

The Cyprus Center’s for ADR Rules apply when the parties have agreed that disputes between them regarding a matter, whether arising from a contract or not, will be referred to Arbitration based on the Rules of the Center.

The Center’s Arbitration Rules apply where the parties have agreed that disputes between them regarding a matter, whether arising out of contract or not, will be referred to Arbitration under the Rules (“Rules”) of the Cyprus Center for Alternative Dispute Resolution (“Centre”).

The Rules determine the procedure of the Arbitration except in case any Rule conflicts with a provision of Law applicable to Arbitration which is of a mandatory nature. Under the Rules, Arbitration begins with a notice of arbitration. That is, the party or parties resorting to arbitration (the “Applicant“) send to the other party or parties (the “Defendant“) a Notice of Arbitration which includes:

  • A demand that the dispute be referred to arbitration;
  • The names and contact details of the parties;
  • Identification of the arbitration agreement that is invoked;
  • Identification of any contract or other legal instrument out of or in relation to which the dispute arises or, in the absence of such contract or instrument, a brief description of the relevant relationship;
  • A brief description of the claim and an indication of the amount involved, if any;
  • The relief or remedy sought;
  • A proposal as to the number of arbitrators, language and place of arbitration, if the parties have not previously agreed thereon.

A copy of the notice of arbitration must be promptly forwarded to the Center by the Applicant. The composition of the arbitral tribunal shall not be prejudiced by any dispute as to the effectiveness of the notice of arbitration, which shall be ultimately decided by the arbitral tribunal. The Center shall notify the parties to the dispute once it has received all documents containing the relevant information related to the complaint.

Within twenty days of receiving the notice of arbitration, the Defendant must serve on the Applicant a response to the notice of Arbitration which includes various information. A copy of the response to the notice of Arbitration must be forwarded to the Center by the Defendant promptly. Each party shall be represented or assisted by persons selected by it. The names and addresses of such persons shall be notified to all parties and to the arbitral tribunal. Such notice must specify whether the appointment is for representation or assistance purposes. Where a person acts as a representative of a Party, the Arbitral Tribunal either on its own initiative or at the request of any Party, may at any stage require proof of the authority given to the representative in such form as the arbitral tribunal shall determine.

The parties agree that the Center will appoint the Arbitrator or Arbitrators who will deal the dispute. The Center shall appoint such Arbitrator or Arbitrators within fifteen days of receipt of the reply to the notice. If all the parties have not agreed to the selection of the Center within fifteen days after the appointment has been received by all the parties in accordance, any party may request the Center to appoint another Arbitrator or Arbitrators.

Part II of the Rules refers to the composition of the arbitral tribunal (the number of arbitrators, their replacement and the extent of their liability.

Part III of the Rules deals with the arbitration process – i.e. it contains the Rules on the venue of the arbitration, the language, the content of the statement of claim and defense, how to amend pleadings, written statements, time periods, testimony, hearings, experts and the closing of the hearings.

Part IV deals with the decision of the arbitral tribunal, how to correct it and the fees and costs of the proceedings which are detailed in Annex A.

A) FOR ARBITRATION IN CIVIL AND COMMERCIAL DISPUTES

  • Application Fees (either by one party or jointly)

€400 non-refundable fee, for registering the Difference in the Center.

  • Minimum Remuneration for Each Arbitrator
Amount of goods or services purchased in euros (€) Arbitration Fees Payable (€)
500 – 10.000 150
10.001 and above 250
  • The remuneration of the arbitrators is agreed with the arbitrators. The above fees are the minimum indicative fees charged by the Center Referees.
  • All above fees are exclusive of VAT and are payable hourly.
  • Payment of fees for four hours of Arbitration is made at the commencement of the Arbitration (Article 3(2) of the Regulations).

B) FOR ARBITRATION OF CONSUMER DISPUTES

  • Application Registration Fees by the Consumer

€20 non-refundable fee, for registering the Difference in the Center.

  • Arbitration Fees
Amount of goods or services purchased in euros (€) Consumer fees in Euros (€) Business Fees in Euros (€)
 500 – 10.000 25 100
10.001 and above 30 120
  • All above fees are exclusive of VAT and are payable hourly.
  • Fees for two hours of Arbitration are paid upon commencement of the Arbitration (Article 3(2) of the Regulations).
  • The maximum amount paid by the Consumer is €1000.

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Regulations based on the Mediation in Family Disputes Law of 2017

The Family Mediation Regulations have been approved by the House of Representatives based on article 43 of the Mediation in Family Disputes Law of 2019. These regulations provide for the determination of the registration fee, the determination of the Mediator’s remuneration and the special training that the Mediators must have completed successfully in order to be registered in the Mediators’ registry.

The House of Representatives approved the Family Mediation Regulations, which have been forthcoming for about three years, in accordance with article 43 of the Family Mediation Law of 2019.

These Regulations provide for the determination of the fee for registration in the Register of Family Mediators, the determination of the mediator’s fee for conducting mediations, the determination of special training required for registration in the Register of Family Dispute Mediators and the determination of the matters relating to the continuing professional training of mediators.

Registration Fee

According to the Regulations, for registration in the Register of Family Dispute Mediators, the amount of €30 is paid once.

Determination of mediator’s fee

The mediator’s fee is a matter of agreement between the parties and unless otherwise agreed, the fees are as follows:

For all disputes except Property Disputes the fee is €60 per hour.

For Property Disputes:

Up to €10,000 €50 per hour
Between €10,000 – €50,000 €60 per hour
Between €50,000 – €100,000 €80 per hour
Between €100,000 – €500,000 €100 per hour
Above  €500,000 €150 per hour

The above fee does not include any interest and expenses such as expenses for renting premises or expert fees, etc.

The fee is paid jointly by the parties, but the parties are allowed to agree otherwise.

Education

In order to register a person in the Register of Family Mediators, the successful completion of a special training program for mediators is required. This seminar’s duration is fifty hours and must be provided by an academic institution of higher education or a Center certified by HRDA and approved by the Competent Authority.

The trainers who deliver the special education programs should hold a university degree or diploma recognized by the competent body in the Republic in law, psychology or social work and have four years of professional experience in their area of expertise. This means that for mediation matters the trainer should have knowledge of mediation, while for family law matters the trainer should have relevant knowledge and experience in this field.

The special education program consists of:

Theoretical training lasting at least forty (40) hours

The education should include training in the legal framework of the Republic in relation to various family law legislation (such as the Parent-Child Relations Law, the Spouse Property Law, the Marriage Law, the Family Courts Law, etc.) Relevant provisions for domestic violence as well as child rights issues should also be included.

In relation to mediation, special training should be given in the basic principles and procedures followed in mediation, the obligations and duties of the mediator and the parties involved in the mediation, with special reference to the handling of incidents of violence. Special reference should also be made to the principles of psychology with reference to matters of conflict management, approaching children and victims of violence, drafting mediation and conciliation agreements, the Code of Ethics for mediators in family disputes, mediation techniques, etc.

Practical training lasting at least ten (10) hours

Practical training should include practical application of mediation, negotiation, and communication techniques.

The subject of continuing practical training is provided for by the Law. The Law, in article 11, states that a person who is registered in the Register of Family Mediators continues his training in mediation matters by completing at least twenty-four (24) hours of training every three years, the first three years starting from the expiration of three (3) years from the date of his registration in the Register of Mediators, and submits a relevant certificate of continued training to the Ministry of Justice and Public Order.

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Alternative Dispute Resolution under the new Civil Procedure Rules 

The new Civil Procedure Rules interpret “Alternative Dispute Resolution” as: “the procedure for settling disputes, including negotiation, mediation or arbitration, without recourse to the court”. The purpose of pre-trial protocols is to prevent the parties from going to Court.

In September 2023, the new civil procedure rules come in force. Based on the interpretative provisions of the rules, “alternative dispute resolution” means “the procedure for settling disputes, including negotiation, mediation or arbitration, without recourse to the court”.

The new civil procedure rules provide for the procedure to be followed in case the particular dispute is covered by a pre-action protocol and in cases where it is not covered by such a protocol. Also, according to the rules, the court promotes the primary purpose of the rules by actively managing cases. Active management includes among others:

“…encouraging the parties to use an Alternative Dispute Resolution process, if the court deems it appropriate, and facilitating the use of such a process”

Cases covered by the pre-action protocol:

The purpose of pre-action protocols is, among other things, to promote pre-action communication between the parties and to prevent the parties from going to court by allowing them to settle the claim before the initiation of court proceedings.

Cases covered by the pre-action protocol are listed in Annex I of the new Rules and concern claims for a specific amount of money as well as traffic accidents and personal injury claims.

Cases not covered by the pre-action protocol:

In cases not covered by the pre-action protocol, the parties must act reasonably in relation to the exchange of information and documents relevant to the claim and generally to avoid litigation. Also, the parties in such a case must follow a reasonable procedure, the purpose of which is to avoid the judicial process as listed in Form III of Appendix I.

Based on this procedure, the Claimant should send a letter of demand which includes, amongst other things, a statement of whether it “wishes to participate in mediation or other alternative dispute resolution method“. In its response, the proposed Defendant, in the event that it does not accept the Claimant’s demand, should state “whether it is prepared to participate in mediation or other alternative dispute resolution method“.

Registration and execution of a settlement agreement.

Section III of Part 45 contains how to register and enforce a settlement agreement or otherwise a “mediation settlement agreement”. In the event that the parties wish to request the execution of a mediation settlement agreement, the parties shall apply to the Court depending on whether there is an ongoing judicial process in the Republic or not.

In the application or in the claim form, the express consent of the other party as well as the mediation settlement agreement (preferably in the Greek language) must be attached and the court may declare all or part of the mediation settlement agreement to be enforceable in the same way as a judgment is executed except where the agreement is void or contrary to law or where express consent has not been given.

The application for registration and enforcement is heard without a hearing.

Mediation Evidence

When a person requests disclosure or inspection of evidence in mediation or wishes to call a mediator or mediation administrator as a witness, an application must be filed in the court. The mediator or mediation administrator should be made a party to the claim. Evidence in support of application, must include evidence that:

  • All parties to the mediation agree to the disclosure or inspection of mediation evidence;
  • Disclosure or inspection of the mediation evidence is necessary for imperative reasons of public order;
  • Disclosure or inspection of the mediation settlement agreement is necessary to implement or enforce the mediation settlement agreement.

Stay of Proceedings for Settlement Purposes

According to the new rules, a party may, when registering a completed questionnaire of directions, make a written request for a stay of the procedure while the parties make efforts to settle the case through alternative dispute resolution or other means. If all parties request a stay, the proceedings are stayed for a period of up to three months and the claimant informs the court if a settlement is reached.

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Alternative Dispute Resolution – Institutional or Ad Hoc Arbitration

Nikos Papaefstathiou is his book characterizes arbitration as “the private way” of dispute resolution: “Arbitration is the contractually selected binding adjudication of a certain dispute by a private judge instead of regular courts”. Arbitration may begin either by agreement before the dispute arises or by agreement after the dispute has arisen. Institutional is the arbitration where the arbitration clause refers to a specialized Center that intervenes and assumes a management role of the process while Ad Hoc Arbitration is the arbitration where the parties have not chosen a Center to refer their dispute but the parties themselves agree all the matters relating to arbitration.

According to Nikos Papaefstathiou’s book, Commercial Arbitration in Cyprus, arbitration is characterized as “the private way” of dispute resolution:

“Arbitration is therefore the contractually selected binding resolution of a certain dispute by a private judge instead of the regular courts”

Arbitration may commence either by agreement before the dispute has arisen or by agreement after the dispute has arisen. There is still the possibility that arbitration may be ordered by the Court in accordance with the Civil Procedure Rules when the parties so agree.

The differences between institutional and ad hoc arbitration and the advantages and disadvantages of each procedure are analyzed below.

Institutional Arbitration

Institutional is the arbitration where the arbitration clause refers to a specialized Center that intervenes and assumes a case handling role in the process. There are various arbitration centers worldwide, such as the International Chamber of Commerce, the London Court of International Arbitration, but also local once such as the Center for Arbitration and Mediation of the Cyprus Bar Association or the Cyprus Center for ADR.

Institutional arbitration has several advantages including the fact that there are comprehensive rules that largely cover any issues that the parties may not have considered. Also, and since the Center assumes a case handling role, the arbitrator is relieved of the obligation to undertake administrative or clerical work. The disadvantages of institutional arbitration are that there may be a delay due to the detailed rules that apply as well as the fact that such a procedure may be costly since the Center charges case handling fees. (see N. Papavestathiou, Commercial Arbitration in Cyprus, pp. 97-98)

Ad Hoc Arbitration

Ad Hoc Arbitration is the arbitration where the parties have not selected a Center to refer their dispute but the parties themselves agree on all matters relating to the arbitration, such as the selection of arbitrators, the selection or formulation of the arbitration rules, the law that will apply to resolve the dispute, as well as the administrative support for the arbitration. Such is the case for example where the parties agree that “In the event of a dispute, the parties will select a mediator for the purpose of resolving it“.

Amongst the main advantages of ad hoc arbitration is the fact that the process is flexible since the parties decide on the rules to follow and their arbitrator. That is, the parties by their own agreement can shape the rules by which the dispute will be resolved so as to deal with the issue at hand. The costs are generally lower than those of institutional arbitration and can be negotiated by the parties – unlike the case of institutional arbitration. Some of the disadvantages of ad hoc arbitration are that rules which have not been a matter of consideration before the courts may “deny the parties the benefit of being guided by judicial interpretation“. Also, the fact that there are no comprehensive rules at play may result in a delay in the whole process. (see N. Papavestathiou, Commercial Arbitration in Cyprus, pp. 97-98)

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Arbitration under the Alternative dispute resolution for Consumer Law of 2017 

The purpose of the Law (N.85(I)/2017) is to resolve disputes arising between consumers and businesses through an Alternative Dispute Resolution for Consumers Entity. One of the most well-known methods of Alternative Dispute Resolution is Arbitration, through which the parties who have a dispute appoint a third party who is independent i.e. the arbitrator to resolve their dispute.

The Alternative Resolution of Consumer Disputes Law (L.85(I)/2017)

The Alternative Dispute Resolution for Consumer Law of 2017 (“the Law”) harmonizes Cyprus with Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes.

The purpose of the above Law is for disputes arising between consumers (located in the European Union) and businesses (within Cyprus) to be resolved by an Alternative Dispute Resolution Entity. Such Entity uses Alternative Dispute Resolution methods, appointing natural persons to resolve the disputes that arise.

The best-known Alternative Dispute Resolution method is arbitration. Through arbitration, two or more parties to a dispute appoint a third party who is independent – the arbitrator who issues an arbitration award which is binding on the parties upon registration and enforcement in the Court.

Regarding consumer disputes, and in accordance with article 11(1) of the Law:

An agreement between a consumer and a trader to submit complaints to an ADR entity is not binding on the consumer if it was concluded before the dispute has materialised and if it has the effect of depriving the consumer of his right to bring an action before the courts for the settlement of the dispute”

This means that a consumer who agrees, before the dispute arises through e.g. a standard agreement with the trader, to refer any dispute arising to arbitration, is not bound by the relevant arbitration clause. This is because, arbitration entails the deprivation of the consumer’s right to go to court to settle the dispute. In fact, article 11(2) seals the fact that the arbitration procedure does not bind the consumer. The article states:

“in ADR procedures which aim at resolving the dispute by imposing a solution the solution imposed may be binding on the parties only if they were informed of its binding nature in advance and specifically accepted this. Specific acceptance by the trader is not required if national rules provide that solutions are binding on traders”

Based on the above article, a consumer cannot be bound by a solution, unless he has been informed beforehand – meaning (in line with article 11(1)) before the start of the procedure and after the dispute has arisen.

It is noted that the above provisions apply only when the arbitration clause refers to an Alternative Dispute Resolution Entity and not to clauses referring the parties to ad hoc arbitration. In the case of an ad hoc arbitration clause in a consumer contract, this is subject to review of its unfairness through Part VII of the Consumer Protection Law of 2021. This is because, according to Annex IV of the Law, a clause which obliges the consumer to resort exclusively to arbitration not covered by legal provisions, may be considered unfair.

In conclusion, an arbitration clause that refers to institutional arbitration before an Alternative Dispute Resolution Entity is automatically void and non-binding – unless expressly agreed to by the parties after the dispute has arisen. Where the arbitration clause refers to an ad hoc arbitration process, the clause is subject to a test of unfairness and if found to be unfair, then it is void and not binding on the consumer.

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Stay of proceedings for breach of ADR Clause

Alternative Dispute Resolution clauses are clauses that provide for the referral of a dispute arising under the contract to an alternative dispute resolution process. These clauses exist to help the parties resolve their differences quickly and with a greater chance of success, thereby reducing costs. Where the contracts contain valid mechanisms to resolve disputes, the Court will not allow an action to be brought in the event of a breach of such a clause.

1. ALTERNATIVE DISPUTE RESOLUTION CLAUSES

Alternative Dispute Resolution clauses are clauses that provide for the referral of a dispute arising under the contract to an alternative dispute resolution process. Such procedure may be negotiation and/or mediation and/or arbitration. The purpose of such clauses – and clauses that incorporate more than one way to resolve the dispute (i.e. escalation clauses) – is to help the parties resolve the dispute faster, with a greater chance of success and also to reduce the costs for the parties.

2. GENERAL RULE OF APPLICATION

In the case Emirates Trading Agency LLC v Prime Mineral Exports Pte Ltd. [2014] EWHC 2104 (Comm) there was an escalation clause whereby the parties, in case of a dispute, had to negotiate amicably and in good faith within four weeks to resolve their dispute and only then they could refer the matter to arbitration. The first party said that the clause was breached and therefore the matter could not be referred to arbitration. The second party said that the term relating to the negotiations, was void and therefore the matter could be referred to arbitration. Alternatively, the second party said that the clause was not breached. The court addressed the issue of whether the clause was void. Although there is a decision of the House of Lords in Walford v Miles (1992) 2 AC 128 that a clause which provides for an amicable dispute resolution is an agreement to negotiate and thereby void, it was held by the Court that such a clause was enforceable. That was the case because there was a time period of 4 weeks. Justice Teare J, stated the following:

“Enforcement of such an agreement when found as part of a dispute resolution clause is in the public interest, first, because commercial men expect the court to enforce obligations which they have freely undertaken and, second, because the object of the agreement is to avoid what might otherwise be an expensive and time-consuming arbitration.

It is therefore the rule that such clauses are usually enforced. In the case Ohpen Operations UK Limited v. Invesco Fund Managers Limited [2019] EWHC 2246 (TCC) stated that:

“There is a clear and strong policy in favour of enforcing alternative dispute resolution provisions and in encouraging parties to attempt to resolve disputes prior to litigation. Where a contract contains valid machinery for resolving potential disputes between the parties, it will usually be necessary for the parties to follow that machinery, and the court will not permit an action to be brought in breach of such agreement.”

3. STAY OF PROCEEDINGS BROUGHT IN VIOLATION OF AN ALTERNATIVE DISPUTE RESOLUTION CLAUSE

As with arbitration clauses, alternative dispute resolution clauses must be adhered to. In the case of Port Jacks Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty [1981] 1 WLR 138 (PC) Lord Wilberforce stated that such clauses (as in the case of arbitration clauses) survive a repudiatory breach of contract.

Therefore, where there is a breach of such clauses (e.g. through the initiation of proceedings n the Court), the innocent party, may request from the court a stay of the proceedings. In relation to arbitration, the possibility of stay stems from article 8 of Arbitration Law (Cap. 8)  and article 8 of the Law on International Commercial Arbitration (Law 101/1987). With reference to other Alternative Dispute Resolution Clauses (e.g. mediation) this possibility of stay stems from the principles of equity.  In the case of Cable & Wireless Plc v IBM United Kingdom Ltd [2002] EWHC 2059 (Comm) the following was stated by Colman J:

“[32] …In principle … where there is an unqualified reference to ADR, a sufficiently certain and definable minimum duty of participation should not be hard to find…

[34] The reference to ADR is analogous to an agreement to arbitrate. As such, it represents a free-standing agreement ancillary to the main contract and capable of being enforced by a stay of the proceedings or by injunction absent any pending proceedings. The jurisdiction to stay, although introduced by statute in the field of arbitration agreement, is in origin an equitable remedy.«

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Stay of proceedings for breach of an Arbitration Clause under Cap. 4

There is a possibility of stay of legal proceedings in case of violation of an Arbitration Clause. The circumstances relating to this possibility are analysed below.

 

1. ARTICLE 8 OF ARBITRATION LAW, CHAPTER 4

Article 8 of Arbitration Law states the following:

If any party to an arbitration agreement, or any person claiming through or under him, commences any legal proceedings in any Court against any other party to the arbitration agreement or any person claiming through or under him, in respect of any matter agreed to be referred, any party to such legal proceedings may at any time after acceptance, and before delivering any pleadings or taking any other steps in the proceedings, apply to that Court to stay the proceedings and that Court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings.”

Where an arbitration clause exists, it binds the parties even after the termination of the contract containing it. What Article 8 provides is that in case that a party to a contract containing an arbitration clause proceeds by filing a lawsuit in the Court, then the other party may use Article 8 to stop the proceedings commenced in Court.

In other words, Article 8 provides for the right to apply for the stay of the proceedings by the party who relies on the breach of the arbitration clause by the other party. There are of course conditions for the use of Article 8. These are, that the party making the application for a stay of proceedings should make the application in a timely manner and absolutely before delivering any written submissions or taking any other step in the proceedings.

A) TIMING OF THE APPLICATION

As regards the timeliness of the application, the case of G. J. Magdon Ltd v. A.L. Metal Trading Ltd[1]  is relevant, in which the following were mentioned:

We do not agree with the above recommendation, which essentially result in the defendant’s unlimited right to act as he pleases while a lawsuit is pending against him. This also happened in the case we are considering, where the appellant chose to file the application under consideration 9 months after the filing of the notice of appearance. The rule we have set out above, and the case law, are aimed at the immediate and in priority consideration of a possible objection to the court’s jurisdiction. Such a matter cannot be left to the defendant’s free choice of time.”

B) NEW STEPS IN THE PROCEDURE

Apart from the fact that such an application should be made quickly, the general rule is that an application for stay under Article 8 should be registered before any new steps in the proceedings are

taken. In the case Προοδευτική Ασφαλιστική Εταιρεία Λτδ ν. Κουρουκλίδη κ.α.[1] the following was mentioned by the honorable Judge Nikolaidis J:

In the case of Vector Onega A.G. v. Of the ship M/V Grivas et al. (1999) 1 A.A.D. 1, the Court rejected an application to stay the proceedings, due to an arbitration clause contained in a written agreement between the parties, simply because the application was made after new steps in the proceedings had been taken

In the book Halsburys Laws of England Vol 2 the following is also mentioned on page 25:

The applicant must have taken no step in the proceedings (g) after appearance (h)….Thus the filing of an affidavit (k) in opposition to a summons for summary judgement (l), delivery of a defence (m)… are steps in the proceedings.

In the book Russell on Arbitration the following are mentioned on pages 182-183:

The court has no discretion to stay,  if the defendant allows the action to continue… The following have been held to be the taking of “steps in the proceedingsAppearing before the master and asking for leave to defend

A motion to dismiss the proceeding and entry of a defence to a counterclaim are considered new steps in the proceedings.

It is noted that in relation to a request for the stay of proceedings in the context of arbitration conducted on the basis of the International Commercial Arbitration Law of 1987 (L. 101/1987) a provision similar to that of Cap. 4 (coincidentally in article 8 of Law 101/1987) is contained, although the specific provision is not as strict as to what constitutes new steps in the proceedings.

[4] (2001) 1 A.Α.Δ. 2064

[5] (2002) 1 ΑΑΔ 1374

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