Staggered clauses: ¿a practical mean to dispute resolution?

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Staggered clauses: ¿a practical mean to dispute resolution?

Staggered clauses: ¿a practical mean to dispute resolution?

Within multiple contractual relations there are parties in which exercising their right to free hiring and autonomy of their will agree on certain specific clauses in which they anticipate that before a future conflict derived from the contract they must first be subjected to previous stages such as negotiations or mediations, this before requesting an arbitral court to resolve its dispute.

These types of clauses are known as "staggered clauses".

Why does a staggered clause exist?

It is necessary to remember that a contract is an agreement of wills that are constricted because they seek to obtain a profit or an end with the business. In this situation it must be understood that the original meaning of the parties is not to enter into a dispute, but to obtain the said benefit.

With this in mind the parties agree to attend some stages prior to an arbitration requirement to resolve their dispute, in this way they seek to achieve business loyalty and listen to their disagreements in order to obtain an integral solution. Usually this type of clauses is in businesses whose parties already have a long negotiation history or at least have already held on previous occasions contracts with each other, and seek to avoid that a disagreement damages their relation in a partial or permanent way.

Different kinds of staggered clauses?

Since these types of clauses come from the parties' autonomy of will, they can agree on different types of clauses, the most common of which are:

1-) Negotiation-Arbitration: A model in which only a stage of negotiation prior to arbitration is established, the parties must take into account the negotiation center or venue, the language of the negotiation, the terms of exhaustion of the negotiation stage. The same requirements are necessary with arbitration clause.

2-) Mediation-Arbitration: Model in which the parties have access to mediation as a result of the interest of resolving their disagreements by a consensual agreement, at this stage also the location where mediation, language, mediator or mediators must be defined. Deadlines for its exhaustion. The same requirements are necessary with arbitration clause.

3-) Negotiation-Mediation-Arbitration: Many times in complex businesses or particular characteristics such as disputed interests or commercial relationship tends to agree this type of clauses in order to obtain an agreement that makes these characteristics prevail prior to resolving disputes by an impartial third party.

4-) Concurrent Arbitration-Mediation clause: This type of clauses allows the parties to raise the arbitration requirement and at the same time to attend mediation even when the arbitration has already been initiated. This modality seeks that the parties more deeply involved in the dispute can likewise seek an arrangement. 

Practical tips:

In all these kinds of staggered clauses mentioned above, it is of vital importance to define the period of exhaustion of each previous stage, since in practice it is usually the case that the party that generates disagreement in the relationship uses the previous stages in bad faith to delay the arbitration that it knows will accrue in an unfavorable award for itself, always to the detriment of the aggrieved party. In addition, it is necessary to bear in mind that the preference for these clauses is to be given in contracts signed by parties that already have a previous relationship, because they protect their relationship and their interests, contrary sense, in new contractual relationships it may result counterproductive to agree on such clauses that accrue more costs to the parties.

Kevin Castro it’s a legal advisor at CENTRAL LAW Costa Rica and member of the Costa Rican Young Arbitration Bar.

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