Case Update: Compliance with Multi-Tier Clauses must be adhered to strictly

We have previously written about International Research Corp PLC v Lufthansa Systems Asia Pacific Pte Ltd and anor[2013] 1 SLR 973 (see here). In that case, the Singapore High Court upheld a multi-tiered dispute resolution mechanism which involved an escalation clause. The escalation clause was a precondition to arbitration and required parties to escalate any dispute to their respective management chains for negotiations.

We noted at the time that,

“Based on the facts of the case though, the High Court held that Clause 37.2 [the multi-tier clause] had been complied with (see [110]). The High Court was satisfied on the basis of the affidavit evidence adduced that “there were several rounds of high-level meetings between Lufthansa, Datamat and IRCP to resolve the Payment Dispute. The parties have had their attempts at negotiations and in that respect, the object of [Clause] 37.2 has been met” (see paragraph [110]).”

The Singapore Court of Appeal has just reversed the decision of the High Court. In International Research Corp PLC v Lufthansa Systems Asia Pacific Pte Ltd and another[2013] SGCA 55, the Court of Appeal held that the pre-conditions in the multi-tier clause had not been complied with. Whilst the enforceability of the multi-tier clause had not been the subject of the appeal, the Court of Appeal took the opportunity nonetheless to note that it would have upheld the multi-tier clause if it had been challenged (see paragraph [54]).

The Court of Appeal held that the multi-tier clause was sufficiently certain to be enforced,

“The language of cl 37.2 was clear – it set out in mandatory fashion and with specificity the personnel from the Respondent’s side who were required to meet with Datamat’s designees as part of a series of steps that were to precede the commencement of arbitration; it further specified the purpose of each such meeting, which was to try to resolve any dispute that had arisen between the parties. We also agreed with the Judge’s finding (see the Judgment at [100]) that the steps set out in cl 37.2 were conditions precedent to any reference to arbitration pursuant to cl 37.3. Significantly, the arbitration clause itself in cl 37.3 refers only to “disputes … which cannot be settled by mediation pursuant to Clause 37.2”.”

However, the Court of Appeal considered that Lufthansa had not complied with the pre-conditions. Accordingly, the tribunal would not have had the jurisdiction to hear the parties’ disputes.

On the matter of “actual” compliance, the Court of Appeal took issue with the High Court’s approach that the escalation clause had been fulfilled on the basis of “several rounds of high-level meetings between Lufthansa, Datamat and IRCP to resolve the Payment Dispute”. In this respect, the Court of Appeal noted that “the precise persons required to be involved pursuant to the cl 37.2 process were not so involved” (see paragraph [57]). Furthermore, it was not at all clear to the Court of Appeal what had in fact been discussed at those meetings (see paragraph [58]).

 “The [High Court] Judge did not think that this was problematic because he “[had] not seen any evidence from [the Appellant] that the [p]ayment [d]ispute was never discussed or sought to be resolved at these meetings” (see the [High Court] Judgment at [110]). With respect, there was no basis for placing the burden of proof on this issue upon the Appellant. It was the Respondent which invoked the Dispute Resolution Mechanism and which, therefore, had to assert and prove compliance with the preconditions for arbitration. This, it did not do.”

Regarding Lufthansa’s argument that it had made “substantial” compliance with the pre-conditions, the Court of Appeal took a strict approach and held at paragraph [62] that “[w]here the parties have clearly contracted for a specific set of dispute resolution procedures as preconditions for arbitration, those preconditions must be fulfilled”. The Court of Appeal further held that, “[i]n the case before us, it could not be said that the parties intended that some meetings between some people in their respective organisations discussing some variety of matters would be sufficient to constitute compliance with the preconditions for arbitration”.

The case brings into focus Singapore’s highest court’s take on multi-tier clauses and shows a shift away from the more liberal stance taken by the Singapore High Court in determining whether parties have complied with pre-conditions to such clauses.

We will do a more detailed analysis of the Court of Appeal’s judgment in the days to come.

About Shaun Lee

International Dispute Resolution and Arbitration lawyer. Fellow of the Chartered Institute of Arbitration. Panel of Arbitrators and Panelist for DNDR at the KLRCA.
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