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40

INTERNATIONAL JOURNAL OF RESEARCH AND ANALYSIS

VOLUME 1 ISSUE 3 2014

Multi Tier Dispute Resolution Clauses in Contracts-

With special focus on Entertainment and Construction Contracts

*Dishi Bhomawat

I . U N D E R S T A N D I N G M U L T I T I E R D I S P U T E R E S O L U T I O N

C L A U S E S

DEFINITION

Multi tier dispute resolution clauses are also known as ‘escalation clauses, ‘multi-step’ or ‘ADR-

first clauses’. Sometimes, dispute resolution agreements between parties provide for arbitration

as the final stage for settling disputes among parties. This means that parties can resort to

arbitration only after they have exhausted other mechanisms for dispute resolution in the

contract. These mechanisms can include “cooling off” or “waiting periods”; negotiations

between corporate representatives or officers; conciliation, mediation, or mini trials or referral to

an expert or other third party for a non-binding opinion.1

One of the distinctive characteristics of multi-tiered dispute resolution clauses as defined by

Duprey2 is that they represent a departure from “one size fits all” arbitration clauses, giving the

parties the

to tailor the dispute resolution regime that they wish to use to their particular needs, type of

contract and in particular, the types of dispute that might arise in connection with the contract. A

good overall definition of a multi-tiered dispute resolution clause is that of Michael Pryles

1 GARY BORN, INTERNATIONAL ARBITRATION AND FORUM SELECTION AGREEMENTS: DRAFTING AND ENFORCING

83-85 (2 ed. 2006). 2 Pierre Duprey, Practical Considerations in the drafting and use of a multi-tiered dispute resolution clause, PAPER PRESENTED AT THE

IBA-CONFERENCE DURBAN 2002: COMMITTEE D SESSION ON MULTI-TIERED DISPUTE RESOLUTION CLAUSES AND

THEIR ENFORCEMENT.

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namely: “[A] clause in a contract which provides for distinct stages, involving separate

procedures, for dealing with and seeking to resolve disputes.”3

GENESIS OF MULTI TIER DISPUTE RESOLUTION CLAUSE: ADR

Owing to the delays involved in litigation, various alternative methods of dispute resolution have

become popular in the recent times. The alternative dispute resolution [hereinafter “ADR”]

includes- negotiation, mediation/ conciliation, expert determination, referral to an expert or other

third party for non-binding opinion4, and dispute review boards

5. Combination of various ADR

methods, along with arbitration and litigation have, led to the development of multi tier dispute

resolution clauses. The 1990s appear to have witnessed an enormous growth in the “ADR

debate” with an ever increasing sphere of academics, lawyers and consultants entering the

arena.6 As a field that has evolved for differing motives and with different emphasis, there are

many ways of defining Alternate Dispute Resolution [hereinafter “ADR”]. The most common

classification is to describe ADR as a structured dispute resolution process with third-party

intervention which does not impose a legally binding outcome on the parties.7 The definitions are

not watertight and conclusive. The reason for not having very specific definition is because of

the need to maintain flexibility in ADR. Alternate dispute resolution in the beginning and as the

name suggests used an “alternative” to litigation and arbitration. But in the modern times, owing

to the complexity of modern disputes and the needs of the business community, it has gained

popularity in the mainstream. Thus, it is now being used alongside litigation and arbitration to

create a multi step dispute resolution mechanism. ADR and multi tier dispute resolution clauses

are a creature of contracts. Thus, there is full party autonomy in deciding how the various forms

of ADR will be employed to create a multi level dispute resolution mechanism suited to the

needs of the parties.

Mediation

3 Michael Pryles, Multi-Tiered Dispute Resolution Clauses, 18(2) J. INT’L ARB. 159, 176 (2001 ) [hereinafter Pryles]. 4 GARY B BORN, INTERNATIONAL COMMERCIAL ABITRATION 241 (2009) [hereinafter BORN]. 5 ALAN REDFERN ET. AL., LAW & PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION, 48-49 (2009) [hereinafter

HUNTER]. 6 Nicholas Gould, Dispute resolution in the construction industry: An overview, King’s College London and Society of

Construction Law Construction Law seminar (Sept. 9, 2003), available at

http://www.fenwickelliott.com/files/docs/articles/html/dispute_resolution.htm. 7 KARL MACKIE ET AL., THE ADR PRACTICE GUIDE-COMMERCIAL DISPUTE RESOLUTION 8 (3rd ed. 2007).

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Europe’s largest service provider, the Centre for Effective Dispute Resolution (CEDR) published

a revised definition of mediation in 2004, as being ‘A flexible process conducted confidentially

in which a neutral person actively assists the parties in working towards a negotiated agreement

of a dispute or difference, with the parties in ultimate control of the decision to settle and the

terms of the contract.’ Mediation lies at the heart of ADR.8 Parties who have failed to resolve a

dispute for themselves, may turn to an independent third person, or mediator, who will listen to

an outline of the dispute and then meet each party separately, often shuttling between them and

try to persuade the parties to moderate their respective positions.9

Mediation allows parties to reach a result of their own choice based upon what is important to

them and their own interests. It is done with the help of a mediator. A mediator is a neutral

person who has no connection to the parties and no interest in the outcome of the dispute. The

mediator tries to work with the parties to fashion, to craft, and to create a remedy of their own

choosing.10

Negotiation

It is the most flexible, informal, party- directed, closest to the parties’ own circumstances and

control, and can be geared to each party’s own concern. Parties choose location, timing, agenda,

subject matter and participants.11

Conciliation:

The terms "mediation" and "conciliation" are generally used as if they are interchangeable; and

there is no general agreement as to how they should be defined. Historically, in private dispute

resolution, a conciliator was seen as someone who went a step further than the mediator, so to

speak, in that the conciliator would draw up and propose the terms of an agreement that he or she

considered represented a fair settlement.12

8 HUNTER, supra note 5, at 37. 9 Id. at 38. 10 Alida Camp, Panel Talk, Alternative Dispute Resolution in the Entertainment Industry, CARDOZO J. CONFLICT RESOLUTION,

(Oct. 23, 2002), available at http://cardozojcr.com/symposia/fall-2002/. 11 HUNTER, supra note 5, at 11. 12 HUNTER, supra note 5, at 38.

http://cardozojcr.com/symposia/fall-2002/

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In addition, different personnel could be involved in the different stages of the dispute resolution

procedure. Thus it may be the case that supervisors or other persons involved in lower-level

management could be specified as the participants in some tiers while senior management (for

example the chief executive officer) may be the specified participants at other levels, supported

perhaps by lawyers.13

RATIONALE BEHIND MULTI TIER DISPUTE RESOLUTION CLAUSES

There are many positive reasons for adopting Multi Tier Dispute Resolution Clauses as a means

of trying to resolve civil disputes. However, it is probably true that initial enthusiasm for ADR

stemmed primarily from a negative source- dissatisfaction with delays, costs and inadequacies of

the litigation process, particularly in the United States where the ADR first developed.14

The reason, why multi tier dispute resolution clauses have become popular is the same as why

alternative forms of dispute resolution have become popular. The prime reason is cost and

efficiency. Court room litigation often stretches over long periods. Massive amounts of money

and resources are wasted and the end result, more often than not is hardly satisfactory.

Effective Means of Dispute Resolution with Reduced Costs

Arbitration emerged as an effective means of resolving disputes in 1923 after the establishment

of the Court of Arbitration of the International Chamber of Commerce in Paris, founded in 1923,

which played a major role in the promulgation of the Geneva Treaties and of the New York

Convention which has been at the forefront of the developments since. However, while

arbitration is generally regarded as an effective method of resolving major disputes in

international contracts, it is extremely costly. For this reason it is often thought of as a last resort

to be employed when all else fails.15

The major disadvantage of institutional arbitration is that it

may prove to be expensive.16

For instance, in case of arbitral proceedings held at ICC, the

institutional charges are calculated at an ad valorem basis.17

. Moreover, arbitration is a very

expensive process.

13 Pryles, supra note 3, at 159, 176 (2001). 14 KARL MACIE, ET AL., THE ADR PRACTICE GUIDE- COMMERCIAL DISPUTE RESOLUTION 3 (3rd ed. 2007). 15 Pryles, supra note 3, at 160. 16 HUNTER, supra note 5, ¶ 1-81 17 Id.

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Less Time Consuming

“The basic rule is that the longer the dispute runs, the higher the costs incurred and the lower

the profit retained by the successful party.”18

While arbitration in the late 1980s was seen as the

most viable alternative to litigation, it was soon realized that though arbitration is a faster means

to resolve disputes among parties, it is not fast enough. For instance, the ICSID arbitrations to

date have taken 1,325 days on average. That is 3.6 years, from the date the request for

arbitration is filed to the date of a final award. This figure does not factor in “cooling off”

periods before the formal commencement of proceedings, or the possibility of annulment

proceedings following an award. The longest decided case was The longest period from request

for arbitration to final award in any ICSID case is 10.5 years (3,839 days), which occurred in Pey

Casado v Chile.19

On the other hand, the average time for conducting an arbitration proceeding

at the London Court of International Arbitration is twelve to eighteen months.

Nature of Business and the Need to Maintain Cordial Relations

Another factor which induces parties towards the inclusion of multi tiered dispute resolution

clauses in contracts is the nature of international trade and business. The parties which enter into

contracts are often involved in multiple transactions and complex contractual relationship. Their

relationship is not just limited to one disputed contract. Therefore, by entering into long

courtroom litigation, they don’t want severe their relationship for good. Thus, it is essential that

the parties maintain their relations.

For instance, in the case of Apple v. Samsung20

, both the technology giants were disputing over

their design of tablets. However, despite long drawn litigation in UK Courts, Samsung continues

to manufacture screens for Apple I-Phones. Thus, the two companies share a relationship which

involves not just one dispute or one contract. There are multiple contracts that come into play at

the same time. Despite one conflict, the parties continue to honour their contractual obligations

in other fields.

18 A Sharvatt, Settlement- Maximizing your return, AN OCCASIONAL PAPER GIVEN TO A CONFERENCE SPONSORED BY SJ

BERWIN & CO. (1996). 19 Anthony Sinclair et al., ICSID arbitration: how long does it take? 4.5 GLOBAL ARB. REV. 2 (2001), available at

http://www.goldreserveinc.com/documents/ICSID%20arbitration%20%20How%20long%20does%20it%20take.pdf. 20 Samsung Electronics (UK) Limited & Anr. v. Apple Inc., High Court of Justice ,Chancery Division, HC 11C03050.

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Win- Win Situation for both the Parties

Multi tier dispute resolution affords an opportunity of reaching a solution wherein both parties

suffer some loss and in return gain some advantage. Thus, it leads to a "Win-Win situation",

with each side obtaining a favorable result. There is here, perhaps, an unconscious echo of the

Caucus race in which everyone "began running when they liked and left off when they liked, so

that it was not easy to know when the race was over" but at last the Dodo said: "Everybody has

won and all must have prizes".21

Therefore attempts are often made to resolve a dispute through amicable means before

approaching any formal means of dispute resolution. The questions that arises is that if attempts

to resolve a dispute are made, prior to resorting to arbitration, then why not specify the procedure

in the contract? This is precisely what a multi tier dispute resolution clause does. Having an

appropriate multi-tiered clause may often result in the resolution of the dispute by a specified and

relatively cheap and cost-effective procedure without the necessity of resorting to arbitration.

Ability to deal with Complex Disputes

Perhaps another reason for the employment of multi-tiered clauses lies in the great diversity of

possible disputes in complex contracts, particularly construction contracts of some duration.22

It

is an obvious fact that a dispute resolution clause inserted into a contract is designed to deal with

future disputes. These future disputes can be multifarious in nature. They can involve very

different issues and bear very different monetary values. In consequence a multi-tiered dispute

resolution procedure is likely to contain, in one tier or another, a procedure appropriate for a

particular dispute. For these reasons, and others, it seems that multi-tiered dispute resolution

clauses are increasing in popularity and use.

Confidentiality

Confidentiality is another advantage associated with multi tier dispute resolution clauses. The

proceedings of mediation are confidential. Contrastingly, litigation is in the public domain and

21 HUNTER, supra note 5, ¶1-53. 22 Pryles, supra note 3, at 162.

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arbitration may become public if there is an appeal. Confidentiality is an advantage as some

clients wish to keep their disputes from the public domain.

Flexibility

A multi tier dispute resolution clause is based on the principle of flexibility. Arbitration and

litigation are based upon the rights and obligations of the parties to the dispute. On the other

hand a mediated settlement focuses on the parties' interests and needs. The mediator encourages

the parties to search for a commercial solution which meets with both parties' needs.

Presence of Expertise

The arbitrator's expertise, as opposed to the judiciary's general lack of expertise in specialized

commercial matters, impacts directly on the predictability of the award as well as the efficacy of

arbitration.

Multi Tier dispute resolution clauses lead to a greater satisfaction among the disputed parties.

Many proponents of ADR argue that the ADR process in muti tier dispute resolution clauses and

the outcomes are more satisfying for the parties than a trial or arbitration. Apparently the

reaching of a settlement by consensus is viewed as producing high levels of satisfaction for the

parties. Research has suggested that high levels of satisfaction are not attained.23

However, a

mediated outcome is still more satisfactory than other forms of imposed decisions such as

litigation, arbitration or adjudication.

23 Nicholas Gould, Dispute Resolution in the Construction Industry: An Overview (Sept. 9, 2004) CONSTRUCTION LAW

SEMINAR: INTRODUCTION TO THE BASICS 2004.

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I I . E N F O R C E A B I L I T Y O F M U L T I - T I E R D I S P U T E

R E S O L U T I O N C L A U S E S

Questions have arisen as to whether a multi tier dispute resolution agreement of this sort

constitutes an “arbitration agreement” for purposes of international conventions or national

legislation. In virtually all jurisdictions, even where an agreement provides for arbitration only

after a lengthy process of other dispute resolution mechanisms, it still remains an arbitration

agreement. Arbitration delayed is not, so to speak, not arbitration.24

In Channel Tunnel group Ltd. v. Balfour Beatty Constructions Ltd, the House of Lords held,

“without undue difficulty,” that a clause providing for referral of disputes to three independent

experts, followed by an appeal to an arbitration tribunal, constituted an arbitration agreement for

purpose of English law.25

Decisions in other national courts have routinely treated clauses

involving less elaborate pre- arbitration procedures as valid and enforceable “arbitration

agreements.”26

Thus, the result of such treatment would render the same enforceability strength to an arbitration

agreement as would ordinarily be given to an arbitration agreement. An arbitration agreement is

enforceable in the Courts of law. A party therefore can be forced to arbitrate. Similarly, every

stage in a multi tier dispute resolution clause, whether mediation, arbitration, or negotiation, is

mandatory. It is enforceable in the Courts of Law. Thus, a party can be forced to mediate or

conciliate. Once parties have instituted a multi tier dispute resolution clause in their dispute

resolution mechanism, they are bound by it and have honour it. Furthermore, the order laid down

in the clause has to be complied with. Thus, the parties cannot directly initiate arbitration

proceedings where their dispute resolution clause first requires them to conciliate or refer their

dispute to expert determination. In any case, logically also, it makes little sense for a party to

apply for a mediation after it has exhausted the highest level of dispute resolution mechanism-

say arbitration or regular court proceedings.

24 BORN, supra note 4, at 242. 25 Channel Tunnel group Ltd. v. Balfour Beatty Constructions Ltd [1993] A.C. 334, 358 (House of Lords). 26 Westo Airconditioning Ltd. v. Sui Chong Constr. & Eng’g Co.[1998] 1 HKC 254, Guangdong Agri co. v. Congara

Int’l (Far East ) Ltd. [1993] ARB & DISPUTE RESOL. L. J. 100.

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In fact the case of Cable & Wireless plc v IBM United Kingdom Ltd was seen as a turning point,

as the Court there held that the multi-tiered clause identified a sufficiently certain procedure

(ADR as recommended by CEDR, i.e. mediation) so as to be enforceable. The Court considered

it clear what the parties were meant to do, as a minimum, to comply with the clause (they were to

co-operate in the appointment of a mediator under CEDR rules and attend the first meeting).27

Colman J was clearly influenced by the public policy interests in favour of ADR, explaining that

"the English courts should nowadays not be astute to accentuate uncertainty (and therefore

unenforceability) in the field of dispute resolution references".28

In some jurisdictions, however, the Courts have concluded that multi tier dispute resolution

clauses are not enforceable in the same fashion as “arbitration agreements” prior to the initiation

of arbitration.29

For instance, a US appellate court held that until the conditions precedent

prescribing mediation and subsequent notice of arbitration are fulfilled by the parties, an

arbitration clause as not been triggered and litigation may proceed in the interim.30

This is a

highly misconceived notion of pre arbitral procedures prescribed in a multi tier dispute resolution

clause. A multi tier dispute resolution clause, referring the parties to arbitration as the final step

of dispute resolution is meant to exclude the jurisdiction of national courts. The agreement to

arbitrate should include any associated steps necessary to trigger arbitration.31

It is highly

illogical to allow one of the parties to proceed to litigation in the interim period when the

escalation procedures are yet to be complied with.

Yet, there is a third view with respect to the treatment of multi tier dispute resolution clauses.

This view suggests that the pre- arbitration/ litigation procedures prescribed in an escalation

clause are not enforceable. Thus, the parties have the option of directly referring to the final

method of dispute adjudication (which is arbitration or litigation in most cases), without

27 Dorothy Murray, Down the waterfall: the benefits and pitfalls of multi-tiered dispute resolution clauses, SJBERWINLLP.COM (Aug.

8, 2013), http://www.sjberwin.com/insights/2013/08/08/Down-the-waterfall-the-benefits-and-pitfalls-of-multi-tiered-

dispute-resolution-clauses [Hereinafter Murray]. 28 Cable & Wireless plc v. IBM United Kingdom Ltd [2002] EWHC 2059 (COMM.). 29 BORN, supra note 4, at 242. 30 Kemiron Atantic, Inc. v. Aguakem Int’l, Inc., 290 F. 3d 1287, 1291 (11th Cir. 2002). 31 BORN, supra note 4, at 243.

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complying with the preliminary levels of a multi tier dispute resolution clause. For instance, in

Walford v. Miles [1992], it was held that an agreement to negotiate is not enforceable.32

More recently, in Sulamerica CIA Nacional De Seguros SA v. Enesa Engenharia SA33

[2012]

EWHC 42 (Comm), [2012] EWCA Civ 638 and Tang Chung Wah (aka Alan Tang) v Grant

Thornton International Limited and Ors34

, the Courts have reiterated and emphasized on the non

enforceability of the initial stages of escalation clauses.

In Sulamercia, the Court of Appeal held that the mediation clause in question was not

sufficiently clear and unequal to amount to a condition precedent on subsequent dispute

resolution steps. It did not unequivocally require parties to engage in mediation and there were

no clear provisions for the appointment of a mediator or the applicable process. Failure to engage

in mediation was therefore no bar to commencing arbitration.

In Grant Thornton, a dispute had arisen between Grant Thornton and minority partners in a

partnership that had previously been part of Grant Thornton’s international network. The judge

considered a clause that provided for: (1) the CEO to facilitate an "amicable

conciliation" process; (2) if that was not successful, for a panel of three board members to

facilitate another round of conciliation; (3) if that was not successful, either party could

commence arbitration. Although there was some discussion between the parties, the CEO

recused himself from involvement in the process (as being too closely involved with the matters

in dispute) and no panel was ever created. Instead, Grant Thornton commenced arbitration and a

debate ensued about whether the steps laid out in the agreement had been complied with and

whether arbitration could in fact be started if they had not.

The judge considered that the clause was not sufficiently certain to act as a condition precedent

to the commencement of arbitration, such that the Tribunal was correct when it held itself to

have jurisdiction to hear the dispute: there was no guidance about the form the conciliation

process should take, who was to be involved in it or what obligations the CEO and panel were

under to "resolve" the dispute. He held that it is not enough for the court to be able to extrapolate

32 Murray, supra note 27, at 10. 33 Sulamerica CIA Nacional De Seguros SA v. Enesa Engenharia SA [2012] EWHC 42 (Comm). 34 Tang Chung Wah (aka Alan Tang) v. Grant Thornton International Limited and Ors. [2012] EWHC 3198 (Ch).

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part of a clause that could be enforceable, for example as providing a minimum required to be

done under the clause: each part of the clause must be able to be given legal content and effect.

The result of all this judicial consideration is that multi-tiered clauses are, in essence, no different

from any other contractual provision, ie they must be sufficiently clear and certain before parties

are held strictly to them. There are no special rules, or standards, or exceptions. As Hildyard J

held in Grant Thornton: "The test is not whether a clause is a valid provision for a recognised

process of ADR in the multi tier dispute resolution clause; it is whether the obligations and/or

negative injunctions it imposes are sufficiently clear and certain to be given legal effect." Thus,

the third view making the ADR processes in a multi tier dispute resolution clause are conditioned

on the clarity of the clause. If the clause is clear enough, prescribing the means and method for

each level of an escalation clause, it is enforceable. On the other hand, ambiguity results in the

parties having the option of abandoning the various levels, and directly referring the dispute to

arbitration proceedings.

Therefore, the parties should make sure that the multi tier dispute resolution clause is fairly clear

and unambiguous. The clause should clearly lay down the mandatory nature of the initial stages

of the dispute resolution mechanism. Details such as who will be participating in the process, the

time duration involved, the applicable rules, preferred institutions etc. should all be ideally

mentioned. Since, a multi tier dispute resolution clause is a species of contracts, a clear, well laid

out procedure will receive greater recognition than a clause which is poorly drafted.

Another factor which the parties should take into consideration is how such clauses are treated

by the courts of the concerned jurisdiction. As discussed above, different jurisdictions have taken

different positions when it comes to the enforceability of multi tier dispute resolution clauses. It

is therefore advisable to subject the contract to the jurisdictions of courts of a country which

actively recognizes and enforces multi tier dispute resolution clauses.

Another major problem associated with the enforcement of multi tier dispute resolution clauses

revolves around the nature of ADR. Can alternate dispute resolution processes be actually and

truly enforced? The essential feature of mediation, negotiation or conciliation is that they are

solely dependent upon the will of the parties. If one of the parties does not want to negotiate,

there is little that anyone can do to make it negotiate. Even going by the first view, the Courts

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and Arbitral Tribunals might force the parties to negotiate before admitting their case, but

whether the parties will truly cooperate or not remains a moot point. The party may participate in

the escalation procedure not with the motive of reaching a favourable solution but only to

exhaust the pre arbitration requirements, so that it can proceed with more aggressive forms of

dispute resolution, such as litigation or arbitration. In such situations, escalation clauses lose their

motive and purpose, and there is little left in terms of the effectiveness of the multi tier dispute

resolution clauses.

However, this problem can be solved to certain extent. Most mediators are well aware of the

reluctant mindset that the parties approach the pre-arbitral processes with. With each session, an

experienced mediator or a third party will be able to break the barrier of communication between

the parties.

I I I : E N T E R T A I N M E N T C O N T R A C T S

The word entertainment is quite generic with it including industries like music, film, theatre, live

stage performances, videogames, sports, adult films, and casinos, among many other things.35

In

case of an entertainment product, there are a number of contracts that are entered into before the

final product is ready. For instance, let’s analyze the situation in case of film production. Here,

the producer will enter into a contract with a director, the actors, the musicians, the costume

designer etc. These in turn will have several contracts with specialized persons, such as the set

staff, the hairstylists, PR and Media Management companies and so on. All of these will come

under the ambit of entertainment law as they are contracts entered into for the creation and

distribution and broadcast of the entertainment product.36

An entertainment contract can be defined as a contract entered into by the various players of the

entertainment industry. Though there are different types of contracts within the entertainment

35 Entertainment is defined as something affording pleasure, diversion, or amusement. Source: www.dictionary.com.

With such a wide definition, all the above-mentioned industries will come under the ambit of entertainment. 36 Ananya Chandra et al., Entertainment Contracts, in LAW OF BUSINESS CONTRACTS IN INDIA, 229 (Sairam Bhat ed., Sage

Publications, 2009) [Hereinafter Entertainment Contracts].

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industry, many of them have certain clauses that are common among them and are unique to the

entertainment field. Almost invariably, entertainment contracts will have clauses pertaining to

intellectual property rights, restraint of trade and exclusivity, finances and payments, breach and

dispute resolution.37

Even though the industry now insists upon a written agreement,

entertainment contracts are very often oral.

TYPES OF DISPUTES IN ENTERTAINMENT CONTRACTS

Just like in any other contract, breach of terms of entertainment contract will have certain

consequences. However, what sets apart a breach of terms in entertainment contracts from a

breach in other contracts are first, what is considered to be a breach and second, what sort of

remedies is available for the breach.38

Copyright Infringement and Licensing Issues

Taking the film industry as the template, a complex web of negotiations and contractual relations

assist the producer in ensuring that the film project is not plagued by copyright claims from all

those who assist and/or participate in the production. The underlying works have to be secured,

either by assignment, license, or a release.39

Assignment of copyright is the industry practice,

except when published music is being used for a film, in which case it is more common for the

record company to give a non-exclusive license to the film producer.40

Timely Rendering of Services

Very often disputes in the Indian entertainment industry arise due to the non performance of

contract on time.41

In case of a contract between an actor/ musician and a producer, the contract

will specifically mentioning the starting and ending dates within which the actor/ musician will

be available for the timely competition of project. On the other hand, a script writer’s contract

with the producer will provide for timely delivery of the script. The entertainment contracts, as

mentioned above involve a series of interrelated contracts. Based on the contract with an actor/

director/ wcrpt writer, a producer has entered into several contracts for the management and

37 Id. 38 Entertainment Contracts, supra note 36, at 240. 39 Entertainment Contracts, supra note 36, at 232. 40 FILM BUSINESS: A HANDBOOK FOR PRODUCERS 98 (Tom Jeffrey ed., 1995). 41 Entertainment Contracts, supra note 36, at 241.

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production of the film etc. Untimely performance by one can often jeopardize the entire project

and lead to an ultimate failure of the project.

Exclusivity

Another point of dispute in the entertainment industry is with respect to exclusivity.

Entertainment contracts often provide for exclusive performance of the services within the

stipulate time period. For instance, it is common to find clauses in entertainment contracts

restraining the actor to work in another project within his duration of work with the producer, or

a term ensuring that the script writer does not use the script for any other project. Thus, a breach

of such clauses allowing for an exclusive rendering of services often leads to disputes.42

Payment of Remuneration

Non payment of remuneration is the most common cause of disputes in the Indian entertainment

Industry.43

Abroad, also this issue arises very often. For instance, the problem of non payment, or

incomplete/ partial payment of remuneration is very common in the American Entertainment

industry too.44

Thus, the problem of non payment of remuneration is universal, and is very

common in the entertainment industry.

DISPUTE RESOLUTION IN ENTERTAINMENT CONTRACTS

In the entertainment industry, litigation is uncommon and is generally reserved for the test

cases.45

It’s not that the entertainment industry is immune from litigation. But litigation in the

entertainment industry is generally criticized due to time consumed in this mode of dispute

resolution. Moreover, many disputes in the entertainment industry arise during the life of the

project. In order to litigate a dispute, parties must interrupt a project until a judgment is rendered,

a process which could take years. The time factor alone renders litigation an economically

infeasible option for many in the entertainment industry.

42 THOMAS D. SELZ ET AL., 2 ENTERTAINMENT LAW: LEGAL CONCEPTS AND BUSINESS PRACTICES ¶ 21.17 (2d ed.

1992). 43 Entertainment Contracts, supra note 36, at 241. 44 Veronique Bardach, A Proposal for the Entertainment Industry: The Use of Mediation as an Alternative to More Common Forms of

Dispute Resolution, 13 LOYOLA L.A. ENTERTAINMENT L. REV. 480 (1993) [Hereinafter Bardach]. 45 Id. at 478.

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Another concern with litigation is that it is exceedingly expensive. Attorneys' fees alone can be

crippling. In addition to attorneys' fees, a party has to pay court fees and other related court

expenses, as well as wage remuneration and travel expenses for witnesses, fees for expert

witnesses if needed, and expenses associated with the client's inability to continue working

during the period of the trial. Certainly, the typical struggling artist cannot afford these costs.

Moreover, the end result might not be satisfactory at all.

Thirdly, the need to maintain cordial relations is a very peculiar issue which needs to be

addressed in case of a dispute concerning the entertainment industry. Entertainment industry

runs, among other things, on a very particular set of specific skills attributed to different people.

So, for instance, it would be highly impractical for a producer to get into an ugly, sour dispute

with a very popular singer. From the business point of view, he might need to engage the service

of the singer aain in future. A nasty litigation will kill all such prospects in future.

Finally, litigation is a highly inflexible mechanism which does not easily adapt to the needs of

the entertainment industry. Judges rarely consider industry practices, and outcomes are

controlled by prior case law.46

Moreover, the relief granted is limited to a confined body of

predefined legal remedies.

Although arbitration continues to be a welcome alternative for someone faced with the exorbitant

costs and time required for litigation, it has recently been the subject of much criticism.

Originally, arbitration was expected to provide a quick, inexpensive and informal method of

resolving disputes. Examination of a typical arbitration proceeding, however, reveals that it is

has become increasingly expensive. The cost of arbitration generally includes arbitrator's fees,

travel expenses, attorneys' fees, wage payments for any witnesses, rental of a hearing room, and

payment to an organization for furnishing the arbitrators, a filing fee, and stenographic

transcription costs should the parties want to have a record of the hearing.47

As was mentioned above, despite its genesis as faster means of dispute resolution, arbitration has

become a lengthy process. Part of the reason for the extensive length is that arbitration involves

several prescribed stages, sometimes resembling a formal trial. There are numerous formal

46 Barry B. Langberg, Entertainment Industry Customs on Trial, L.A. L. REV. 19 (Apr. 1989). 47 Richard L. Feller, Let Me Count The Ways-Dispute Resolution in the Entertainment Industry, ENT. & SPORTS L. 1, 15 (Fall

1985).

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procedures that parties must follow both prior to and during the arbitration proceedings.48

In fact,

many of these procedures require the assistance of professional legal aid through advocates.

Parties submit briefs, make formal presentations of evidence, introduce witnesses, and make

opening and closing arguments.

For all the above mentioned reasons, the use of multi tier dispute resolution clauses has increased

immensely in the entertainment industry in the past decade.49

Multi- Tier Dispute Resolution

Clauses provide a unique solution to the peculiar problems associated with entertainment

contracts. As noted earlier50

, even though written contracts are insisted upon, most of them are

based on mutual trust of the parties; generally the contract does not get drafted until the project is

finished51

, indicating that written contract is not of much importance. Parties to an entertainment

contract would generally not result in the parties going to court for remedy as first, the process is

extremely long and second, given the fickle nature of the industry where anyone can become an

overnight star, nobody would want to get on bad terms with the people involved and third, given

the amount of money involved in the project, it is in no one’s interest to go to the court of law to

enforce remedies. Multi Tier Dispute resolution clauses cater to the above mentioned needs of

entertainment contracts more efficiently than any other means of dispute resolution.

MULTI TIER DISPUTE RESOLUTION- A UNIQUE SOLUTION TO THE PECULIAR PROBLEMS

First, Multi Tier Dispute Resolution Clauses involve informal methods of dispute resolution at

each stage. It involves a different process at each step, usually with each step being more formal

than the previous one. This basic nature of these clauses proves to be of immense help to the

entertainment industry. Disputes in the entertainment industry revolve around untimely

performance of service, non payment of dues etc. Such disputes can be better resolved through

the more informal processes such as conciliation, rather than directly moving to the formal

processes such as arbitration or litigation. If the less formal, amicable means do not lead to an

effective solution, the parties always have the option of moving to arbitration/ litigation as the

final step of the multi tier dispute resolution mechanism.

48 WJ. Usery, Jr., Some Attempts to Reduce Arbitration Costs and Delays, MONTHLY LAB. REV. 3 (Nov. 1972). 49 Bardach, supra note 33, at 477. 50 Page 10, ¶ 2. 51 Entertainment Contracts, supra note 36, at 264.

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Second, informal procedures such as conciliation, mediation, and negotiation are much cheaper

than directly pursuing arbitration or litigation. If there is a possibility of resolving a disputes

through a cheaper means, there is no reason to move to the courts or the expensive arbitral

tribunals for a solution. Thus, the parties can save huge expenses by pursuing the timed ladder of

multi tier dispute resolution clauses.

Third, they provide the option of confidentiality. Entertainment industry thrives on publicity.

Entertainment contracts are very often oral and based on mutual trust. Thus, market reputation

and goodwill are extremely important for various players of this industry of a multifarious

nature. Negative publicity can be detrimental to the parties and can cause more damage than the

dispute itself. The option of confidentiality ensures that conflicts stay out of public eye. Thus,

this method helps parties maintain their goodwill and reputation in the market.

Fourth, multi tier dispute resolution clauses allow parties to maintain cordial relations despite

disputing over certain issues. Since, the first step of a multi tier dispute resolution clause is

usually informal and amicable; it allows the parties to understand each other’s claims and

obligations more closely and affords them a chance to resolve their dispute through mutual

compromise. This allows the parties to work together in future. This is especially important in

the entertainment industry because the nature of industry is fickle. People want to maintain

cordial relation in anticipation of any changes which might take place in the future.

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I V : C O N S T R U C T I O N C O N T R A C T S

Construction changes, delays and claims are a major problem for pubic work agencies,

developers and facility managers- and for contractors and designers building their projects.

Delays and claims siphon off a significant portion of the available funds for construction, often

cost contractors and designers a significant portion of their anticipated profit, and sometimes

create a loss, or even destroy a contractor and the owner’s lifetime savings.52

All construction projects have two primary goals: First, to complete the construction project on

time and within budget. Secondary goals include having the general contractor and all

subcontractors make a profit and for the project owner to end up with the building, road, bridge,

tunnel, etc. that is built to specifications that will function as it was designed to do.

The construction Industry is a fertile breeding ground for disputes; they cannot be avoided

entirely and it would be foolish to suggest that they could. No matter how well a project is

designated, or constructed, and no matter how efficiently it is managed, it is always open to a

party to a contract to seek to establish a right, or a liability which the other party is not prepared

to recognize, or accept.53

That is the genesis of dispute. Whether a compromise is negotiated,

whether it settles as a result of some informal procedure, or it proceeds through an enforceable

decision of an adjudicator, judge, or arbitrator depends upon many factors.

However, it is pertinent to note that disputes arising out of construction contracts seldom go to

the Court. In fact, arbitration has been the traditional means of resolving disputes in case of

construction contracts disputes. But the introduction of a range of ADR methods has given

popularity to the use of multi tier dispute resolution clauses in the dispute resolution mechanism

52 S. S. Pinnell, Survey of the Scheduling Practices and Results Risk and the Best Practices in Scheduling, an occasional paper given to

the PMI COLLEGE OF SCHEDULING 2 (May 2005). 53 KEITH PICKANACE, DELAY AND DISRUPTION IN CONSTRUCTION CONTRACTS 1271 (4TH ED. 2010).

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of construction industry. It is now common to find multi-tiered dispute resolution clauses

particularly in complex construction contracts.54

NATURE OF DISPUTES IN THE CONSTRUCTION CONTRACTS

Vast sums of money are spent daily in building and civil engineering disputes, evaluating before

a court, arbitrator, or adjudicator the effect of fine distinctions between written words, two

dimensional drawings and three dimensional site conditions.

Inherent Risks in Construction Contracts

Change in Political Climate

Dispute risk is the risk that both parties carry that the contract will end up in a dispute and that

one, or the other will suffer an unfavorable outcome.55

Contracting for construction services is an

inherently risky venture for the owner, design agent and contractor.56

A construction contract is

drafted on the possibility of risks. There are multiple factors which may arise once a construction

project has begun: Change in political climate and subsequent community activism therein etc.

For instance, in Orissa, Vedanta planned to open an aluminum refinery, investing US$2.1 billion,

and simultaneously expand an existing one, investing another US$ 700 million in the Lanjigarh

area.57

However, due to strong opposition by the local residents and a change in the political

climate of the country, the project was ultimately stopped by the Indian Environment Ministry in

2010.

Delay and Disruption

Other factors include delay and disruption. Delays are a very common in the construction

industry. This may be caused by unforeseen strikes, delay in delivery of raw materials, act of

God, governmental acts etc. For instance, in August 2013, the public was informed that the

54 Pryles, supra note 3, at 160 (2001). 55 KEITH PICKNACE, supra note 53, at 47. 56 JOSEPH C. LAVIGNE, CONSTRUCTION CONTRACT CLAIMS AND METHODS OF AVOIDING CONTRACT LITIGATION

THROUGH DISPUTE RESOLUTION ALTERNATIVES, A Report Presented To The Graduate Committee Of The

Department Of Civil Engineering In Partial Fulfillment Of The Requirements For The Degree Of Master Of Science

University Of Florida 10 (Summer 1993). 57 Vedanta Resources- Mines in Orissa, CDCA.COM, http://www.cdca.it/spip.php?article1694&lang=it.

http://www.cdca.it/spip.php?article1694&lang=it

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commissioning of the Mumbai Metro-I (Versova to Azad Nagar stretch) project will be

operational from December, instead of September.58

Other Factors

There are various other factors which may cause disputes in construction contracts. These

include, inadequate funding, cost escalation, overlapping insurance coverage, etc.

Frequency of Disputes

Construction contracts do not involve one single contract. They often involve a multitude of

contracts, engaging the owner with the main contractor, the contractor with the sub contractor.

The sub contractor in turn has sub subcontractors. They also include contracts with architects and

engineers. Moreover, construction projects are usually long term. Thus, when so many parties

are working for the completition of one project stretched over years, disputes are bound to arise.

They may arise frequently, engaging different parties. If the resolution of such disputes is

managed through expensive and long drawn processes, then there is high likelihood that the

project will never be competed.

Reliance on different facts

This problem is very peculiar to the construction industry. The parties do not have the same

facts. In fact the facts often seem to get progressively more distorted as the costs escalate.59

Thus, a major obstacle in dispute resolution of construction industries arises due to the difference

in facts of both parties. This is also the reason, why going to Courts was never a popular option

in the construction industry. The rigid and inflexible mechanism of court room dispute resolution

can hardly cater to the complex needs of construction contracts.

Parties Do Not Have the Same Law

This is the main reason why litigation was never an option for parties entangled in a construction

dispute. Often, parties belong to different countries. In such a scenario, Arbitration seemed to be

58 Mumbai Metro project commissioning further delayed, BUSINESS STANDARD (Aug. 15, 2013), http://www.business-

standard.com/article/economy-policy/mumbai-metro-project-commissioning-further-delayed-113081300900_1.html. 59 KEITH PICKNACE, supra note 53, at 1270.

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the most viable option. However, as has been mentioned above, arbitration now has become

largely expensive and time consuming. Thus, the industry has seen a major shift towards ADR.

DISPUTE RESOLUTION IN CONSTRUCTION CONTRACTS- WHY MULTI TIER DISPUTE

RESOLUTION CLAUSES ARE BEST SUITED

One of the main reasons for the wide applicability of multi tier dispute resolution clauses in

construction contracts is the frequency with which disputes arise in the construction industry. On

larger construction projects, it is virtually impossible for the entire project to be completed

without any disputes developing between the General Contractor and the Project Owner,

between the General Contractor and Subcontractors, between the Subcontractors and Sub-

subcontractors, between the General Contractors or Sub Subcontractors and a major supplier or

service provider and so on between all of the parties working on the construction project

including the architects and designers.60

If the parties decide to run a full arbitral proceeding, or

to approach the Court every time a dispute arises, construction contracts will seldom be

completed. This is where Multi Tier Dispute Resolution clauses come into the picture. They

allow parties to resolve such frequently occurring disputes quickly and at low costs. If a dispute

has the potential of being resolved through a more informal and less expensive process, then it

would be illogical to the drag the dispute to an arbitral tribunal. Escalation clauses provide a

structured mechanism to reach settlement catering to the high frequency of disputes which arise

in a construction contract.

Second, delays and disruptions are so common in construction contracts that it would be

impractical to refer a dispute to arbitration every time there is a delay in the project. At the end of

the day, practicalities of cost and time have to be accounted for. This is where an escalation

project becomes very essential.

Third, negotiation and conciliation are more amicable methods of dispute resolution. For parties

from different countries, which are subjects of distinct laws, beginning the dispute resolution

through the less aggressive means affords them an opportunity to understand each other’s

60 Peter G. Merrill, Expanded Dispute Review Boards and Construction Settlement Panels May Revolutionize the Construction Industry

Dispute Resolution Process, INTERNATIONAL FOCUS, ACR COMMERCIAL SECTION 1 (January 2010), available at

www.mediate.com/acrcommercial.

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position and reach a compromise accordingly. An aggressive arbitration proceeding might be

rendered useless, if the parties are too rigid to understand each other’s position. The first few

stages of an escalation clause provide the parties with a chance of looking at the big picture

rather than focusing only on their respective aims and motives.

C O N C L U S I O N

The challenge that faces the international business community at the moment is to find faster,

better and less expensive ways in which to solve disputes arising out of commercial contracts.

This does not mean excluding the usual dispute resolution mechanisms such as litigation and

arbitration, but rather supplementing these with some of the other alternatives. Those involved

with resolving commercial disputes are therefore increasingly looking to alternative dispute

resolution or ADR as a prerequisite to arbitration or litigation. This approach has given birth to

multi tier dispute resolution clauses or escalation clauses.

Differing approaches are used by the various countries to deal with the problem of the

enforceability (or lack thereof) of the ADR component of Multi Tier Dispute Resolution clauses.

From treating a conciliation clause as a substantive contractual term to regarding it as a

procedural requirement precedent to litigation, each country tries to deal with it in its own

manner. Therefore, while including a multi tier dispute resolution clause in their contract, the

parties should be aware of the approach towards enforceability that will be adopted by the courts

of the country under whose jurisdiction the case will fall. This is particularly important in case of

construction contracts, which are very often transnational in nature.

Thus, multi tier dispute resolution clauses provide a contemporary mechanism for dealing with a

wide range of disputes. As discussed in the project, the advantages of using escalation clauses

are immense. However, the one major challenge to their popularity remains. This challenge is

with respect to the enforceability of multi tier dispute resolution clauses. This challenge can be

countered effectively through unambiguous, well drafted multi tier dispute resolution clauses.

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