Arbitration & ADR, Insights

Is the Requirement of a “Cooling-Off” Period in Arbitration a Procedural Matter or a Strict Jurisdictional Issue?

Given the global economic realities, resolution of disputes has become a necessary aspect of commercial negotiations by parties. The outcome of these negotiations would usually culminate in the parties agreeing on the modalities for resolution of their disputes which will inform the fine print of the relevant dispute resolution provisions in their agreement. However, within the context of international arbitration, the provisions on dispute resolution are usually found in instruments of consent such as International Investment Agreements (IIA’s) which have adopted arbitration as the preferred dispute resolution mechanism.

Often, embedded in the arbitration clauses of these IIA’s is a requirement for parties to engage in preliminary negotiations to resolve the dispute, failure of which necessitates and indeed precedes the commencement of formal rites of dispute resolution, either arbitration or litigation. These preliminaries may include formal demand/request to remedy a perceived wrong and giving time within such demand should be complied with. These important protocols may be contained in the parties’ underlying contract or dispute resolution clause. The time limit given by the victim of wrong or as specified in the contract for possible negotiation and amicable settlement prior to filing a claim is referred to as the “cooling-off period”.

The concept has over time found its way into various industries and business practices and is now prescribed by various statutes. It has metastasized since its inception, which is relatively unknown. This concept that must be contextually identified in the civil and arbitral processes across many jurisdictions has varying degrees of consequences for non-compliance.

The cooling-off period is akin to a moratorium which is commonly used in the banking industry. A moratorium is a temporary suspension of an activity or law until future consideration warrants lifting the suspension, such as when the issues that led to the moratorium have been resolved. A moratorium may be imposed by a government, regulators, or business.

This article aims to examine the significance of observing the cooling-off period within the context of international arbitration and litigation-based civil processes…

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