An insider’s guide to dispute resolution clauses (DRCs) – your questions answered

Dispute resolution clauses play a critical role in protecting an organisation’s interests. As part of our In-House with You monthly Q&A series, Partners from our Dispute Resolution and Commercial teams covered how to ensure contractual negotiations are equipped with effective and tailored dispute resolution clauses. The slides can be accessed here.

Elizabeth Beatty and Robert Capper answer some of your key questions below:

Can you provide different dispute resolution methods for different disputes?

It’s a good idea to consider what could go wrong when entering into a contract and what would be the most effective to achieve a resolution. In addition to a contractual obligation for the parties to negotiate there are various forms of alternative dispute resolution (ADR) mechanisms that should be considered when drafting contracts.

Arbitration or litigation should generally be the last resort; other less combative and cheaper options may be appropriate. For example, if there is a dispute concerning the technical functionality of a product then a binding expert determination would be a sensible mechanism provide a fast resolution. Alternatively, parties may prefer mediation to achieve a creative commercial settlement that preserves their ongoing commercial relationship.

Are the parties bound to follow all steps of the agreed resolution process?

Generally – yes. Where you have an express clause – you can enforce it. For instance, where there is an agreement to go to arbitration but the other party has instead gone to court ‘because it’s quicker’, you can challenge the jurisdiction of the court and request the claim be stayed as there’s an arbitration agreement in place. If people ignore contractual provisions, you do have options.

If the party refuses to mediate, can you go to court/arbitration?

Some parties can be so entrenched that mediation is not a viable option at the outset, or at all. If the parties agree, you can waive the obligation to mediate but if a party refuses to comply with a contractual obligation to mediate, then you can go to court/arbitration and raise the refusal to comply with the DRC when the issue of costs is addressed.

What are the considerations in international contracts?

The key is to understand which law, which jurisdiction and forum and get that local advice on the ground. Dealing with disputes in foreign jurisdictions can be problematic and add additional layers of expense.

Where and how can we enforce any decision made by the court/arbitrator or expert? Understanding this before entering into contract may prove invaluable at a later date.

It is also worthwhile spending time thinking about what is required to enforce the agreement and where the assets are.

One party is refusing to engage in any discussion on dispute resolution clauses – what should I do?

It should raise alarm bells if they will not have a sensible discussion about how to resolve problems before they arise. Afterall, it should benefit both parties to have clarity on the DRC mechanism. Carry out due diligence to understand their drivers and hit the issue head on. It may be something simple like timescales for the escalation procedure in the DRC, or the personnel to be involved – both can be easily resolved. If they will not be transparent with you on their reasons for refusal, give serious consideration as to whether you should enter into the contract – their conduct may set the tone for the future relationship.

Binding vs non-binding ADR?

No one size fits all – there are various factors to consider such as the nature of the disputes that may arise. It’s possible to have different forms of ADR in a DRC for specific types of dispute.

For example, a dispute where issues of fact involving multiple witnesses need to be addressed is more suitable for mediation, a non-binding form of ADR, whereas a binding form of ADR such as expert determination would be appropriate to swiftly resolve a discreet technical issue which doesn’t involve a fact-finding exercise.