Settlement of Disputes

Including a dispute resolution clause in commercial contracts is a common practice. So, let’s take a look at what it usually takes to settle a dispute & which ADR methods parties can make use of.

Settling a Financial Dispute

Including a dispute resolution clause enables to facilitate resolution of a dispute at early stages by getting parties to discuss a mutually acceptable solution before initiating litigation. It also helps resolve a dispute before things get out of control & prevent relationships from breaking down (which is usually the case when legal proceedings are initiated). However, it should be remembered that clauses like these don’t work for each & every dispute & must, therefore, be tailored to each specific agreement.

Settling a Dispute Through Mediation

Including a dispute resolution clause may help parties avoid high costs connected to early stages of mediation. However, mediation may be ineffective when a dispute has reached a particularly acute stage or when parties are resolutely opposed to negotiating or settling a dispute. In such a case, costs connected to early mediation will simply become inevitable for each party to a dispute.

When it comes to contracts in which contested amounts may be too high, bringing down the cost of mediation at early stages can make a big difference. Even if parties aren’t willing to engage in mediation, it may still be a viable solution, provided that both of them are seeking to settle a dispute by mediation. By way of mediation they can clarify their positions & reach a settlement without incurring substantial expenses. However, when it comes to contracts involving large amounts of money, mediation- and litigation-related costs may increase risks connected to defending or considering a claim.

Such costs can also demotivate a counterparty to defend a claim. Sometimes, parties can try to make compliance with a dispute resolution clause too expensive and thus discourage a counterparty from filing a lawsuit.

Resolving Disputes by Arbitration & Litigation

Frequently, dispute resolution clauses are linked to jurisdiction ones, especially when it comes to arbitration. Therefore, considering the appropriateness of choosing litigation, arbitration or any other ADR method is very important. For instance, peer review may prove particularly useful when it comes to disputes centering around specific subjects.

As far as arbitration is concerned, particular attention should be paid to the question of arbitration-related costs are proportionate to contested amounts. Should a dispute involve very large amounts, then putting together a tribunal comprising senior arbitrators can make a major difference. However, if a contested amount isn’t that high, hiring arbitrators may prove to be prohibitively expensive; hence, other options should be considered. The question of whether arbitration can be instrumental in enforcing a judgment in another jurisdiction & whether it can have any relevance in a situation involving a dispute resolution should also be given proper consideration.

Conclusion

The majority of settlement methods are relatively simple & require parties to bear only dispute-related costs. However, if the jurisdictions in which parties are based are different, things can get more complicated. Therefore, prior to adding dispute resolution clauses, parties must ensure that it’s tailored to a specific situation.