- 30 Jan 2025
- •
- 4 min read
Ask the Litigator: What dispute resolution clause is best for my contract?

When negotiating commercial contracts, we all hope that disputes don’t arise. However, if they do, having clear resolution methods outlined in the contract can help to minimise the risks, costs and time associated with resolving them. Depending on the nature of the contract, the parties involved, and their geographical location, different dispute resolution mechanisms may be incorporated into contracts. But how do you decide which option is best?
Negotiation Clauses
Negotiation is often the first step in resolving disputes before they escalate to more formal procedures. A ‘negotiation clause’ typically requires the parties to attempt to resolve their disagreements through informal discussions. This clause may specify the timeframe within which the parties must engage in negotiations (e.g. 30 days from the date of the dispute) and often includes a requirement that senior representatives of both parties participate in the discussions.
Negotiation clauses can be mandatory and require both parties to negotiate in good faith before pursuing any other dispute resolution process, or non-mandatory, allowing parties to proceed with other resolution mechanisms if negotiation does not result in a satisfactory outcome.
Negotiations are cost-effective, efficient and aim to protect ongoing business relationships. However, they are often non-binding unless explicitly stated, and in most cases, parties would attempt informal discussions before escalating a dispute even without it being required in a contract.
Mediation Clauses
Mediation is a more structured process than negotiation but still falls under the category of alternative dispute resolution (ADR). In mediation, an impartial third-party mediator facilitates communication between the disputing parties to help them reach a mutually acceptable settlement. Mediation clauses often specify the mediator’s qualifications, the location of mediation and the timeframe within which the process should be completed.
Advantages of mediation include:
- Confidentiality: Mediation is typically a private process, which can protect sensitive business information.
- Preservation of Relationships: Mediation’s collaborative approach often helps preserve business relationships, making it a less adversarial method.
- Cost and Time Efficiency: Mediation is generally quicker and less expensive than litigation or arbitration.
Arbitration Clauses
Arbitration is another common ADR method, in which a neutral third party (the arbitrator) makes a binding decision after considering the evidence and arguments presented by the disputing parties. Arbitration clauses are particularly popular in international contracts due to the neutrality of arbitrators and the international enforceability of arbitration awards.
Arbitration clauses can vary greatly in terms of the specifics, but generally they will include:
- The rules governing the arbitration (e.g. International Chamber of Commerce (ICC) or London Court of International Arbitration (LCIA)).
- The location or “seat”, where arbitration will occur.
- The number of arbitrators (typically one or three).
- The language to be used during the arbitration.
- Whether the arbitration is to be conducted in person or remotely.
Arbitration is often preferred for:
- Finality: Arbitration awards are generally not subject to appeal, providing closure to disputes.
- Expertise: Arbitrators often have specialised knowledge in the area of the dispute.
- Enforceability: Arbitration awards are easier to enforce across jurisdictions than court judgments.
Litigation Clauses
In contrast to ADR methods, litigation involves resolving disputes through the court system. While not as frequently included as ADR clauses in international contracts, litigation clauses can specify the courts that have jurisdiction to hear disputes arising under the contract, as well as the governing law.
A litigation clause typically addresses:
- Jurisdiction: Specifies which country will handle disputes.
- Venue: Identifies the specific court or location where the case will be heard.
- Governing Law: Determines which legal system governs the contract terms and the resolution of disputes.
Litigation clauses are often used when the parties prefer to resolve their disputes through the judicial system. However, litigation can be time-consuming, costly and less flexible than ADR. Additionally, its adversarial nature may harm business relationships, as the process often leads to a winner-takes-all outcome.
Expert Determination Clauses
In certain types of contracts, particularly those involving technical issues, expert determination clauses are often used. In this process, an independent expert is appointed to assess the dispute and issue a decision based on their expertise.
Expert determination is commonly used in:
- Valuation Disputes: For example, in the sale or purchase of shares or assets.
- Technical or Scientific Disputes: Where specialised knowledge is crucial to resolving the issue in dispute.
Unlike arbitration, expert determination focuses specifically on the technical aspects of the dispute and the expert’s decision is typically binding if the contract stipulates this.
Hybrid Clauses
In some cases, contracts include hybrid resolution clauses, which combine two or more forms of dispute resolution. For instance, a contract might require the parties to engage in negotiation or mediation first, followed by arbitration if the dispute is not resolved. These clauses are designed to provide flexibility and allow the parties to attempt resolution through the least adversarial and most cost-effective method first before escalating to more formal processes.
Examples of hybrid clauses include:
- Negotiation -> Mediation -> Arbitration.
- Mediation -> Litigation.
- Arbitration -> Appeal Panel (for a second-tier review).
Hybrid clauses can be tailored to suit the specific needs of the contracting parties, offering a layered approach to dispute resolution.
Which to choose?
Understanding the various options available can help parties make informed decisions and tailor their dispute resolution mechanisms to the specific needs of their business arrangements, but there are no hard and fast rules as to what option to use when. Ultimately, deciding upon a dispute resolution method should include consideration of the nature of the contract, the parties’ relationship, time, cost, and enforceability and then a well drafted resolution clause should create a framework for resolving conflicts predictably and with less disruption.

Disclaimer
This information is intended for general informational purposes only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0800 2800 421.