THE ROLE OF DISPUTE RESOLUTION CLAUSES IN COMMERCIAL CONTRACTS

Understanding Dispute Resolution Clauses

When it comes to commercial agreements, the inclusion of a dispute resolution clause is key. This clause serves as a predefined mechanism for resolving conflicts that may arise between contracting parties, saving time and resources by avoiding lengthy and costly litigation. It outlines the process to be followed if there's a disagreement, striving to have parties handle disputes amicably, collaboratively and where possible, out of court.

Including a dispute resolution clause in your agreement also brings predictability to the resolution process. By agreeing on a specific method of dispute resolution, such as arbitration or mediation, parties can anticipate the steps to take when conflicts arise.

Types of Dispute Resolution

Mediation

This is a non-binding process where a neutral third party, the mediator, assists the disputing parties in reaching a mutually acceptable agreement. Mediation is seen as collaborative and is usually the first step in dispute resolution.

Arbitration

In arbitration, a neutral arbitrator is selected by the parties. The arbitrator's decisions are binding on the parties. Arbitration is more formal than mediation and could be faster and less costly than court proceedings.

Litigation

This is often considered a last resort. Usually, the dispute resolution clause would specify that if other methods fail, the matter will be settled in court.

Drafting an Effective Dispute Resolution Clause

A dispute resolution clause should be clear and precise. The clause should incorporate a step-by-step approach, beginning with negotiation or mediation and escalating to arbitration or litigation if necessary. There should be the selection criteria for mediators or arbitrators and the location where proceedings will occur.

Summary

A well-drafted dispute resolution clause is critical to commercial agreements. It provides a structured mechanism for conflict resolution, helps preserve business relationships and reduces dispute-related costs.

- Jumi Odepe, LL.B., LL.M., B.L., Lawyer and Principal

Jumi Odepe is the Principal lawyer at Jode Law. She represents clients in Corporate, Commercial and Business Law Transactions including mergers and acquisitions, corporate restructuring, and corporate financing. Jumi also represents clients in Immigration Law and Estate Law matters.

The articles published by Jode Law are intended as general information only and do not serve as legal advice. By reading, the reader understands there is no solicitor-client relationship established. If you have a legal question, consult a lawyer.