How can you create a dispute resolution clause in a contract?

1 Choose a dispute resolution method

The first step in creating a dispute resolution clause is to decide what method of dispute resolution you and the other party prefer. There are three main types of dispute resolution methods: litigation, arbitration, and mediation. Litigation is the process of taking a dispute to court, where a judge or a jury will decide the outcome. Arbitration is the process of submitting a dispute to a neutral third-party arbitrator, who will make a binding or non-binding decision. Mediation is the process of engaging a neutral third-party mediator, who will facilitate a dialogue and help the parties reach a voluntary settlement.

2 Define the scope and procedure

The second step in creating a dispute resolution clause is to define the scope and procedure of the chosen method. The scope refers to what types of disputes are covered by the clause, and what types are excluded. For example, you may want to exclude disputes that involve intellectual property rights, confidentiality, or injunctive relief. The procedure refers to how the dispute resolution process will be conducted, such as the location, language, rules, timeline, and costs. For example, you may want to specify the arbitration institution, the number and qualifications of the arbitrators, the discovery and evidence rules, and the allocation of fees and expenses.

3 Consider the enforceability and finality

The third step in creating a dispute resolution clause is to consider the enforceability and finality of the chosen method. The enforceability refers to how easy or difficult it is to enforce the outcome of the dispute resolution process in different jurisdictions. For example, arbitration awards are generally easier to enforce than court judgments, especially across borders, because of international treaties and conventions. The finality refers to how much or little room there is for appealing or challenging the outcome of the dispute resolution process. For example, arbitration awards are generally more final than court judgments, because there are limited grounds for appeal or annulment.

4 Incorporate flexibility and fairness

The fourth step in creating a dispute resolution clause is to incorporate flexibility and fairness in the chosen method. Flexibility means that the parties have some control and choice over the dispute resolution process, such as the ability to negotiate, modify, or terminate the clause. Fairness means that the parties have equal and reasonable access and opportunity to present their case, such as the right to representation, confidentiality, and impartiality. For example, you may want to include a clause that allows the parties to opt for mediation before arbitration, or to waive arbitration in favor of litigation in certain circumstances.

5 Use clear and consistent language

The fifth step in creating a dispute resolution clause is to use clear and consistent language in drafting the clause. Clear language means that the clause is concise, precise, and unambiguous, so that the parties and the dispute resolution provider can understand and apply it without confusion or dispute. Consistent language means that the clause is compatible and coherent with the rest of the contract, and does not contradict or conflict with any other provisions. For example, you may want to avoid using vague terms, such as "reasonable", "best efforts", or "material", and use defined terms, such as "dispute", "party", or "arbitrator".

6 Seek legal advice and review

The sixth step in creating a dispute resolution clause is to seek legal advice and review before finalizing and signing the contract. Legal advice means that you consult with a qualified lawyer who has expertise and experience in contract law and dispute resolution, and who can advise you on the legal implications and risks of the chosen method. Review means that you carefully read and understand the clause and the contract, and that you check for any errors, omissions, or inconsistencies. For example, you may want to ask your lawyer to draft or review the clause, and to explain any terms or conditions that you are not sure about.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?