Dispute resolution clauses are usually negotiated last and read first. A handful of drafting choices determine whether the clause helps or hinders once a disagreement is live.
Dispute resolution provisions are commonly negotiated in the final hours of a transaction, when attention has moved elsewhere. They are then the first provisions read when a disagreement emerges, sometimes years later, in circumstances nobody contemplated.
Seat, and why it is not the venue
The seat of arbitration determines the supervisory jurisdiction: which courts may grant interim relief, hear a challenge to an award and supervise the process. The venue is simply where hearings are convened. Clauses that conflate the two, or that name a city without specifying whether it is the seat, generate preliminary disputes that consume months before the substantive claim is examined.
Institution or ad hoc
Institutional arbitration adds a layer of administration and fees, and in exchange provides an appointment mechanism, a fee schedule and a procedural framework that operates without party cooperation. Ad hoc arbitration is cheaper when parties cooperate and considerably more expensive when they do not, because every procedural gap must then be filled by the tribunal or a court.
Tribunal composition
A three-member tribunal is the default assumption in many negotiations, but the cost is substantial and is often disproportionate to the value of the disputes the contract is likely to generate. A sole arbitrator for claims below an agreed threshold, with a three-member tribunal above it, is frequently a better fit than either default.
- State whether the clause covers claims arising out of and in connection with the agreement, or only the former.
- Specify the language of the proceedings where the parties do not share a first language.
- Address consolidation where a transaction involves multiple related agreements.
- Consider whether emergency or interim relief from the tribunal is available and adequate.
Escalation that does not become an obstacle
Multi-tier clauses requiring negotiation or mediation before arbitration serve a real commercial purpose. They cause difficulty when drafted as mandatory conditions without objective completion criteria. A tier that must be exhausted, but cannot be shown to have been exhausted, becomes a jurisdictional argument rather than a settlement opportunity. Fixed periods, running from a written notice, avoid this.
A dispute resolution clause is drafted for the moment the relationship has already broken down. It should assume no cooperation.
This article sets out general drafting considerations and is not legal advice. Clauses should be prepared with reference to the specific commercial relationship and the governing law of the contract.
