Drafting Dispute Resolution Clauses in Commercial Contracts: Forum, Venue, Parties, and More

Dispute resolution clauses are often relegated to the end of contractual negotiations or are dismissed as "boilerplate" language that's pulled from the internet or an old document--and the clause is recycled again and again without thought to the context of the transaction or contract. However, these clauses can have profound implications for how any dispute is resolved and the contractual rights and obligations enforced. Because these dispute resolution strategies are usually voluntary, planning ahead and agreeing to a contingency plan in the event of a dispute is the best way to ensure that these techniques are used in place of costly and time-consuming litigation. Also, when the background of a deal is technical, and when the deal involves two or more parties from different countries, the dispute resolution clause becomes immensely important if a dispute arises down the line.

A dispute resolution clause may cover both contractual disputes (e.g. a difference of opinion as to the meaning and effect of a particular contract clause) and non-contractual disputes (e.g. where party A alleges party B was negligent in its performance of the contract). The most common types of dispute resolution are mediation and arbitration, but these processes are flexible and have several variations. Parties may also specify their own process in the agreement, which may be outside traditional methods.

The dispute resolution clause should be clearly drafted and unambiguous. Also, counsel should carefully select the forum and venue and specifically define the parties subject to the dispute resolution process.

Listen as our authoritative panel reviews standard dispute resolution provisions and discusses best practices for avoiding pitfalls by drafting individualized clauses to suit the particular circumstances of the transaction.