Commercial dispute resolution

Parties are usually free to vary the terms of a contract during its term and can jointly decide on a different method of dispute resolution. However, by the time decisions are made, the relationship may already be damaged and meaningful communication may not be possible. It is important to consider what laws and procedures should apply when drafting a contract.

Factors such as time, relationships, enforceability, sensitivity and cost must all be considered in deciding which dispute resolution method to use. Parties may choose one or more dispute resolution methods in a hierarchy (for example, the parties will submit to mediation before arbitration or litigation). 

Businesses that sell to many customers may require that arbitration is used for contractual disputes. This is to ensure that the grounds of dispute, and the terms of the settlement, are kept confidential.

A business may prefer to mediate a contractual dispute with a client to seek a resolution to a particular dispute without damaging the overall relationship with that client.

A considered and comprehensive dispute resolution clause will be set out in the body of the contract itself, and will typically feature:

• Dispute resolution method and hierarchy - if not resolved directly between the parties, then the dispute resolution methods to be followed and the hierarchy between those dispute resolution methods, if applicable - for example, mediation followed by arbitration or litigation.
• Governing law (whether housed in the same or separate clause) - the law governing the contract - for example, the laws of Northern Ireland or of England and Wales (based on convenience, a litigant will typically want home law and courts apply to a dispute).
• Procedure - the procedure for invoking any one or more of the chosen dispute resolution methods - for example, by written notice.
• Rules - the rules governing any one or more of the chosen dispute resolution methods - for example, one mediator, sitting in Belfast and following the rules and procedures of the mediation service offered by Mediators NI Dispute Resolution Service.
• Parties may also specify the language to be used in proceedings.

Contract clause examples

Below are some examples of clauses that can be used in commercial contracts determining the dispute resolution method to be used:

• Mediation - If any dispute arises out of, or in connection with, this contract, the parties agree to enter mediation in good faith to settle such dispute and will do so following the rules and procedures of the mediation service offered by Mediators NI Dispute Resolution Service.
• Arbitration - This contract is governed by the laws of Northern Ireland. Any dispute arising from it will be settled by arbitration following the UNCITRAL Arbitration Rules. There shall be three arbitrators. The place of the arbitration will be in Belfast, Northern Ireland, and the language to be used in the arbitration proceedings shall be English.
• Adjudication - If a dispute or difference arises under this contract which either party wishes to refer to adjudication, the agreed adjudication scheme shall apply, under which the adjudicator shall be an individual with appropriate expertise and experience in the specialist area or discipline relevant to the instruction or issue in dispute.
• Litigation (Northern Ireland laws and courts) - This contract is governed by and shall be construed following the laws of Northern Ireland and any litigation arising from it will be conducted under the exclusive jurisdiction of the courts of Northern Ireland.