When negotiating a commercial contract you should carefully consider the provisions setting out the process to be adopted should a dispute arise between the parties. The three most commonly adopted options are litigation, arbitration and mediation.
Litigation is the traditional method of resolving disputes through the Courts and results in a Court judgment. It follows a strict framework of rules, procedures and time frames. The process can be expensive and time consuming depending upon the location of the Court. Sometimes, a Court judgment from one country is not recognised in another. For contracts involving parties located in different countries, careful consideration should be given as to whether any judgment of the chosen Court can actually be enforced.
Arbitration is a process of dispute resolution outside of the Courts where a decision is made by an “arbitrator” appointed by the parties. It can be particularly attractive if your contract involves parties in different countries because unlike Court judgments, arbitration decisions are generally easier to enforce in other countries. Arbitration can also be made confidential to the parties, unlike litigation.
Mediation is a structured form of negotiation. The aim of it is to settle a dispute with the assistance of a “mediator” as an independent third party. It is flexible, voluntary and comparatively it can be a swift and inexpensive process resulting in a consensual settlement of a dispute.
There are other forms of dispute resolution processes, or combinations of them, which may be appropriate to the particular contract you are looking to negotiate. Before agreeing on a dispute resolution process you should seek legal advice so that you can fully consider which options might be best for you.