One Size Doesn't Fit All: Customizing Dispute Resolution for Commercial Contracts

Dispute resolution clauses are independent agreements within a contract and often do not get the attention they deserve. When drafting a complex agreement, it may be difficult to shift gears and imagine the problems that may arise in performance and the best way to deal with them. A court proceeding is a traditional remedy preferred by many. If the opposing party is leaning in that direction, seize the opportunity to discuss alternative dispute resolution methods to address contract disputes.

Building a Stepped Dispute Resolution Process

The dispute resolution agreement may include a stepped process providing that (a) executive negotiation shall occur for no more than a specific period of time (such as 60 days) after the notice of a dispute is properly served; (b) if direct executive negotiation does not resolve the dispute, the parties shall pursue mediation with a specific provider; and (c) if mediation is not desired, is not pursued within a specific number of days or is not successful, the parties agree they shall arbitrate any disputes arising under the commercial contract. The stepped process requires careful drafting to ensure that the jurisdiction of arbitration is not vulnerable to attack because of alleged failures to comply with the requirements of executive negotiation and mediation.

Avoiding the Pitfalls of Arbitration Clauses

Model arbitration agreements are published by most of the leading arbitral institutions, including JAMS, AAA/ICDR, the ICC and many more worldwide. Boilerplate arbitration agreements may be habitually recycled, but that should be avoided. The terms of an arbitration agreement should address the preferences of the parties, the nature of the commercial agreement at issue and the arbitral institution and arbitration rules that will apply.

Designing for Efficiency and Flexibility

 If the parties want speed and efficiency, they may elect to follow the expedited arbitration rules most institutions offer. Any arbitration procedure chosen may limit the amount of discovery and establish a preliminary schedule for completion of the exchange of information, the filing of any dispositive motions and the date of the hearing (expressed in terms of the number of days since the preliminary hearing was conducted by the tribunal). Electing to use a sole arbitrator instead of a three-person panel is likely to increase speed.

Choosing a Venue That Works

The choice of venue may also affect the efficiency of an arbitration. An arbitration conducted in a location convenient to all parties will reduce costs and uncertainties. This can provide easier access for testifying executives with busy schedules, expand the availability of local counsel and known arbitrators and aid everyone’s familiarity with both the law of the seat and the courts if judicial intervention is required. The same benefits extend to international arbitration, which may be effectively conducted in many seats throughout the United States, such as Boston; New York City; Washington, D.C.; Miami; Chicago; Denver; Houston; Los Angeles; San Francisco; and Seattle.

Addressing AI Risks in Arbitration

Finally, an arbitration agreement should recognize the confidentiality risks of the use of generative AI in arbitration, which include unintended data disclosure, data retention and storage by the model and legal exposure for processing confidential or regulated data. One approach is to require that AI risk protections be addressed by counsel and the arbitrator at the first preliminary hearing. See also the Guidelines on the Use of Artificial Intelligence in Arbitration published by the Silicon Valley Arbitration & Mediation Center.

One size does not fit all. The time devoted to tailoring a dispute resolution clause will be time well spent, and all parties will benefit from it if a dispute occurs during performance.

Disclaimer: The content is intended for general informational purposes only and should not be construed as legal advice. If you require legal or professional advice, please contact an attorney.