Dispute Resolution clauses are common in commercial agreements. They require the parties to attempt to resolve any disputes arising under the agreement by way of alternative dispute resolution ('ADR'), such as mediation or negotiation, before they are entitled to issue Court or Arbitration proceedings.
Dispute resolution clauses are beneficial as ADR methods are often less expensive than Court or Arbitration proceedings. Resolving disputes by way of ADR can also be conducive to parties maintaining commercial relationships after the dispute.
If a claimant issues Court proceedings, without first attempting prescribed methods of ADR and in breach of a dispute resolution clause, the Court will stay the proceedings and require the parties to attempt the prescribed methods of ADR under the clause. There may well be costs consequences which follow.
For a dispute resolution clause to be enforceable, it has to meet certain criteria. The recent High Court case of Ohpen Operations UK Ltd v Invesco Fund Managers  EWHC 2246 confirmed existing guidance which Courts will consider when assessing the enforceability of dispute resolution clauses. For such a clause to be enforceable:
- The agreement must create an enforceable obligation requiring the parties to engage in ADR
- The obligation must be expressed clearly as a condition precedent to Court proceedings or Arbitration; and
- The ADR process must be sufficiently clear and certain by reference to objective criteria.
The Ohpen case creates uncertainty because it can be difficult to assess in each case whether a dispute resolution clause will satisfy the guidance. As such, careful drafting is vital to ensure that the clause is enforceable and gives effect to the parties' intentions as to how they wish to resolve disputes arising under the agreement.
In addition, if a dispute has already arisen, it is important for parties to be aware of their obligations under the dispute resolution clause, to ensure that they follow the correct procedure and do not mistakenly issue Court proceedings.
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*This article is provided for general information purposes only and does not constitute legal advice or other professional advice.