Dispute Resolution Clauses – Can you ignore them?

Dispute resolution clauses appear in most contracts you will see. They are not always the same, but they matter.

In general terms, the clauses require the parties to a contract to exhaust various alternative dispute resolution (ADR) procedures (like mediation or expert assessment) before they can start court proceedings.

For a court to enforce a dispute resolution clause and tell the parties that court proceedings are not open to them until they have exhaused the dispute resolution process, it must be satisfied of 3 things:

1/ The ADR process must be sufficiently certain;

2/ The administrative processes for selecting a party to resolve the dispute must be clear;

3/ The process or model of ADR process should be sufficiently clear.

In Taylor Wimpey UK v Harron Homes Ltd (2020) the agreement contained a dispute resolution clause that obliged the parties to refer any disputes to expert determination, which is a form of ADR procedure.

The dispute resolution clause also set out the procedure for:

1/ Invoking the clause and starting the expert determination procedure;

2/ Selecting and appointing an expert;

3/ Dealing with any disputes on selecting an expert;

4/ Determining any dispute.

In this case, a dispute arose and whereas one party tried to get the dispute process going, the other simply applied to the court for pre-action disclosure of certain documents. The Judge dismissed the claim for a number of reasons, one of which was the dispute resolution clause.

Noting that the parties had, by including a dispute resolution clause in the agreement, had agreed on the process to resolve disputes, the Judge explained the practical benefits of ADR for businesses:

It enables parties to have their disputes decided privately, by specialists either chosen by the parties jointly or, in default of agreement, by a body specifically appointed for that purpose. It is almost always far quicker than litigation, and almost always far cheaper, to have disputes resolved in this way. The court in all cases will be astute to prevent pre-action disclosure being used either to frustrate, impede or interfere with contractually agreed ADR mechanisms.

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