Stepped Dispute Resolution Clauses and the Road to Settlement

Many contracts contain stepped dispute resolution clauses, requiring the parties to negotiate in advance of any mediation. These discussions are often a missed opportunity. Even worse, they may aggravate disputes

Although many business people have great experience in negotiation, dialogue to settle disputes presents unique challenges. It is very different to, say, negotiating the terms of a contract, where parties may offer concessions with a view to making money from the deal. In disputes, parties have little to gain, faced with a choice between unattractive outcomes. A creditor may be asked to accept significantly less or a debtor to pay much more, than considered due. If not, each may face the prospect of litigation. And these early negotiations generally occur when the dispute is very fresh, with emotions running high.

Use of lawyers is often necessary in advance of negotiation, to give a more informed view of the legal merits of a claim.  In view of the early stage of the dispute, their advice may be qualified or should be. But no party would wish to incur further legal costs that are not strictly necessary at this stage. These may become a barrier to settlement.

All in all, in these early negotiations it is essential that each party prepares for, and conducts, the negotiation in a way that is most likely to further its own interests. There are swathes of literature on how to negotiate effectively. There are many techniques and considerations. These include proper preparation with cost/benefit analyses of not only settlement options but critically, of carrying on with the dispute.

But above all, each party should engage the other with emotional intelligence and explore not just its own commercial needs but the other’s too – to build the “golden bridge” described by William Ury that one party can cross to meet the other. And remember that most deals are not done halfway!

© Stephen Bate,

CEDR Chambers

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