Including alternate dispute resolution clauses in contracts aims to protect against the escalation of disputes by compelling the parties to try to solve the problems commercially, before recourse to the courts. The most common form of dispute resolution is mediation- parties are obliged to negotiate in good faith to resolve the dispute or, failing that, use an independent mediator to facilitate that resolution.
The benefits of mediation are numerous. There is less financial cost; more flexible solutions than those imposed by courts and much faster than legal proceedings.
However, for a mediation clause to be upheld, it must be sufficiently clear and not ‘uncertain’. In the judgement of WTE Co-Generation & Anor v RCR Energy Pty Ltd & Anor , certain minimum requirements were discussed to satisfy an enforceable dispute resolution clause:
- It would make completion of mediation a condition precedent to starting court proceedings
- There must be no further agreement required on stages of the process (it must be ‘certain’)
- It should include prescriptions surrounding the determination of a mediator and the mediator’s remuneration
- It should also stage the precise sequence of process/rules under which the mediation should take place
Following these steps it is possible to create a dispute resolution mechanism with enough certainty to stave off litigation until non-litigation steps have been exhausted.