How Imprecise Dispute Resolution Clauses Increase Cost And Risk

Well-drafted dispute resolution provisions can strike a balance between certainty and flexibility, giving parties a clear framework and a practical roadmap when things go awry, while allowing the process to be tailored to the issue at hand. Poorly drafted clauses, on the other hand, can create disputes all of their own.

In this article we consider a recent judgment where the dispute resolution provisions fell into that latter camp and outline some practical pointers for drafting workable and effective dispute resolution provisions.

Case background and key facts

In Ropa v Kharis Solutions Limited [2026] EWHC 259 (Comm), the parties had entered into two joint venture agreements. A dispute arose over the provision of information and payment of sums under the agreements, and the claimant served a Notice to Arbitrate. When the defendant did not cooperate in appointing an arbitrator, the claimant applied to court, requesting that the court order the defendant to submit to arbitration; and appoint an arbitrator.

The defendant resisted the application on four grounds, including alleged defects in the Notice to Arbitrate and arbitration claim form, and in service – but we focus here on the defendant's substantive argument that there was no compulsory arbitration agreement.

A compulsory arbitration clause?

Each of the joint venture agreements contained the following dispute resolution clauses, which anticipated resolving disputes variously through 'friendly consultation', mediation, arbitration or court proceedings. We have emphasised the main disputed wording in bold:

“54. “The members submit to the jurisdiction of the court of the Country of England for the enforcement of this Agreement and for any arbitration award or decision arising from this Agreement.

55. In the event a dispute arises out of or in connection with this Joint Venture Agreement, the Members will attempt to resolve the dispute through friendly consultation.

56. If the dispute is not resolved within a reasonable period, then any or all outstanding issues may be submitted to mediation in accordance with any statutory rules of mediation. If mediation is not successful in resolving the entire dispute or is unavailable, any outstanding issues will be submitted to final and binding arbitration in accordance with the laws of the Country of England. The arbitrator’s award will be final, and judgment may be entered upon it by any court having jurisdiction within the Country of England.”

The claimant contended that the effect of clause 56 was that all disputes should be referred to arbitration, and that the wording 'may be submitted to mediation' indicated this was permissive. The defendant meanwhile argued that clause 56 followed an 'if / then' structure – only if mediation was unsuccessful or unavailable could a dispute then be submitted to arbitration – the arbitration clause only therefore applied to disputes which had been referred to mediation, making mediation a pre-condition to arbitration.

From the outset, the judge recognised that the dispute resolution provisions were badly drafted, and that, per Lord Neuberger in Arnold v Britton, this meant that the court could place greater emphasis on the background and commercial common sense when construing the contract, rather than adhering to a purely literal interpretation of the words on the page.

Although the judge saw the force of the defendant's literal reading of the clause, he found this interpretation would lead to perverse outcomes. For example, it would mean that if a party wanted to arbitrate, it would first need to mediate, whereas if it wanted to litigate, it didn't. The judge said, "I can see no reason why the suitability or desirability of arbitration [as opposed to litigation] depends upon whether a dispute has been referred to mediation".

A literal reading would also mean that if the parties attempted mediation, but it was unsuccessful, then they would be compelled to proceed to arbitration. It would also allow a party to send some disputes to litigation, and some to arbitration, simply by picking and choosing which issues to include in mediation. Not only did he find it curious that parties would want to use different forums to resolve different disputes arising under the same contract in this way, but he considered it would be practically unworkable for parties to hold a mediation where only some of the issues in dispute were available for resolution.

In the circumstances, the judge found it was inherently unlikely that the parties would agree to a clause that operated in the way the defendants contended for. Instead, he considered that a person with all the background knowledge available to the parties at the time would have understood the clause was intended to refer all disputes to arbitration.

Further, he found that although the clause purported to create a positive obligation to attempt to resolve a dispute by mediation before referring it to arbitration, the clause was not sufficiently certain to be enforceable, and so mediation was not a compulsory pre-condition. If mediation was intended to be a pre-requisite to arbitration, then the clause needed to be more specific as to what the parties needed to do to operate it.

It is worth noting that, since the parties drafted these clauses, courts in England & Wales can (and increasingly will) now compel the parties to mediate (for more, see our article: Civil Procedure Rules embed ADR into the civil justice system). Mediation can be a powerful tool for parties to resolve disputes between them without resorting to court or arbitration proceedings, and the English Court appears increasingly keen to require parties to engage in that process (and to compel that they do so where it is part of the parties’ contractual bargain).

The tactical and procedural ramifications of engaging in a mediation (or, indeed, any form of dispute resolution process) do however need to be carefully considered and understood - ideally at the time of drafting contracts and agreeing what the process will be, rather than only when disputes arise. A proactive approach to considering how disputes may play out is, to some degree, an exercise in crystal ball gazing, but it can result in significant time and cost efficiencies down the line if done properly.

Defects in form and service?

The defendant also raised arguments about alleged defects in the form and service of arbitration and court documents. For example, the defendant argued that the claimant's Notice to Arbitrate did not make clear the scope of the dispute, and that its subsequent arbitration claim form did not comply with requirements of the civil procedure rules.

The judge agreed that the claim form was "far from a model of its kind", that these were serious and significant breaches of the rules, and that errors by the claimant's solicitors were not a good reason for the breach. However, he concluded it would not be in the interests of justice to dismiss the claim on the basis of these procedural errors, which could instead be remedied under the court's case management discretion without causing the defendant prejudice.

While these arguments ultimately failed, they highlight the importance of precision not only in the drafting of dispute resolution provisions, but also in documents that later invoke the chosen process. The court also noted its surprise that the claimant did not apply to remedy the defects in the claim form and indicated that while the defects would not derail the claim, they may well bear a costs consequence.

The cost of imprecision

As the judge observed, "the parties have incurred very considerable costs in this action which could and would have been unnecessary if those provisions had been drafted with a reasonable degree of precision and clarity". While multi-tiered dispute resolution provisions serve a useful purpose, careful thought needs to be given to how those tiers interact. For example:

• If the parties intend disputes ultimately to be referred to arbitration, then the arbitral institutions' own model arbitration clauses will usually be the best starting point to ensure a clear and binding agreement and avoid satellite disputes. That said, this case demonstrates that if, faced with imperfect drafting, the court is satisfied that the parties intended to submit disputes to arbitration, the courts of England & Wales, as an 'arbitration-friendly' jurisdiction, will seek to uphold that bargain. It is nonetheless vital that any escalation procedures the parties agree on dovetail with the arbitration agreement.
• While it is perfectly possible and may well be advisable to include a variety of dispute resolution mechanisms to cater for different scenarios, it is usually sensible to delineate clearly which mechanism will apply to which form of dispute, rather than leaving the parties a free choice. If this is the intent, this needs to be carefully described in the clause to avoid later uncertainty or the selection of an inappropriate forum for a particular dispute. For example, expert determination may well be a sensible and proportionate means to resolve discrete disputes (e.g. as to completion accounts), but it is unlikely to be appropriate as a compulsory escalation step in all disputes regardless of subject matter. (Read our previous article for an illustration of expert determination in action.)
• If any step (e.g. negotiation, mediation) is intended to be a compulsory pre-requisite to a party seeking a final and binding form of dispute resolution, the clause must give a certain and unequivocal commitment to that process, and must give enough information for the parties (and court) to operate it and know when it has been exhausted. Since courts in England & Wales can now compel parties to mediate in any event, such a clause will often be sensible where the ultimate forum is litigation.

Disagree agreeably

Entering into a formal dispute (regardless of the applicable forum) is not always the right thing for a business, and dispute resolution provisions can feel remote when parties are negotiating contracts and focused on performance. Getting escalation procedures right at the outset though is vital. A well-drafted multi-tiered clause can give the parties plenty of potential 'off-ramps' to resolve disputes before getting to court or arbitration. But even if the dispute does require a binding decision from a third party, a well-drafted clause means the parties get to that point without the time, cost and entrenchment that a previous jurisdiction spat can involve, and are in a position to disagree agreeably.

Read the original article on GowlingWLG.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.