As a means for resolving international commercial disputes, arbitration has many advantages and one big disadvantage: cost. 68% of respondents to the 2015 Queen Mary International Arbitration Survey reported that the worst feature of international arbitration was the cost of the process. As a result, most businesses would prefer to settle disputes amicably, whenever possible, before resorting to arbitration.
An increasing number of businesses incorporate escalation clauses (or "multi-tiered dispute resolution clauses") in their contracts as a means of encouraging early settlement. Escalation clauses require (or encourage) parties to attempt one or more alternative forms of dispute resolution before resorting to arbitration. Typically, parties are required to participate in negotiations, mediation, or conciliation for a certain period before commencing arbitration. In other instances, parties are required to participate in a more formal, adjudicative procedure before arbitration (such as expert determination or dispute board proceedings).
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Originally published in Magna Charta magazine
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