Dispute Resolution Clauses: Ramping up the pressure or prolonging the inevitable?

February 23, 2022


In previous articles we considered some of the common reasons for project failure, the measures which customers and suppliers should take if they find themselves in a position where a project is going off track and the options available for resolution a dispute through legal proceedings.1 

In this article, we consider steps which parties can take during contract negotiations, through the inclusion of a dispute resolution clause, to best protect themselves in circumstances where a dispute arises.

During contract negotiation, the possibility of a dispute is rarely at the forefront of parties’ minds. Often, the dispute resolution process (DRP) is agreed without consideration of the impact it may have on future disputes. However, should a dispute subsequently arise, the DRP will dictate the procedures the parties must follow to resolve the dispute, and, to an extent, the time required for resolution. 

Why include a dispute resolution clause?

Dispute resolution clauses are included in contracts so that parties have certainty of the mechanism which will be used to resolve any future disputes and avoid the risk of parties arguing about the appropriate process to be adopted. Whilst the inclusion of a dispute resolution clause should avoid contention over the process, it is important that the parties give proper consideration to the types of disputes which may arise and how they would best be resolved. Where parties include by default a DRP which is on one or the other’s standard terms, there is a risk that the resolution of future disputes may be hindered where that standard clause does not adequately cater for the type of dispute that the parties may encounter.

Common forms of Dispute Resolution Clauses in IT and outsourcing contracts

Historically, High Court proceedings were the dominant mechanism through which IT and outsourcing disputes were resolved. Arbitration has become an increasingly popular and attractive alternative, especially in public sector contracts and in contracts where the parties are located in different countries.

Whilst litigation and arbitration both provide a binding, final means of dispute resolution, there are other dispute resolution processes which may be appropriate for specific types of technology and outsourcing disputes. By way of example:

  • Adjudication is often significantly quicker and cheaper than litigation or arbitration. It is particularly suited for “in-contract” disputes where the parties are continuing to work together and require a swift resolution of a particular issue. SCL administers its own adjudication scheme for disputes arising from contracts for the provision of tech-related goods and services2 which provides for determination within three calendar months of the adjudicator’s appointment.3 A disadvantage of adjudication is its non-binding nature. Unless the parties agree otherwise in advance it may not provide a final resolution of the dispute: where one party remains aggrieved after the adjudicator’s decision, it may commence court proceedings or arbitration.4
  • Expert determination is a mechanism for the resolution of technical disputes arising during the course of a contract. For example, disputes as to whether the deployed technical solution is compliant with the specification may be best resolved by an expert with suitable technical expertise who will be able to review, evaluate and opine on the technical solution, rather than a judge or arbitrator who, whilst potentially experienced in technology disputes, may not have the specific technology expertise. Clarity of drafting in any clause referring disputes to expert determination is important to ensure that the issues to be determined fall within the expert’s areas of expertise. 

A limitation of both expert determination and adjudication is enforcement. If a party does not comply with the adjudicator’s decision or the expert’s determination, further proceedings will be required to enforce the decision, causing delay and increased costs. 

Given the variety of disputes that may arise under IT and outsourcing contracts, a carefully drafted DRP could provide for certain types of dispute to be dealt with by way of expert determination or adjudication, whilst all other categories of dispute (as well as those that are initially considered by expert determination or adjudication) are to be resolved by litigation or arbitration.  As dispute lawyers we take a favourable view of this tailored approach, although we recognise that it is not always easy to foresee (or discuss) during the contract negotiation the different types of dispute which may later arise and an overly-elaborate DRP may be undesirable. 

Overview of Dispute Escalation Clauses

Dispute escalation clauses provide a tiered approach to dispute resolution, usually commencing with informal methods such as negotiation or mediation with formal proceedings being commenced if such informal methods are unsuccessful. In ongoing, long-term contracts where the parties will be working together for a number of years, engagement in informal dispute resolution in a less adversarial setting can be helpful to preserve the working relationship between the parties. 

Escalation clauses should include time periods for each stage of the escalation process to avoid the risk of prolonged negotiations which would enable a party to evade its obligations under the contract. They also avoid the risk of procedural issues in any formal proceedings (such as challenges that the court/tribunal does not have jurisdiction to hear the dispute as the earlier stages of the dispute escalation clause have not been completed).  Certainty as to the duration of each stage of the process will also assist in reducing the risk of increased time and cost of prolonged unsuccessful informal negotiations prior to formal proceedings being commenced.

Consideration should also be given to practical matters such as who from the parties will be involved in negotiations and, to the extent expert determination or mediation is included, how such expert or mediator will be selected. Care should be taken in drafting to ensure that the provisions are not so specific that they may hinder compliance (e.g. the inclusion of named individuals to participate in any negotiation or to act as an expert may give certainty at the time of contract negotiation but cause difficulties if those named individuals are no longer appropriate or available when a dispute develops). References to a category of person (e.g. member of a specific professional body), role or job title may be preferable to provide both certainty and flexibility. 

Similarly, it is important that consideration is given to any categories of dispute which will fall outside the dispute escalation process. Whilst parties want consistency in the approach taken to disputes, care should be taken to avoid a situation where urgent relief is required by a party but the dispute resolution clause requires a period of negotiation to be complied with prior to such urgent relief being sought.

Notwithstanding the process and timeframe set out in a DRP, negotiation and mediation are open to parties at any stage of a dispute. In drafting an escalation clause, a balance must be struck between the benefits of certainty of process and the risk of undue delay and unnecessary costs of going through multiple stages before commencing proceedings and the risk that a formal process may make the parties reluctant to pick up the phone to negotiate.

We consider below some of the more commonly included stages in a dispute escalation clause. 


Many dispute escalation clauses will include a requirement for the parties to attempt to resolve the dispute by good faith negotiations before any escalation outside the day-to-day project team. The inclusion of such a stage can be advantageous in long term contracts where the parties are keen to maintain good working relations and where such negotiations are undertaken by those with direct knowledge of the project and the issues arising. 

However, the parties will have often already participated in (potentially lengthy) discussions before formally engaging the dispute resolution procedure and there is a risk that those directly involved in the project, such as project managers, may be too close to the issues in dispute. In such circumstances, referral to senior individuals of the parties may assist in unlocking the dispute and there is often a requirement for engagement at senior management or board level to attempt to resolve the dispute if the project managers are not able to do so. Those individuals may be more distanced from the matters in contention (and any personal blame for actions which have caused or escalated the dispute), but they should be attuned to the long-term importance of the contract and preserving party relations.  The inclusion of a hard deadline for that negotiation stage will help focus minds and prevent prolonged delays. 


Mediation is a voluntarily method of alternative dispute resolution involving an independent third party to assist and facilitate a negotiated resolution. Like negotiation, parties are able to participate in mediation at any time, whether or not proceedings have been initiated, and regardless of the inclusion of a mediation stage in a DRP. 

Mediation is actively encouraged by the court and, should the dispute ultimately result in legal proceedings, the court is likely to enquire whether the parties have considered and engaged in mediation or another form of alternative dispute resolution. Engagement in mediation prior to any formal dispute resolution process being commenced may assist the parties in reaching an early resolution without incurring the time and costs of formal dispute resolution. If resolution is not possible, mediation may still be worthwhile if it enables the parties to narrow the matters in issue, saving time and costs if the dispute proceeds to litigation or arbitration.

The parties will, of course, need to understand enough about each other’s position and the issues in dispute for an early mediation to be effective and the participation in an initial negotiation phase or exchange of detailed written accounts of their respective positions can help facilitate that understanding.  

One advantage of mediation is that it can create an impetus for parties to think creatively about how best to resolve their dispute. For example, in an ongoing managed services contract the parties may be willing to consider a settlement that involves a commitment of future business or an extension of the term of the contract rather than the payment of a one-off settlement sum. This may help preserve the relationship between the parties and assist with any cash flow issues of the paying party.

Given the encouragement by the courts for parties to engage in alternative dispute resolution and the potential cost and time saving benefits, parties may wish to consider including in a DRP a mediation stage prior to commencement of legal proceedings. This provision should be carefully drafted with a clearly defined period for a mediation to take place, after which formal proceedings may be commenced.

Litigation or Arbitration

If informal dispute resolution procedures such as negotiation and mediation are exhausted, dispute escalation clauses will normally provide that either litigation or arbitration may be commenced. A common question is whether, when negotiating the contract, parties should agree for disputes to be resolved by litigation or arbitration. Whilst it is possible for parties to select one of these processes when a dispute arises, in most cases the parties will find themselves bound by the decision reached when drafting the contract.

Whilst no formal agreement is required by the parties to submit their dispute to litigation,5 should the parties wish any dispute to be resolved by way of arbitration, express agreement is required (usually by inclusion of an arbitration clause in the underlying contract – although it is possible for the parties to enter into an arbitration agreement subsequent to a dispute arising, in practice that is unusual).6 In the circumstances, it is important that parties give adequate consideration at the contract negotiation stage to the method of dispute resolution which will best meet their needs and include an express arbitration clause if required. 

The respective merits of litigation and arbitration have been the subject of much commentary. In summary, the most appropriate process will depend on the nature of the services to be delivered under the contact, the types of dispute that could arise and the circumstances of the parties. We comment below on some of the main factors which parties may wish to take into account. As will be apparent, in most cases these factors are not advantages or disadvantages of either process, but are differences between the two processes which may be seen as beneficial or otherwise depending on the circumstances.

Selection of tribunal

Parties to an arbitration are able to choose the individual/s who will form the tribunal. This is likely to be attractive where specific technical knowledge and expertise may be of assistance in determining the issues in dispute (e.g. disputes over code or whether a technical IT solution delivers what was required under the contract).  

Whilst parties to litigation are not able to select the judge who will determine the claim, judges who sit in the Technology and Construction Court are experienced in determining disputes relating to technology and outsourcing contracts. Issuing a claim in this division will ensure that it is dealt with by a judge with both legal expertise and technical experience.  In most high-value and/or high-stakes IT disputes, the parties will engage experts who will be able to explain technical issues to the judge


Arbitration is a confidential process. Hearings are not open to members of the public and, largely, tribunal awards are not circulated beyond the parties to the dispute. Whilst such confidentiality can be requested in court proceedings, it is not a given and the default position is that there should be open justice.  

Public sector contracts tend to include arbitration clauses to ensure confidentiality of the issues and outcome of disputes and there will be a number of reasons why parties outside the public sector would prefer disputes to be resolved on a confidential basis.

Procedural certainly or flexibility

The Civil Procedure Rules set out a clear framework for the conduct of the dispute, with a focus on the overriding objective of enabling the court to deal with cases justly and at proportionate cost.7 There is some flexibility within that framework (such as the approach to disclosure) but in general terms the resolution of the dispute will follow a fixed process.

Arbitration generally provides parties with greater procedural flexibility than litigation. Whilst the arbitral institutions do have their own sets of rules, these are less prescriptive than the court rules (and for an ad-hoc arbitration there are no institutional rules) and it remains open to the parties to determine the procedure.

Availability of appeal

If a party believes that a judgment of a court is wrong, there is a process it can follow to appeal to the Court of Appeal, and potentially to the Supreme Court. Permission is needed, and in many cases the party will not be able to establish that there are valid grounds of appeal, let alone succeed on the appeal, but the route is available.

Conversely, there are limited grounds of appeal8 and challenge9 to an arbitral award. Generally, the award is final.  This will be attractive in circumstances where parties are keen to avoid protracted disputes and seek a final resolution to the issues (for example in an IT outsourcing contract where a dispute arises but the ongoing contractual services continue to be provided, the parties will be keen to achieve a final resolution of the dispute so that services can continue to be delivered and not overshadowed by a prolonged dispute).


The location of the parties10 and the ability to enforce any judgment or award obtained is also a significant factor when deciding whether to opt for a litigation or arbitration clause. Generally, arbitral awards are considered easier to enforce than court judgments due to the obligation under the New York Convention11 for contracting states to recognise arbitral awards as binding and enforce them in accordance with their own national rules of procedure. However, in circumstances where both parties are likely to be resident within England and Wales or there is a treaty between the relevant countries for the reciprocal enforcement of judgments this may be less of an issue.

Availability of summary process and security for costs

One advantage of litigation is the availability of processes for proceedings to be determined swiftly in certain scenarios. For example, summary judgment allows the early determination of disputes in circumstances where one party has no real prospect of success at trial and there is no other compelling reason why the case or issue should be disposed of at trial. This can be of assistance where an aggrieved party has issued an unmeritorious claim in order to apply pressure on the defendant party or where there is a straightforward claim with no valid defence (e.g. a claim for payment of an undisputed invoice). In addition, low value (less than £10,000) debt claims can be issued in the small claims track which provides a simplified route to dispute resolution. Summary determination is generally difficult to obtain in arbitration, and even if the party which is the defendant to the proceedings refuses to engage in the arbitral process at all, it may take some time for the claimant to receive a favourable award from the tribunal.

If a defendant to legal proceedings considers that it has a good prospect of defending the claim but has concerns that it will be unable to recover its legal costs from the claimant, it may apply to the court for an order that the claimant provides security for costs as a condition for it being able to advance the claim.12 Whilst it is possible for some arbitral tribunals to award security for costs, in practice, it is difficult for a party to secure such an order.

Injunction or other interim relief

There may be circumstances in which a party requires an order against the other party urgently and cannot wait for determination either at trial or an arbitration hearing. For example, a customer may require an order to compel a managed services provider to provide services which it is withholding, or a party may wish to seek an order to prevent a party breaching a time-critical provision of a contract or misusing the other party’s IP. In such circumstances the aggrieved party will wish to apply to the court for an injunction. Whilst interim relief may be available in arbitration, this does depend on the applicable arbitral rules. For example, the LCIA Rules 2020 provide that a Tribunal can order security, the preservation of documents, goods or property and any relief on a provisional basis that the tribunal would be able to grant on a final basis. Similarly, the ICC Rules 2021 permit a party to request any interim or conservatory measure once the file has been transmitted to the Tribunal and, prior to such transmission, by seeking the appointment of an emergency arbitrator to grant urgent interim relief. In addition, under the Arbitration Act 1996 it is also open to parties to apply to the Court for interim relief notwithstanding the arbitration clause 

In practice, contacts which require disputes to be determined by arbitration will generally include a carve out enabling the parties to make an application for an injunction at court if urgent relief is required, even if other disputes are to be determined by arbitration.

No ”one size fits all”

As will be apparent from the above, the decisions made during contract negotiations may have consequences for the parties if they experience disputes. The selection of arbitration or litigation will affect the parties’ ability to ensure confidentiality of matters in dispute, or their ability to appeal an unsatisfactory outcome.

It is therefore very important for parties to think carefully during contract negotiations what they will do if things go wrong. Understandably, discussing distress clauses like the DPR (and limitations of liability, indemnities and so forth) has little appeal when the parties are focused on the benefits of a profitable long-term arrangement. However, failure to consider and discuss how disputes will be resolved could result in a party agreeing to a process which it later regrets, potentially increasing cost and aggravation when it wants to disengage from the contract.


[1] SCL: Whose fault is it anyway? Why complex IT and outsourcing projects failManaging a legal dispute arising from a failed IT project: Part 1Managing a legal dispute arising from a failed IT project: Part 2Managing failing IT and outsourcing projects

[2] Including software development, outsourcing arrangements, systems integration contracts, IT consultancy contracts, software licensing arrangements, blockchain/smart contracts and cloud computing contracts.

[3] See here for further information: https://www.scl.org/adjudicationscheme

[4] In practical terms, the parties may agree a long-stop date for any such proceedings. The SCL adjudication scheme stipulates that proceedings should be commenced within 6 months of the adjudicator’s decision. However, the interim-binding nature of adjudication results in a risk of parties using adjudication as a practice run for arbitration or litigation, incurring unnecessary delay and costs.  

[5] If a contract does not specify whether a dispute should be resolved by litigation or arbitration, the default position is generally litigation. However, the absence of a stated process can give rise to contention as to which country’s court has jurisdiction if the parties are resident in different countries.

[6] For further information on arbitration, both in England and Wales and in other jurisdictions, see the CMS Expert Guide to International Arbitration

[7] Civil Procedure Rules Part 1.1

[8] The Arbitration Act 1996 provides that any appeal is limited to points of law and requires the permission of the court or agreement of the parties. Further, it is open to the parties to exclude the right to appeal on points of law either in the arbitration agreement itself or at a later stage (and in arbitrations under the LCIA or ICC rules this right to appeal under Section 69 of the Arbitration Act is automatically waived).

[9] The Arbitration Act 1996 provides that an award can only be challenged (1) on the grounds that the tribunal lacked substantive jurisdiction (section 67); or (2) on the ground that there was a serious irregularity affecting the arbitral tribunal, the proceedings or the award which has caused or will cause substantial injustice to the applicant (section 68).

[10] More specifically, the location of assets against which an award can be enforced.

[11] New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

[12] There are of course requirements for the defendant to establish grounds for an order for security for costs and strict conditions apply. If ordered, security is generally made in the form of the deposit of a specified sum into a court account, a bond or guarantee, or other security against which the defendant can enforce if it is in a position to recover legal costs.

profile picture of lee gluyas
Lee Gluyas is a partner at CMS who specialises in managing disputes in the technology and telecoms sector. He is a member of the Society of Computers and Law and can be contacted on +44 20 7524 6283 and lee.gluyas@cms-cmno.com 
profile picture of stephanie woods
Stephanie Woods is a Senior Associate at CMS who specialises in disputes in the technology and media sector. She can be contacted on +44 020 7067 3239 and stephanie.woods@cms-cmno.com