Drafting Enforceable and Effective Dispute Resolution Clauses
Most commercial contracts these days contain “alternative dispute resolution” (ADR) clauses — requiring parties to try negotiation, mediation, expert determination, arbitration or even dispute boards before going to court. But not all ADR clauses are created equal. Some won’t be enforced at all. Others are technically enforceable but ineffective in practice.
So, what makes a dispute resolution clause both enforceable and effective?
1. Start with first principles
An ADR clause is simply a contract about how disputes will be handled. Courts respect the parties’ right to make those arrangements — so long as:
the clause is sufficiently clear and complete,
it doesn’t attempt to oust the jurisdiction of the courts, and
it complies with any applicable consumer protection laws, such as the unfair contract terms (UCT) regime.
A clause that requires parties to complete certain ADR steps (such as negotiation or mediation) before litigation is valid. Courts may stay litigation proceedings until those steps are done — but they won’t uphold a clause that says a party can never go to court.
2. The importance of clarity
ADR clauses fail when they are vague or incomplete. A clause that says the parties will “try to resolve disputes amicably” with no deadline, procedure, or appointment process is not enforceable — it’s just an unenforceable “agreement to agree”.
To make it work:
Specify who must meet, when and how.
Use defined timeframes (e.g. “within 14 days of a notice of dispute”).
Tie deadlines to events one party can control (like issuing the notice).
Avoid open-ended obligations to negotiate “until resolved”.
3. Choosing the right ADR process
Each ADR method serves a different purpose.
Negotiation keeps control with the parties and helps preserve relationships — but must have a clear endpoint.
Mediation adds a neutral facilitator. It’s collaborative, but still depends on good faith participation. Use standard mediation rules from ACICA, the Resolution Institute or the Law Society to ensure enforceability.
Expert determination provides a quick decision — ideal for valuations or issues that require the expert’s specialist knowledge. But because it’s purely contractual, the process must be clearly defined in the clause.
Arbitration offers finality and enforceability under statute, but comes with greater cost and formality.
Dispute boards are a proactive tool for major projects — helping avoid disputes altogether by resolving issues as they arise.
4. Watch out for the Unfair Contract Term Regime
Since late 2023, the UCT laws under the Australian Consumer Law have real teeth.
Standard-form contracts (including those with small businesses) can now attract civil penalties if they contain unfair terms.
Dispute resolution clauses that restrict class actions, mandate foreign courts, or unfairly tilt the process can be struck down — as the High Court’s decision in Karpik v Carnival PLC (Ruby Princess) illustrates.
5. Practical Drafting Tips
✅ Make ADR a condition precedent to litigation or arbitration — not a permanent bar.
✅ Always specify timeframes, appointment mechanisms, and cost allocation.
✅ Adopt established rules (e.g. Resolution Institute or ACICA).
✅ Keep multi-tiered processes simple — don’t create “disputes about the dispute process.”
✅ Include a severability clause so one defective step doesn’t invalidate the rest.
✅ For standard-form consumer and small business contracts, ensure fairness and transparency.
6. The Bottom Line
Effective dispute resolution clauses blend legal enforceability with practical usability. They keep parties out of court where possible — but preserve access to it when needed.
For complex infrastructure or long-term contracts, consider adding a dispute board to identify and resolve issues early, before they escalate into claims.
Want to make sure your dispute resolution clause will hold up?
Infralegal can help you stress-test or redraft your ADR provisions to ensure they are both enforceable and effective.
This article is a short version of a presentation and paper that Owen recently delivered for the Curtin University.
