Deadlock resolution clause: Overview, definition and example
What is a deadlock resolution clause?
A deadlock resolution clause is a provision in a contract that outlines the steps to be taken when the parties involved in an agreement reach an impasse or deadlock. This happens when the parties are unable to make a decision or move forward due to a disagreement. The clause typically specifies a process for resolving the deadlock, such as mediation, arbitration, or a vote by a third-party neutral. The goal is to help the parties break the deadlock and continue with the business relationship or contract.
Why is a deadlock resolution clause important?
A deadlock resolution clause is important because it provides a clear and agreed-upon method for resolving disputes that could otherwise cause delays or disruptions. In business, deadlocks can halt progress, waste time, and increase costs. Having a set procedure in place helps prevent such issues from escalating and allows the parties to resolve conflicts efficiently. It also offers certainty, as all parties know what will happen if they cannot come to an agreement on their own.
Understanding a deadlock resolution clause through an example
Imagine two partners in a joint venture, each with equal decision-making power, disagree on whether to launch a new product. Without a deadlock resolution clause, this disagreement could halt operations. However, the agreement includes a deadlock resolution clause that specifies if the partners cannot reach a decision within 30 days, they will submit the matter to an independent mediator for a final decision. This clause ensures that the business can continue even in the face of a disagreement.
In another example, a company and a supplier enter into a contract that includes a deadlock resolution clause. If they hit a deadlock regarding delivery terms, the clause may require them to engage in arbitration, where an impartial third party will make a final decision on the matter. This helps avoid prolonged conflict and ensures that the supply chain continues to run smoothly.
Example of a deadlock resolution clause
Here’s how a deadlock resolution clause might look in a contract:
“In the event that the parties reach a deadlock on any matter requiring a decision, they agree to submit the matter to a mediator within 10 business days. If the matter remains unresolved after mediation, the parties will submit to binding arbitration, with the decision of the arbitrator being final.”
Conclusion
A deadlock resolution clause is a critical tool for managing potential conflicts in contracts. It helps ensure that if a disagreement occurs, there is a clear path forward for resolution, reducing the risk of stagnation or disruption. By including this clause, businesses can protect themselves from lengthy disputes and ensure smoother operations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.