Escalation clauses provide for the combination of extrajudicial dispute resolution methods, such as mediation, conciliation, and negotiation, prior to the adoption of arbitration or the initiation of judicial proceedings. They represent an important mechanism for accessing the so-called multi-door dispute resolution system, which enables the application of appropriate and alternative methods to the Judiciary, aiming for greater effectiveness, reduced time and costs, and less emotional strain between the parties.
The purpose is to seek a consensual settlement between the parties regarding the subject matter of the dispute, in order to preserve the contract and the existing commercial relationship. If an agreement cannot be reached, then the parties may resort to the other avenues chosen in the contract to resolve the dispute.
One of its main advantages is the possibility of resolving a conflict in a swift, amicable, and more economical manner, since, in most cases, the parties will prefer to reach a direct agreement rather than resort to judicial or arbitral proceedings that could cause further disharmony and increase costs. Moreover, even if it becomes necessary to resort to these means after the attempt at negotiation, the tendency is for the conflict to be better understood and defined, thereby facilitating its definitive resolution.
However, for such a clause to produce the expected effects, it is essential that it be drafted clearly, concisely, and in detail, specifying the procedure to be adopted, the duration of the negotiations, and the position of the representatives of the parties responsible for the discussions. The absence of these elements may generate legal uncertainty regarding the use of this mechanism, or even conflict between the parties as to its application.
Finally, its content may be either optional or binding, provided that the wording is clear as to whether the preliminary procedures must or must not be mandatorily observed before proceeding to the next stage.
Thus, escalation clauses, also known as Multi-Tiered Dispute Resolution Clauses, constitute an excellent alternative for contracts of various types, especially those of a complex and long-term nature, in which maintaining the business relationship and seeking consensual solutions represent not only a means of dispute resolution but also an efficient and sustainable conflict management strategy.
