In a dispute resolution clause that specifies 'mediation followed by arbitration,' what happens if mediation fails to resolve the dispute?
Correct Answer
D) The parties must proceed to binding arbitration
In a stepped dispute resolution clause requiring mediation followed by arbitration, if mediation fails to resolve the dispute, the parties are contractually bound to proceed to arbitration as specified in their agreement.
Why This Is the Correct Answer
A stepped dispute resolution clause is a contractual ladder: parties must exhaust each step before proceeding to the next. When the clause specifies 'mediation followed by arbitration,' a failed mediation triggers the mandatory obligation to proceed to binding arbitration. Both parties agreed to this sequence when they signed the contract.
Why the Other Options Are Wrong
Option A: The dispute is automatically decided in favor of the owner
No dispute resolution clause automatically decides a matter in favor of the owner. Such a provision would be unconscionable and unenforceable. Dispute resolution processes are designed to be neutral, not to predetermine outcomes.
Option B: The parties can choose either arbitration or litigation
Once parties have contracted for a specific dispute resolution sequence, they cannot unilaterally choose an alternative path. The contract specifies arbitration as the next step — not an optional choice between arbitration and litigation.
Option C: The parties must proceed to litigation in court
The clause explicitly requires arbitration, not litigation. Proceeding to court would breach the contractual dispute resolution agreement. Courts generally enforce mandatory arbitration clauses and will compel arbitration if a party tries to litigate instead.
Memory Technique
Stepped clauses = staircase. You must climb each step in order. Mediation is step 1. Arbitration is step 2. You cannot skip steps or choose a different staircase.
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