Contract Negotiation Tip 007 | Dispute Resolution Clauses and the Art of War

The Art of War, written around 500 B.C. by the legendary Chinese General Sun Tzu, has been studied by military commanders for the past 2,500 years. Today Sun Tzu’s strategies are also used by CEOs and their corporate lawyers. It’s wisdom can be applied in contract negotiation to control the terms of engagement should conflict later erupt.

Most commercial contracts have a dispute resolution clause. This is where the parties agree how a war will be fought or avoided. Contracts can require arbitration (refer to Contract Tip 001), mediation (refer to Contract Tip 004), high-level settlement discussions, or a combination of these to avoid litigation. Often the best strategy is to not include such a clause, thereby leaving all options on the table, especially litigation.

The most effective dispute resolution strategy is carefully calibrated in consideration of strengths, weaknesses, and positions of both parties. Deeply entrenched in the Art of War is the importance of knowledge of self and the party that may one day be your adversary.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

– Sun Tzu, The Art of War

Because no two parties are the same in strength, capability, and demeanor, the best tactic is to negotiate a dispute resolution clause that plays to your strengths and seizes upon your adversary’s weaknesses. General Sun Tzu wrote:

In war, the way is to avoid what is strong, and strike at what is weak.

– The Art of War

The economically powerful corporation will look at the cost of going to trial differently than a party with limited ability to finance litigation. For the weaker company, a carefully negotiated procedure involving mediation may help buy time and open the door to settlement through diplomacy.

The Art of War strategy of never confronting a larger force head-on was used successfully by the North Vietnamese in the jungles of Vietnam. For the Vietcong, confronting the stronger U.S. military force would be, figuratively speaking, like a mom & pop company taking on a corporate giant in protracted litigation and appeals. In the words of Sun Tzu,

If he is superior in strength, evade him.

– Sun Tzu, The Art of War

Knowing where and how to fight the enemy is critical to the Art of War and business conflict. But it’s not the most important rule. Sun Tzu knew the ultimate victory is accomplished without the unpredictable cost of battle.

“The supreme art of war is to subdue the enemy without fighting.”

– Sun Tzu, The Art of War

A mindfully drafted dispute resolution clause can give your company the upper hand in a subsequent war. But this should not be the primary purpose. The supreme art in negotiating these clauses is to create the opportunity to subdue, rather than fight, the other party.

Kevin Walsh

Lead Attorney & Owner

1Source Law LLC