In order to facilitate conflict resolution, the parties should define procedures for settling disputes under the PES agreement. Most disputes are likely to be resolved informally, which can be formalized in the agreement. Informal discussion is the least cost alternative for dispute resolution. The agreement may also allow or require mediation and/or arbitration if the parties fail to resolve the dispute by informal discussion. Both mediation and arbitration are forms of alternative dispute resolution (ADR), because they provide an alternative to resolving disputes in court. In mediation, the parties submit their dispute to a third party that tries to help them find a compromise solution. In arbitration, one or more persons – the arbitrators or arbitral tribunal – will evaluate the dispute and come to a decision, while remaining removed from the discussion and settlement process between the parties.
In mediation, the parties are bound to seek a mutually-agreeable solution, although they are not generally bound to an outcome. In arbitration, the parties agree to present the matter to an arbitrator instead of going to court. The parties may or may not be bound to comply with the outcome of arbitration. Agreements often provide for non-binding mediation and binding arbitration.
Binding arbitration under agreed protocols can provide certainty in neutral forum for international parties. The Permanent Court of Arbitration is often used in international purchase agreements, although other forms of arbitration exists. Arbitration is non-public and can be made confidential, which many commercial entities prefer.
Arbitration procedures can be varied to suit the needs of the parties. For example:
Using “bracketed arbitration,” the parties agree in advance to the range of values that may be awarded, e.g. where liability is not disputed.
In “baseball arbitration,” the arbitrator must rule for the party that has the most reasonable position and may not split the difference or decide on a compromise position.
Other variations exist. In general, the outcome of binding arbitration may not be challenged in a court of law, but is binding on the parties and the court.
Dispute Resolution Examples
Example 1 (private carbon emissions reduction purchase agreement)
Example 2 (participation agreement for government REDD+ program)
These Clauses are:
Disclaimer: Materials on this site are meant to highlight issues that should be considered in PES transactions, not to provide a substitute for experienced legal counsel. It will be essential to engage legal counsel in conjunction with any PES transaction to ensure that any agreements reflect the latest developments in the field and comply with current local and national legislation.
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