OMAN Trends and Developments Contributed by: Abdullah Al Aufi, Al Khalili, Al Ghailani & Co. LLP (K&Co.)
Between Settlement and Arbitration: How Do Companies Make the Right Decision in Disputes? One of the central challenges companies and their legal counsel face in commercial disputes involving arbitration clauses is determining the right strategy from the outset. The decision rarely presents itself as a straightforward choice. It demands careful analysis of the potential outcomes, the costs involved, and the broader commercial and legal consequences that may follow. In practice, dispute resolution is not governed by preference alone. It requires a sober assessment of cost versus return, likely outcomes and market conditions. While there is no shortage of alternative dispute resolution mechanisms available, whether negotiation, mediation, arbitration, or recourse to local courts, selecting the appropriate path remains a gen - uinely complex undertaking. That complexity deep - ens when the decision reaches senior management, where financial exposure, shareholder interests and the impact on the company’s cash flow all come into play, particularly when weighing a settlement against pursuing full arbitration proceedings. I. A Dispute is a process, not a single decision Most experienced practitioners understand that a commercial dispute is not an isolated event but rath - er a process unfolding across several interconnected stages: the pre-dispute phase, the negotiation phase, the pre-arbitration stage and arbitration itself. Each stage carries its own dynamics, risk profile and range of possible outcomes, yet none of them exists in isola - tion. Decisions made at one stage have a direct bear - ing on what options remain available later. Managing a dispute well therefore requires a coherent, long-term perspective oriented towards minimising overall loss - es, not simply resolving the immediate problem. It is also worth noting that the arbitration clause itself, as drafted, can significantly shape the options avail - able once a dispute arises. The seat of arbitration, the governing law, the number of arbitrators, the language of proceedings, and whether expedited or consolidat - ed procedures are available all influence the duration, cost, procedural flexibility and even the negotiating leverage of the parties. In many situations, strategic
advantages or constraints are effectively locked in before the dispute ever materialises. II. Challenges at every stage of a dispute Commercial disputes typically begin with disagree - ments over contractual performance. These disagree - ments tend to escalate through correspondence and discussion until one or both parties find themselves contemplating the activation of an arbitration clause. But this point is rarely the decisive moment it may appear to be. It is instead the beginning of a chain of strategic choices, each carrying its own difficulties and consequences. At this early stage, companies face a fundamental question: should the dispute be contained through negotiation or escalated to arbitration? The answer depends on a range of factors including the likely cost of arbitration, the strength of the legal position, the effect on the ongoing commercial relationship, and practical considerations around timing and opera - tions. One of the more common pitfalls here is entering into unstructured or open-ended negotiations without defined objectives. This can drain time and resources, and it sometimes results in the unintentional disclo - sure of the company’s position or internal documents that later prove damaging in arbitration proceedings. Poorly managed negotiations can also create impres - sions about the company’s intentions that were never meant to be communicated. There is also the perennial difficulty around partial payments and settlement offers. Many companies hesitate to make any payment or enter into settle - ment discussions out of concern that doing so will be interpreted as an implicit admission of liability. At the same time, an entirely inflexible stance risks esca - lating the matter into a lengthy, expensive arbitration with no guaranteed outcome. The real challenge lies in protecting the legal position while managing financial exposure with equal care. Arbitration costs are also sometimes weaponised at this stage, with one party deliberately inflating the expected expense of proceedings to pressure the other into settling regardless of the merits of the case.
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