Sometimes It’s Worth Allowing Some Time – “Cooling-Off Period” in B2B Contracts

In B2B contracts, particularly those that are complex and of high value, it is advisable to consider including a clause that provides for a so-called “cooling-off period”. This contractual provision, which comes into effect upon notification of a dispute, ensures a temporary suspension of actions or escalation, allowing the parties time for reflection and an attempt to resolve the dispute amicably. Such a provision supports risk management and the maintenance of long-term business relationships.

In B2B agreements, a “cooling-off period” clause typically becomes effective after one party communicates a dispute. This means that the parties agree to refrain from any legal actions, such as filing lawsuits or initiating arbitration proceedings, for a specified period, often ranging from 30 to 90 days. During this time, the parties have the opportunity to engage in negotiations, mediation, or other forms of alternative dispute resolution (ADR) to reach an agreement.

The “cooling-off period” in the B2B context plays a crucial role in de-escalating conflicts, giving the parties a chance to resolve issues without the need to engage in costly and time-consuming legal proceedings. This approach is beneficial for maintaining business relationships, as it allows the parties to remain professional and avoid further damage to their cooperation.

This clause requires the disputing parties to take certain actions, such as appointing representatives for negotiations, organizing meetings, or exchanging information necessary to resolve the issue. The parties must also adhere to the agreed timelines to prevent the conflict from escalating after the “cooling-off period” ends.

However, it is important to note that a “cooling-off” clause does not preclude the initiation of legal or arbitration proceedings, i.e., failure to comply with it does not constitute an absolute procedural bar. This means that a court or arbitral tribunal cannot dismiss a lawsuit solely because the “cooling-off period” has not elapsed or because the parties have not attempted to de-escalate the conflict. Nonetheless, failure to comply with this clause may have negative consequences for the non-complying party, such as in the allocation of litigation costs or in the assessment of the credibility or good faith of the party that failed to adhere to the provisions of such a clause.

It is also possible that a party, justified by the course of cooperation to date, may reasonably believe that the “cooling-off period” would be unproductive, and the clause would not fulfill its intended purpose.

Although the “cooling-off period” is an effective tool in dispute management, there are situations and agreements where its application is not recommended. This primarily concerns contracts that may lead to disputes requiring immediate intervention, such as intellectual property infringements or issues related to the continuity of operations. In such cases, the parties may choose not to include such a clause in the contract or introduce clauses that allow for swift action or exceptions to the “cooling-off period”.

The “cooling-off period” in B2B contracts after the communication of a dispute is an effective mechanism supporting conflict management. It allows the parties to focus on negotiations and seeking an amicable solution, which is crucial for maintaining healthy business relationships. A well-designed “cooling-off” clause can prevent the escalation of disputes and contribute to reaching an agreement without the need to engage in legal or arbitration proceedings.