Drafting Enforceable Dispute Resolution Clauses: Part 1 - Key elements

What is Dispute Resolution?

Dispute resolution is a process of settling conflict between parties that are at odds over one or more matters. Typical called ADR (“Alternative Dispute Resolution”) because it provides a different way, other than going straight to court. It is a preferential first step.

There are three main types of ‘out of court’ ADR processes, Mediation, Conciliation, and Arbitration. Litigation is any formal legal proceedings issued, generally at Court or in a Tribunal. Litigation requires an independent authority - normally different types of judge(s) - to determine which person in the dispute is correct.

Arbitration is the most similar to Litigation, the parties being forced into arbitration by having agreed to enter arbitration by virtue of a legally enforceable arbitration clause in a contract they have agreed previously. The difference with litigation is that the parties choose their judges, by nominating a panel of one to three Arbitrators who then govern as a judge would.

Mediation and Conciliation is when an independent expert aids communication between the parties to seek to resolve a dispute between them. Unless agreement is codified in a contract these processes will not result in a legally enforceable settlement. You can learn more about non-binding ADR and its advantages and disadvantages here.

Jurisdiction and Venue

One of the first steps in dispute resolution involves selecting the appropriate jurisdiction and law – usually these are (and should always be) already agreed in the contractual documents between the parties. Top destinations for ADR, particularly arbitration, include:

●        London,

●        Singapore,

●        Hong Kong,

●        Paris, and

●        Geneva.

These jurisdictions are favored for two primary reasons. Firstly, local courts in these areas generally do not interfere with ADR proceedings, allowing parties to negotiate autonomously. Secondly, these locations are global hubs for international business and trade, hence capable of accommodating ADR proceedings across multiple jurisdictions.

Selecting the neutral third party

The role of an independent expert is to help conflicted parties find a satisfying outcome that feels fair for both of them. There are several factors that should be taken into consideration while choosing a third party.

                                 I.            Trust and Respect

The first and most important factor is whether both parties trust him and his impartiality and respect his advice. It is essential because a party may not be willing to collaborate or be satisfied with the process, which could undermine its purpose.

                               II.            Area of expertise

It is important that the expert has relevant experience in the area of your dispute. The more familiar the expert will be with the kind of cases you’re seeking help with, the better the outcome will be. An experienced expert will have seen different cases with various outcomes and will know what steps to undertake to arrive with an effective and mutually beneficial solution.

                             III.            Engagement

A good expert will be engaged with your dispute and will make sure to arrive with a suitable solution even if that requires following through and extending the process until a satisfactory conclusion is reached. It has to be remembered that some additional charges may apply if that is the situation, however, in most instances any additional costs will be nominal to the cost of legal proceedings.

                            IV.            Flexibility

An effective expert will seek a method of dispute resolution that will be suited to the needs of the parties and the dispute. Even though mediators, conciliators and arbitrators have their own practices, the best ones will try to modify and adjust them to the current issue.

Clarity and Specificity

Dispute resolution clauses are contractual agreements which bite when one party falls out with another. If you haven’t agreed to ADR in a dispute resolution clause, you cannot force another party to use it. It is essential that these clauses are clear and well-drafted otherwise they may not be enforceable. If the clauses are not, clear and comply with the base legal requirements, again, they may not be enforceable, such as in Kajima Construction Europe v Children's Ark Partnership Limited [2022] where the relevant clause was deemed too ambiguous; this Court of Appeal judgement confirmed that clauses must be clear and ‘commercially sensible’.

Like in case of any contract, if the clauses aren’t clear and the parties don’t have a shared understanding of the agreement, a ‘meeting of minds’ will not be reached, and litigation may be the only option.

Conclusion

It is crucial that dispute resolution terms are clear, well-worded and carefully thought through. This increases the likelihood of the terms being enforceable and satisfactory for all parties. If, however, the terms are blurry, confusing, or too complicated then there is a risk that your dispute resolution clause may not be enforceable.

Part 2 of this article will outline some real-life examples to bring context to the law!

Author: Zofia Bonarowska -

Author: Zofia Bonarowska -

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DISCLAIMER

This article has been written by law students for the sole purpose of providing informative insight. The information in this article is intended for educational purposes only and does not constitute legal advice, nor should the information be used for the purpose of advising clients. You should seek independent legal advice before relying on any of the information provided in this article.

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