Dispute Resolution Clause

 Now that the UK has left the European Union with a trade deal, the first thing it threw up was a dispute with goods and vaccines to Norther Ireland. Could it be that the negotiators did not include a waterfall Disputes Resolution Clause (DRC)  whereby communication is the first port of call.? Based upon that we set out a few pointers herein.

Whoever you are dealing with it always pays to set out a simple DRC because whatever law you are dealing with the principle that communication solves problems is universal, but needs setting out set out within any contract.

This is become more important as English law differs from EU law, but the basic premise that people must communicate to solve problems remains as it was. You don’t want to leave it to the lawyers do you as they often struggle to talk to each other using phrases that solve problems. Misunderstandings and confusion about rights, risks and responsibilities often generate contract disputes and can lead to court action. Our stock in trade phrase is:  only a fool seeks to sit in front of a judge.

What is a DRC and why is it important?

A Dispute Resolution Clause is an agreement between you and the other party detailing how a dispute or a breach should be resolved. 

The DRC will become part of the contract and set out the steps to be taken to resolve a dispute. This does not mean that a DRC has to be confined to a commercial contract dispute, it can cover other issues such as interpretations on specifications etc.

Often a DRC is viewed as a template and  is created without much thought. The worst are those that set out that disputes must go to arbitration without any thought of the time and money cost of this. The best contracts are those that recognise what a simple drafted DRC adds to a contract, should a contractual dispute occur.

Should a dispute arise (and they often do – ever met a man who says he never argues with his wife?) a clear DRC can mitigate the emotion and  stress associated with trying to resolve a disagreement using an ad-hoc approach, relying on court processes or legal systems in unfamiliar jurisdictions.

The following should be considered when drafting and negotiating a robust DRC.

Laws and Jurisdiction

With contracts that encompass two or more countries, it is vital to set out which country's laws apply to resolve disputes ('choice of law'), and also which Courts have authority to make decisions on such disputes (often referred to as 'jurisdiction'). 

For example, say your organisation has a joint venture agreement to develop a new app with a German company. If you fall out with your customer, which laws will govern the ensuing dispute - those of Germany or those of England & Wales? And where will any legal action related to a dispute be heard - in the Courts of England & Wales or the Courts in Germany? Always choose your jurisdiction if you can, but check the ramification of the DRC in the contract if you cannot.

Method to resolve disputes

We say split it into 3

1.     The parties seek to solve it between themselves or their representatives

2.     If not mediation agreed between the parties non-binding

3.     The lowest cost arbitration put forward by either party.

When there is a DRC set out nearly all disputes are resolved at stage 1 because all conflict is eventually resolved by people talking so why not invoke that early.

If you get to 3 then perhaps there is something wrong, but when there is a DRC communication happens routinely as both parties have signed up for it.

Conclusion:

1.     Always look at adding a DRC to a contract

2.     If you haven’t got one its never to late to add one.;

3.     Make it a waterfall procedure with communication written in to every sub clause.

4.     Ensure there is clear (and beneficial) choice of law clause. This choice of which country's laws will apply may be relevant not just to the Courts but also to any Arbitration.

5.     Consider also which Courts ultimately have jurisdiction on any disputes (regardless of whether ADR processes are tried first)

6.     Consider whether any arbitration process requires a need  to appoint sector experts to help resolve any potential commercial dispute.

7.     Remember, any DRC is about the 3 Cs Clarity, Common sense and Communication.

8.     For everything else call CW Contract law and Legal to check your contract and draft you

www.cwcontractlawandlegal.co.uk