Stop the headaches with a well-drafted dispute resolution clause

21/11/2022·2 mins to read

Stop the headaches with a well-drafted dispute resolution clause

The current High Court statistics show that the average time for a civil trial to be heard has increased from 746 days to 830 days.^[1] That’s why – now more than ever – to avoid the headaches and hassle of litigation, it’s important that parties give careful consideration to the dispute resolution clause, including the forums for resolution, when negotiating and drafting contract terms.

Overview

When it comes to a dispute resolution clause, there is no ‘one size fits all’. An effective dispute resolution regime needs to take into account the specific context of the contract, the parties and any other points such as privacy needs or concerns around setting of precedents.

When drafting a dispute resolution clause, it is critical to ensure that the dispute resolution clause is clear and certain. In particular, it’s important to consider the ambit of the ‘dispute’.

As to a forum for resolution for a dispute, there are multiple options available, including negotiation, mediation, adjudication, arbitration and court proceedings. A typical dispute resolution clause will contain a stepped process; at the one end parties can negotiate the resolution between themselves and at the other a third party is responsible for determining the outcome.

If parties decide that a third party is required to make the decision on the outcome of the dispute, there are several options available. The parties may refer a specific question or an issue to an independent expert and depending on the drafting of the clause, this may be final and binding. The more common resolution processes in commercial contracts involve the use of arbitration or litigation.

A key difference between arbitration and litigation is that in arbitration, parties have control over the appointment of an arbitrator (either a single arbitrator or a panel), parties can also choose the location, hearing dates and may have some control over when an award will be issued. By comparison, if parties elect to take the litigation route a judge will be allocated, the trial will be in an open court (unless there is a suppression order in place), the public could access the court file and when the trial will be set down and a judgment issued is outside the parties control.

It is important to consider the wording of the dispute resolution clause at the time of drafting and negotiating the terms of the contract. Poorly drafted clauses or those that do not suit the parties or the subject matter of the contract, can result in significant cost to both parties when a dispute arises months or even years after signing the contract.

Key takeaways

There is no ‘one size fits all’ dispute resolution clause. There is real risk that using a template clause without considering a specific subject matter and the parties' requirements in the context of the contract can lead to problems down the track.
A dispute resolution clause must be clear. At the drafting stage, parties need to consider the definition of ‘dispute’ under the contract i.e. will it be narrow (relating only to a specific clause or type of dispute) or wide (encompassing all disputes or a differences between the parties to the contract).
When selecting a forum for resolution, parties need to consider the level of control they wish to have over the dispute resolution process and any privacy concerns.

Recently, Jo-Anne Knight and Christine Gordon of the Construction team presented at a Legalwise seminar on contractual disputes. You can see the full paper here.