Ronaldo Richards.
IN complicated negotiations the dispute decision clause is usually an afterthought. For a lot of, it’s a perfunctory clause which is included after the extra substantive or contentious elements of their contract have been agreed. This view is compounded by the truth that many events enter into contracts in good religion, by no means believing {that a} dispute will come up between them. Whereas laudable, such a view could also be pricey in the long run if a dispute does come up. Consequently, it is likely to be helpful to think about a dispute decision clause as an insurance coverage coverage to settle any potential disputes shortly quite than a harbinger of non-performance by the opposite social gathering.
In some circumstances the events might conform to have some disputes settled by nationwide courts whereas having different issues determined in arbitration. For instance, some events might need that questions in regards to the validity of the contract be settled by nationwide courts however might deem arbitration extra appropriate for points relating to the efficiency of the contract. Nonetheless, the place the clause is unclear as to the discussion board for settling a specific dispute, a poorly drafted dispute decision clause might end in events subjecting extra issues to arbitration than they supposed.
Conventional Method
The standard view was that such a consequence might be averted by mere stylistic variations within the wording of the clause. From that emerged a largely synthetic distinction between whether or not the dispute is alleged to “come up below the contract” or “come up from the contract”. The considering was that the previous was a narrower clause which solely included these disagreements that are explicitly lined by the contract, reminiscent of breach of a time period. In distinction, “disputes arising from the contract” was deemed to be broader as a result of if a dispute had been to come up from the contractual relationship however not the phrases of the contract itself, that dispute may nonetheless have been lined by the arbitration clause. Nonetheless, this was unsatisfactory as a result of it was a fantastic distinction turning on the usage of below vs from in circumstances the place the events usually didn’t give it that a lot thought.
Trendy Method: The ‘One-Cease Arbitration’
The fashionable strategy is ready out within the main case of Fiona Belief & Holding Company v Privalov [2007] 4 ALL ER 951, a case, determined by the then United Kingdom Home of Lords (now the UK Supreme Courtroom). The courtroom discovered that if a contract has two clauses — one sending disputes to English courts and one other to arbitration — the presumption is that the events supposed for a similar tribunal to deal with all disputes, except the clause says in any other case.
On one hand, this place brings simplicity to the process for settling disputes because it reduces the probability of conflicting selections. Nonetheless, alternatively, it could enlarge the scope of the arbitration past what the events supposed. Notably, the Fiona Belief precept may apply the place there are separate however associated agreements between the events with completely different jurisdiction clauses.
This contemporary strategy exemplifies the significance of correctly drafting dispute decision clauses. It’s not adequate for ‘boilerplate’ or commonplace clauses for use with out regard to what’s most prudent, primarily based on the business curiosity of the events.
Sensible Issues
In case you are considering having two dispute decision mechanisms in a contract or associated contracts, listed here are a few of these sensible concerns to keep away from the pitfalls above:
• Decide whether or not it’s essential to have two separate dispute decision clauses and the rationale for doing so, together with by contemplating if the business function of the contract(s) could also be happy by having one dispute decision clause;
• Use particular language when delineating which disputes are topic to the arbitration and which aren’t; and
• Rigorously interrogate the clauses used to evaluate whether or not the aim of the clauses could be achieved if a dispute had been to come up.
A dispute decision clause often is the shortest in a contract however it could have essentially the most far-reaching penalties for a celebration who finally ends up coping with greater than what he bargained for on account of a poorly drafted one.
Ronaldo Richards is an affiliate at Myers, Fletcher and Gordon and a member of the agency’s litigation division. He could also be contacted at ronaldo.richards@mfg.com.jm or by way of the agency’s web site www.myersfletcher.com. This text is for common info functions solely and doesn’t represent authorized recommendation.
