Preparation is key with dispute resolution clause

When preparing the dispute resolution clause in a contract there are a number of items to consider, and in this two-part series I shall attempt to identify what I consider to be the key issues and items. Timing is of course crucial, and this month’s opening article will explore the optimal timing for entering into an agreement, along with key considerations including: a) whether there should be condition precedents to the final binding process; and b) assuming the parties opt for arbitration, whether to have institutional or ad hoc arbitration.

Timely and proper drafting

The optimal time to consider the preferred dispute resolution process for a contract is at the time the parties enter into their agreement. After a dispute has arisen, agreement on anything between the parties is much less likely.

It is therefore prudent to ensure that careful thought is given at the contract drafting/negotiation stage to the best dispute resolution process for that particular contract. There is no “right solution”. Every contract is different and requires individual treatment.

Before going to the drafting stage each party should consider initially what it is trying to achieve in the dispute resolution process. The often quoted advantages of alternative dispute resolution mechanisms are as follows:-

1. Confidentiality.
2. Neutral forum with tribunal being independent and impartial.
3. Tribunal members specialised in certain areas and best suited to deal with the case.
4. A cost efficient process which is suitable to the dispute.
5. A final enforceable decision with no appeal.

   Often dispute resolution clauses in contracts are far too brief and incomplete. On many occasions the drafting is also careless leading to the parties being required to go to court, sometimes in an unfriendly venue, to put forward arguments about jurisdiction. Another common failing of parties is to attempt to gain “home advantage” in the dispute resolution process without regard for enforcement difficulties later.

Philip Nunn is the head of litigation & arbitration, Asia, for Fried Frank Harris Shriver & Jacobson, and a member of China Business Law Journal’s editoral board.