RETHINKING DISPUTE RESOLUTION CLAUSES
In commercial negotiations, business teams and lawyers understandably spend much of their time and energy securing as favourable rights as possible for the companies they represent. Sometimes lost in the frantic to and fro of these negotiations, however, is focus on the mechanism by which those rights will ultimately be enforced, namely, the dispute resolution or ‘DR’ clause.
DR clauses are often dismissed as boilerplate with little (if any) care taken to assess whether the proposed DR mechanism (usually carried over from the last deal) is suitable or not. The result is that disputes lawyers spend inordinate amounts of time arguing about the very clause that was intended to resolve arguments between the parties.
Sometimes these arguments arise out of obvious errors like overlapping arbitration and jurisdiction clauses, failing to account for multiparty or multi-contract scenarios, or bespoke drafting that conflicts with otherwise applicable procedural rules. But perhaps the most time consuming and costly disputes arise not out of obvious errors like these but out of DR choices which are very commonly included in commercial agreements, and on their face reasonable, but which when applied in practice give rise to unintended consequences.
This article addresses two such choices: tiered DR clauses and split or hybrid clauses. As well as identifying the potential pitfalls of these clauses, this article suggests ways that parties might reconsider their drafting of them.
Jul-Sep 2023 issue
Ashurst LLP