THE KEY FACTORS TO CONSIDER WHEN CHOOSING A DISPUTE RESOLUTION MECHANISM IN COMMERCIAL CONTRACTS
The choice of a dispute resolution mechanism in a commercial contract is not as straightforward as parties like to often imagine. It requires a careful analysis of the various factors which may have a potential impact on the contract. Indeed, a one-size-fits-all dispute resolution clause is never the solution – as expected, the circumstances surrounding each transaction are often different. Yet, the dispute resolution clause is perhaps one of the least negotiated clauses in commercial contracts. This should not be particularly surprising – no one (or perhaps, no reasonable person) enters into a contract anticipating a dispute. In fact, any attempt to unduly negotiate the clause is often considered as a bad omen and may cause parties to be unnecessarily edgy and cautious. It is often tucked somewhere at the end of a contract, like an afterthought, when parties have concluded negotiations on the “main clauses”. It is often referred to as a standard clause
which parties can just lift from a previous contract or an online precedent and dump into their new contract with minor tweaks. The reality is this – there is nothing standard about a dispute resolution clause. Things go wrong, more often than one may like to readily accept. Therefore, it is important for parties to pay close attention.
The use of an arbitration clause in commercial contracts has almost become an acceptable standard practice. For many years, arbitration has been touted as the “golden child” of dispute resolution and it is now increasingly rare to find parties referring potential disputes to litigation. The reasons for choosing arbitration over litigation are the same
cliché, tired and over-recited arguments of time efficiency, cost effectiveness and confidentiality. The jury is still out on whether those arguments are still relevant and valid given the manner in which a lot of litigation techniques and features have crept into arbitration. But that is a separate issue. When disputes arise, parties are forced to confront
the realities of their choice which throws up an important question – what are the main considerations for deciding the dispute resolution mechanism in commercial contracts?
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NameThe Key Factors to Consider When Choosing a Dispute Resolution Mechanism in Commercial Contracts
Date9 May 2019
CategoryResources & Publications