Why Dispute Resolution Provisions Matter

Commercial contracts of all types, ranging from sales agreements of merger agreements often contain "dispute resolution" provisions. These provisions govern what typically happens if there is a complaint or dispute arising out of or connected with the contract. In essence, the dispute resolution clause is a contractual agreement of the parties as they are going to solve any differences that may arise.

Having contested the various types of commercial contracts for many years, one observation is that the parties often do not pay enough attention to these provisions when drafting the contract. At the time of writing the contract, the parties are often focused on price and other terms of key business. Furthermore, when a transaction is coming together, both parties are usually waiting for a mutually beneficial relationship. In short, when the contract is finalized and signed, neither party tends to believe that nothing will go wrong. As a result, the provision of dispute resolution, if you consider at all, is often left to the last round of discussions.

Provisions for resolving disputes often faced two potentially important points: (1) In the event of a claim or dispute will be decided, and (2) how the dispute will be decided. Both issues require careful consideration.

Where the dispute will be decided. Provisions for resolving disputes often have selection of forum clauses, which are also known as the choice of venue provisions. These provisions specify which court or courts deciding the dispute, and often require that the judge or judges in a particular jurisdiction exclusively decide the dispute. Although there are sometimes exceptions, courts have generally applied these provisions.

It 's easy to see why the choice of location is important. To use an analogy to sports, the forum selection clause may require that the dispute should be decided upon (literally) in the court house to the other party. Of course, it may still be possible to win in the jurisdiction of the other party, but the fight will be increasingly difficult and more expensive. If the other party, for example, a large employer in the other jurisdiction, may be hard to pick an impartial jury. You will also need, at least, to hire a consultant to work with the jurisdiction of the attorney's usual company. This adds a level of spending.

As the dispute will be decided. Provisions for resolving disputes may also contain provisions requiring that the dispute be decided by binding arbitration, instead of in the judicial system. In arbitration, the case is decided or more often by a single arbitrator or a panel of three arbitrators. The arbitrators are typically more lawyers with some experience in substantive or non-legal experts.

Many companies, particularly international companies prefer arbitration over litigation. There are pros and cons to arbitration, and if arbitration is right for a special party, requires the consideration of special circumstances. If parts of a commercial contract agree to arbitration, the agreement is typically enforceable. Furthermore, and although there are exceptions, it is extremely difficult to challenge an arbitration award is entered into through the court system.

If arbitration is chosen, the provision of dispute resolution may also address important issues such as the arbitrators shall be selected, and where the arbitration will be held. The provision of dispute resolution may require that a particular organization, such as the American Arbitration Association or the Chamber of Commerce administer the arbitration. These organizations (and other organizations that administer) also have rules that are often referred to govern the arbitration. The choice of an organization administration may be important. The use of an organization administration adds a layer of expenditure in the form of different rights. In addition, the parties must pay the arbitrators' fees, which can be very expensive.

Conclusion. The purpose of this article is to support a particular type of dispute resolution, but rather to emphasize the need for parties to consider carefully before signing a contract. In most cases, the provisions of dispute resolution will never come into play. When there is a dispute, however, become extremely important....