In a previous article, we discussed the necessity for lawyers and parties to meticulously negotiate and review each clause in a contract or agreement. Often, parties focus solely on clauses they deem most important, consciously or inadvertently neglecting others they perceive as inconsequential or "not too serious." As we posited, the devil in contracts is in the details, and the clauses one may overlook can lead to significant legal issues and problems for the involved parties.
Moving on, human relationships including contractual ones, are not immune to disputes. Regardless of the closeness or intimacy shared between parties; whether as friends, family, or trusted associates, disputes or disagreements may arise during the execution of contracts.
In recognizing this inherent uncertainty in the execution of contracts, we cannot overemphasize the significance of a well-drafted dispute resolution clause. The dispute resolution clause acts as a strategic guide, providing a structured framework for resolving conflicts that may emerge, as well as ensuring that parties to a contract can effectively resolve disagreements and conflicts with clarity and fairness if and whenever the conflict arises.
For instance, we have two parties who excitedly enter a contract for the sale and supply of goods, trusting that things will go smoothly. Unfortunately, a dispute arises later on regarding the quality and delivery of the goods. The problem escalates because the lawyer who drafted the contract did not include a dispute resolution clause. During the negotiations, the contract seemed so simple, and both parties never envisaged a situation where a dispute or conflict would arise.
Now, the parties are stuck without a clear way to solve their disagreement. One of them feels so hurt and believes he can only get redress by going to court, but the other party wants to adopt an alternative dispute resolution method. They are now both left in a tricky situation, trying to figure out what to do next. Without an agreed dispute resolution method contained in a contract, parties may be faced with another dispute within a dispute.
Using the same scenario portrayed, let us further envision a situation where there is actually a dispute resolution clause contained in the contract, but it is not properly drafted because it lacks precision and clarity as to the methods of dispute resolution to be adopted. In this situation, any form of vagueness will still give room for confusion, and parties may also be frustrated by attempts to properly construe and interpret the improperly drafted dispute resolution.
It is important that parties envisage the possibility of a dispute, and the draftsman effectively drafts a good contract with the agreed dispute resolution clause included. Such dispute resolution clauses must be specific enough as to the method of resolution, the applicable legal framework where necessary, as well as the jurisdiction especially in this time of globalized and cross-border contracts. A well-drafted dispute resolution clause should contain the processes and other modalities involved, particularly envisaging situations where a dispute resolution method fails to completely resolve the dispute between the parties to a contract.
When lawyers incorporate a dispute resolution clause specifying the adoption of alternative dispute resolution methods, they must understand and incorporate the intricacies involved. It is not enough to merely state that parties shall resort to alternative dispute resolution, such as mediation or arbitration. Reason being that there are different processes or legal frameworks governing mediation or arbitration, and they should be diligently considered.
It is important that parties recognize that agreeing to and including a dispute resolution clause is not a mere formality. When a specific method, such as mediation or arbitration is agreed upon, deviating from such agreed method, for instance, opting for court action can lead to complications. As a matter of fact, there is the likelihood of the court throwing out a case through a preliminary objection from the opposing party.
On a lighter note, if parties decide to settle disputes by stepping into a boxing ring for a few rounds, they should understand that this is their agreed-upon dispute resolution method.
In all, a good dispute resolution clause can prevent a prolonged period of conflict and legal issues that will cause financial strain and disrupt the business processes of the parties. Many times, most issues parties first encounter can be well avoided by a well-drafted contract that widely envisages possible issues and the steps to solving them.
We cannot be too careful and entirely cover the field when entering into or drafting contracts. However, parties tend to face greater problems if the contract is deficient.
