Dispute resolution clause Overview
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The document discusses dispute resolution clauses and alternative dispute resolution methods like mediation and arbitration. It provides examples of court cases related to interpreting and enforcing dispute resolution clauses. Some key points are: dispute resolution clauses should clearly outline the dispute resolution process and avoid ambiguity; mediation is a non-binding process while arbitration results in a binding decision; and courts examine parties' intentions when assessing whether a dispute resolution clause is valid and applicable.
Dispute resolution clause Overview
- 1. Outline • What does Dispute Resolution Clause mean ? • Dispute Resolution Clause • Methods of Alternative Dispute Resolution • Mediation • Arbitration • Habas Sinai v Sometal case study • Sulamerica v Enesa case study • Emirates Trading v Prime Mineral case study • Flight Training Int. v International Equipment case study • Conclusion
- 2. Introduction • Dispute resolution clauses need to provide more than just a reference to negotiate in 'good faith‘ as it has to appear more indications to the proceedings to follow. • Dispute resolution clause could save time, money, unnecessary litigation and could avoid destroying the relationship between the parties to the dispute. • Alternative Dispute Resolution is a commonly used term to include a range of processes which involve the use of an external third party and which can be regarded as a way of settling the dispute. • Pathological Dispute Resolution Clause, whenever there is a defect In the clause that terminate its effectiveness or applicability. • Escalation clause, in which the parties agree upon resolving the dispute on staged basis of following one or more resolution procedure before resorting to the final resolution method whether it is Arbitration or Litigation.
- 3. Dispute Resolution Clause • It has been argued that resolution clauses may take the way of an indication that the arising dispute may refer to alternative dispute resolution, however, that depends in two circumstances • First whether it is ‘two-cases contract’ or ‘single case contract’. • Second whether it is referred to particular institution or not. • On the other hand, to have legal effect, dispute resolution clauses must state • Clear and precise obligations of the parties at each stage, • What form of process should take each stage, including timeframes. • Avoid ambiguity or require the court to 'fill in the gaps' in order to be able to properly construe it. • Otherwise, the clause may well be held to be legally unenforceable and a party may be left with no option but to submit to litigation proceedings from the outset, when this is precisely what the clause had been intended to avoid.
- 4. CONT’D • Moreover, It has been stated that good Dispute Resolution Clause has to provide several key factors • It has to be enforceable • It has to be a resort precedent to Litigation • It has to be precise, as to the methods and procedures to follow • It has to mention which problems that may arise • It has to reserve the contractual connection between the parties • NADRAC ‘National Alternative Dispute Resolution Advisory Council’ stated that lack of clarity may establish obstacles to the application of the ADR clause. • So that failure to provide a clear mechanism that can lead to settle of the dispute in agreeing upon course of actions the clause could be rendered void for uncertainty.
- 5. CONT’D • Yet, there are basic standards of requirements to be agreed upon within the dispute resolution clause • The Governing Law, parties have to agree upon the substantive law, whether the same as the contract or different. • The Procedures, whether it is administered or non-administered. • The place for resolving dispute, parties have to agree upon particular country. • Language, especially in international contracts. • Tiered Clause, in which the parties may refer the dispute to negotiate friendly, if this is not resolve the dispute, the parties may agree to refer it to mediation before settling the proceedings to litigation or arbitration.
- 6. Mediation • In case of dispute between contractual parties, they may agree to settle the dispute with informal procedure by a neutral third party, however, any settlement resulted from mediation is not binding, unless they agreed to form it in a contract. • Mediator’s methods to follow commonly are evaluative or facilitative. • Usually mediation is used in Dispute Resolution Clauses as ‘filter clause’ or ‘step clause’. • Even though in such a contract that any dispute arises shall govern by arbitration, there is no problem for parties to agree to settle the dispute by mediation first. • The best mediation clause in contracts as to be assurance not just indication, is to include the mediation institution as ‘ACAS’ or mediator name, Rules regulating mediation, language, governing law in substance, in case of failure to be referred to final resort whether litigation or arbitration.
- 7. Arbitration • ‘Binding Arbitration Clause’, is a clause in the contract that is binding and decisive so that the arbitral award is final and enforceable. • ‘Non-Binding Arbitration’ is a clause in the contract that in case the arbitral award is unsatisfactory for the parties, they may initiate a lawsuit in courts. • The arbitration clause shall be drafted in a manner so that it would not affect the enforcement of the clause or applicability of the arbitral award. • Arbitration is a formal method of resolving disputes as litigation, so the arbitral award is enforceable on the parties. • Arbitration clause can be an indication of resolving the dispute with referring to ‘ Non- administered arbitration’, which is a method of resolving dispute in which the arbitrator and the parties managing the proceedings instead of administering institution.
- 8. Habas Sinai Endustri AS v Sometal SAL 2010 • Sometal sought a claim against Habas Endustri in London Arbitration for breaching of sale contract for steel scrap, but Habas argued that the sales contract in June 2008 did not include any explicit incorporation of arbitration agreement. • The history between the two parties was total of 15 contracts, in which the first 3 contracts were included arbitration clauses drafted by Habas for UNCITRAL Arbitration Rules / Turkish Arbitration. • The consequent contracts were included arbitration clauses by Sometal that dispute to be governed by London Arbitration, or prepared by Sometal Agent, M, of short contracts that were not include the arbitration agreement terms but include an indication to be the same as what they had agreed before. • In such a case, the Judge held that restrictive approach for incorporating terms would not be applied in this case as the general words by the agent were sufficient to refer to all the previous terms including the arbitration term so that the incorporation of general terms would be sufficient to apply the arbitration clause into the contract without an explicit mention as the court established its decision as that was the intention of the parties.
- 9. Sulamerica CIA Nacional De Seguros SA v Enesa Engenharia 2012 •The court held that the insurance policy provided for Brazilian law and jurisdiction but contained an arbitration clause providing that the seat of arbitration was in London, there was no implied choice of Brazilian law to govern the arbitration agreement and its proper law was English law because that was the law with which it had its closest and most real connection
- 10. Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd 2014 • Emirates Trading and Prime Mineral had Long Term Contract took place in October 2007 • A dispute resolution clause was provided that friendly discussion in good faith between parties has to take place, if they failed to resolve the dispute, then the non-defaulting party may refer the case to arbitration. • Emirates, the claimant, argued that the arbitral tribunal did not have jurisdiction over the case, as there was a precedent procedure to follow which is time limited negotiation of consecutive four weeks to consultation between parties. • Judge Teare refused such order and rejected all the arguments by the claimant, as the arbitral tribunal has jurisdiction over the case as both parties failed to resolve the dispute with the precedent method of friendly discussion.
- 11. Flight Training International Inc v International Fire Training Equipment Ltd • International Fire Equipment argued that there was no arbitration agreement under the contract between the parties, as it was referring any dispute to ACAS to mediation not arbitration. • the Judge granted the application as there was no arbitration agreement between the parties and can not be understand from the contract but mediation, which showed a strong indication from the parties that they agreed upon referring to such institution for mediation in employment services not commercial disputes service which ACAS does not provide.
- 12. Conclusion • Negotiation can be applied if the parties agreed to do so, even if it is not mentioned in the clause as its lack of enforceable power. • Dispute resolution clause could be just an indication of the rules or an institution name to govern the dispute. • Institutions standard clauses are preferable in most of the cases. • In some cases, one of the parties intentionally may void and null such clause by the way of drafting it. • Dispute resolution clause enforceability depends upon the parties intention when drafting the clause.