Now that the UK has left the European Union with a trade deal, businesses should be reviewing their commercial contracts to ensure they are compliant with the EU (Future Relationship) Act 2020
and other Brexit related regulations.
Whilst you are looking into clauses relating to intellectual property, exporting to EU customers and data protection / GDPR, you may want to consider if the dispute resolution clause (DRC) contained in your agreements is fit for purpose when a contract breach occurs.
This is especially so given that UK and EU laws may now be increasingly divergent. This creates opportunities for the misunderstandings and confusion about rights, risks and responsibilities, which so often generate contract disputes and can lead to court action.
What is a DRC and why is it important?
A Dispute Resolution Clause is an agreement between you and the other party detailing how a dispute or a breach should be resolved.
The DRC will become part of the contract and set out the steps to be taken to resolve a dispute. This does not mean that a DRC has to be confined to a commercial contract dispute, it can cover other issues such as negligence.
Often a DRC is viewed as 'boilerplate' or is created without much thought. But the savvy business operative will ensure that any DRC can work in their favour should a contractual dispute occur.
Should a dispute arise (and they often do) a clear DRC can mitigate the destructive stress associated with trying to resolve a disagreement using an ad-hoc approach, relying on court processes or legal systems in unfamiliar jurisdictions. All told, saving thousands of pounds in fees from professional legal advice.
The following should be considered when drafting and negotiating a robust DRC.
Laws and Jurisdiction
With contracts that encompass two or more countries, it is vital to set out which country's laws apply to resolve disputes ('choice of law'), and also which Courts have authority to make decisions on such disputes (often referred to as 'jurisdiction').
For example, say your organisation has a joint venture agreement to develop a new app with a German company. If you fall out with your customer, which laws will govern the ensuing dispute - those of Germany or those of England & Wales? And where will any legal action related to a dispute be heard - in the Courts of England & Wales or the Courts in Germany? Post Brexit, you may be more concerned than previously if the Courts or laws of a non-English jurisdiction now apply. The same will in any event be true if you are dealing with customers or suppliers in countries that are further away - South America for example, or Russia
For parties to an international commercial contract, it is well worth considering appointing a service agent in the country where you have agreed court proceedings would be commenced. By agreeing to appoint a service agent on whom notice of proceedings will be served, disputes regarding the effectiveness of serving court proceedings can be avoided.
Method to resolve disputes
There are several alternative dispute resolution (ADR) methods that can be used before going to court. Negotiation, Mediation, Adjudication, Arbitration - all these can be less expensive, faster, and more private than litigation.
Your contract's DRC should set out which methods will be used and in what order before a court application is made. One of the advantages of the ADR process is that, if the dispute resolution clause allows, parties can generally choose the decision-maker. For example, in construction contract disputes, both parties can agree on how an adjudicator is to be appointed and the qualifications they should ideally possess. The same is true for arbitration, where the parties can select an industry expert to handle the dispute.
Arbitration and Adjudication will still involve a process that involves formal steps that resemble a legal dispute like exchange of documents, rules on evidence, and the handing down of a written judgment.
Mediation is much more flexible and that is why it is often much cheaper and quicker. The parties appoint an agreed neutral Mediator who can help facilitate their own negotiation during the Mediation. Commonly, Mediation is successful 70% of the time in resolving disputes - often in just one day. The responsibility for resolving the matter still resides with the parties however - it is not up to the Mediator to decide (unlike in Arbitrations and Adjudications).
Whichever ADR route is selected, the contract can provide in advance how it is to work, such as how an arbitrator is chosen and which rules of arbitration apply, how a mediator is chosen and which mediation rules apply. The ADR routes are not necessarily mutually exclusive, e.g. a contract can provide that first of all the parties will negotiate, then they will mediate and then they will arbitrate, before resorting to the Courts
In multi-jurisdiction contracts, it is important to consider how a decision from the mediator/court/adjudicator will be enforced. One of the reasons Arbitration is commonly used for multi-jurisdictional disputes is that the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention
) provides an extensive enforcement regime for international arbitration awards. Post Brexit, enforcement of judgments in the Courts in EU countries may not be as straightforward as previously.
Contract Dispute Checklist
This article contains the primary DRC considerations for a commercial contract. It is always best to have an experienced contract dispute Solicitor draft and negotiate agreements.
This will give you the peace of mind that carefully thought-out DRC will be included, ensuring that disputes have the best chance of being resolved quickly, effectively and seek to avoid high costs.
In closing, make sure you consider the following:
- Consider adding a dispute resolution clause to a contract
- Clearly define which methods can be used, e.g. Mediation & Arbitration, and the order in which they apply
- Ensure there is clear (and beneficial) choice of law clause. This choice of which country's laws will apply may be relevant not just to the Courts but also to an Arbitration. Consider also which Courts ultimately have jurisdiction on any disputes (regardless of whether ADR processes are tried first)
- Consider whether you need to appoint sector experts to help resolve any potential commercial dispute which might mean that arbitration or adjudication would be a good choice.
- Get expert legal advice to clarify and negotiate key terms in this area.
Further Reading on handling Contract Disputes
Clive Rich, CEO and Founder of LawBite has produced a very insightful book on the subject of negotiation. The Yes Book: The Art of Better Negotiation - click here to see more