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Dispute Resolution Post COVID – Options and Choices

  • Market Insight 7 June 2020 7 June 2020
  • Global

  • Coronavirus

Dispute Resolution Post COVID – Options and Choices

By the time key commercial terms have been agreed, the choice of dispute resolution mechanism can be seen as a tiresome formality and often little thought is given to whether the mechanism is appropriate, or even whether it works. 

This means that parties can be stuck with dispute resolution mechanisms which are unsuited to the actual dispute that has arisen, or may arise. 

It is not impossible for parties to agree to vary the dispute resolution mechanism after the contract has been executed and indeed after a dispute has arisen, and in these times of extreme uncertainty there may be good reasons why both parties want this. On the whole, though, this is a difficult negotiation so it is much better to try and get the dispute resolution mechanism right in the contract when first agreed.

Today, when you are entering into a contract, more than ever, do take the time to get your dispute resolution clause right. 

But if you are hit with a dispute under an existing contract, do think really carefully before you embark on proceedings under the dispute resolution clause.  There may be options out there, that are not in your contract, which might give you a better overall outcome. 

At the start of any dispute you should be asking yourself some of the following questions.

  • What dispute mechanisms do we have in our contracts (you may have more than one)?
  • What are our priorities? They might include speed, cost, certainty of outcome, protection of a commercial relationship, reliability of enforcement, confidentiality and much more besides)? 
  • Are those dispute resolution mechanisms suitable for this contract and / or this dispute, taking into account our priorities?
  • Where dispute resolution provisions are, or may be, inappropriate, is renegotiation possible?
  • Are there other options to consider?  Is there an assisted negotiation process we could consider? Could we insist upon a particular jurisdiction even without agreement (this can sometimes be effected by commencing injunctive proceedings, for example)? 
  • Where renegotiation of the dispute resolution provisions is not possible, what steps can be taken in the early stages of a dispute in order to achieve our priorities?  Can we agree a 'documents only' process, for instance?  Can we propose a virtual hearing?  Can we tailor the process to our needs in some other practical manner?

Turning to the dispute resolution mechanisms themselves, at the highest level there is often a binary choice between arbitration and court proceedings.  Both, of course, have their perceived advantages and disadvantages in principle, but arbitration tends to have the edge in cross-border transactions because the prospects of international enforcement are much better.

But even if you opt for arbitration, it isn't quite that simple.  Parties now have a huge range of forums, institutions and rules to choose from, all of which have their particular perceived advantages and disadvantages.  For instance:

  • Some institutions are quicker, some slower. 
  • Some take an active role in managing cases and tend to be more expensive.  Some are more light-touch, but may be cheaper. 
  • Some have lists of preferred or even required arbitrators, some have complete flexibility.
  • Some are very specialist to particular industries, some are not.
  • Some are regional players and some are truly global.

You should also think about particular factors which affect your business.  For example, if you typically have standard contracts where you are always the seller, do you want to include a wide range of dispute resolution options in your contract that you can unilaterally choose from when a dispute arises, depending on the most effective way of enforcing your rights. 

In summary, there is today a much greater range of choices of dispute resolution than there ever has been in modern history.  There are some really smart active choices that you can make either when entering into a dispute, or indeed after a dispute has arisen, which may make your experience of the dispute resolution process a lot more satisfactory overall. 

In short, we recommend that you set aside a few minutes of your time to think about what you want to achieve and attempt to assess whether your existing dispute resolution provisions fulfil those needs.  If they do not, we recommend you consider what steps you should take to put yourself in the best position to address any shortcomings in those provisions.

Should you decide to embark on this exercise, you may wish to ask yourself the following questions to guide your consideration.

  1. What is the typical value of a dispute which your company may become involved in?
  2. Where, legally, are your counterparties typically incorporated? Where do they have assets?
  3. Do you typically trade with the same counterparties repeatedly? How important, generally, is maintaining a commercial relationship with a counterparty after a dispute?
  4. Rank the following in order of importance to your company as part of a dispute resolution process: cost of beginning proceedings, overall cost of proceedings, transparency and predictability of institutional costs, speed of getting proceedings up and running, speed of award, predictability of outcome, flexibility of procedure, ability to pause proceedings once commenced, continuity of relationship with counterparty, international enforcement, confidentiality, availability of interim measures (such as emergency proceedings, summary disposal of bad claims).

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How can we help?

If you require any guidance in your choices, or in understanding how your preferences can best be reflected in the right dispute resolution clause, we would be very happy to discuss this with you, please contact us.

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