The Critical Role of Dispute Resolution Clauses
Last week, I published an in-depth post on international dispute resolution clauses. See A Guide to Dispute Resolution Clauses in International Contracts.
The unexpected volume of emails I received from that wonky post — more than I’ve gotten to a post in months — highlights both how critical these provisions are in international contracts, and that many lawyers are as fascinated by these clauses as I am.
Reader Feedback: A Testament to the Importance of Dispute Resolution Clauses
Lawyers from across the globe responded to my article. An arbitration lawyer from Dubai/London praised its educational insights: “I have just read your remarkable article about Dispute Resolution Clauses, and felt that I had to email you to tell you how informative and educational I found it. Thank you.”
An arbitrator in London noted its potential to enhance the efficiency of dispute resolution processes: “In my role as an arbitrator, I often observe the critical impact that well-drafted dispute resolution clauses can have on the efficiency and effectiveness of the resolution process. Your emphasis on the importance of these clauses resonates with me.”
A trade lawyer in Singapore wrote me on how she has seen first-hand how poorly drafted dispute resolution clauses lead to costly delays: “Your article on dispute resolution clauses was timely for me. I recently wrapped up a case where a poorly drafted arbitration clause led to significant delays and increased costs. Your insights on customization and jurisdictional considerations are spot-on.”
Corporate counsel at an international auto manufacturing company stressed the importance of such clauses in the automotive industry: “In the automotive industry, where supply chain disputes can cripple operations, having a well-defined dispute resolution mechanism is crucial. Your point about specifying discovery limitations within arbitration clauses was particularly enlightening, as the contracts written at my last company did not limit discovery and we would sometimes find ourselves in overly complicated and expensive arbitrations.
Real-World Conversations Highlighting Key Points
Recently, I had an in-depth discussion with a lawyer-client that highlighted several crucial (and underrated) aspects of dispute resolution clauses:
Jurisdictional Preferences and Practicalities: We discussed how for many non-manufacturing transactions and some of the more significant and complex transactions with Chinese companies, the lawyers at my law firm often opt for Singapore arbitration today, having previously used Hong Kong arbitration. Similarly, for Vietnamese manufacturing contracts, we mostly use Singapore arbitration. But we typically opt for Chinese courts in our China Manufacturing Agreements. See Why Your China Manufacturing Agreements Should Almost ALWAYS Be in Chinese. This discussion underscores the numerous variables involved in drafting a dispute resolution clause.
Confidentiality in Arbitration: My client mentioned using Singapore arbitration for a company with a unique, non-patent-protected product, preferring arbitration for its better confidentiality compared to court proceedings. This illustrates how factors like IP protection can influence the choice of dispute resolution provision.
Assumptions About Privacy: I talked about how the arbitration lawyers at my firm had an arbitration in a jurisdiction where arbitrations were not confidential unless agreed upon by both parties. This highlights a common misconception and the importance of explicitly stating confidentiality requirements in contracts.
Customizing Arbitration Clauses: We discussed the flexibility of arbitration clauses, noting how lawyers can specify details such as the number of depositions allowed, discovery time limits, and the scope of written discovery. This customization is one of arbitration’s greatest advantages, but it is often not fully utilized by the person drafting the contract. We then talked about how dispute resolution clauses are written for litigation and/or arbitration, but they are usually written by corporate lawyers.
A Practical Example: Dealing with SOEs in China
My post also led me to have a conversation with a lawyer friend who specializes in arbitration. He was interested in my experiences dealing with Chinese companies, particularly SOEs (State-Owned Entities), which often require disputes to be resolved by arbitration in China.
I mentioned how many of my law firm’s own clients are terrified of Chinese arbitration, believing them to be inherently corrupt. We then discussed how this really need not be the case.
When Chinese companies insist on arbitration in China, it can make sense to agree, but then be sure to write the arbitration clause to favor your own client. For example, we used to always try (and almost always succeed) to get a particular individual—a now-retired Chinese law professor (at a Canadian law school) who was in the same law school class and friends with two of our lawyers—to either be the sole arbitrator in a one-person arbitration or the arbitration chairperson in a three-person arbitration, with the task of choosing the other two arbitrators. This ensured that even in an arbitration in China our clients would have a highly competent arbitrator or panel of arbitrators. We now do something similar.
Conclusion
The overwhelming response to my previous post on dispute resolution clauses highlights their critical role in international contracts. By considering jurisdictional preferences, confidentiality needs, privacy assumptions, and the customization of arbitration clauses — among other things — you can create a dispute resolution provision that will not only work to prevent disputes, but also ensure efficient and effective resolution if a conflict does arise.
