No one likes to think of things going wrong, but disputes are a part of commercial life. In unsettled markets we often see an increase in contractual disputes, particularly in relation to termination. What if a party to the contract cannot perform their obligations? Can the contract be terminated early? Can the force majeure clause be exercised? All questions that can lead to disagreement and have parties reaching for the dispute resolution clause of their contract.
Dispute resolution clauses are an important feature of any commercial contract. However, they are often given minimal consideration in contract negotiations. When reviewing the dispute resolution clause applicable to a potential dispute, it is not uncommon to see standard wording used with no real thought given to the commercial context.
Unfortunately, when a potential dispute emerges, it is not unusual for parties to disagree over the correct interpretation of the dispute resolution clause. Arguing with the other side as to the extent of the dispute resolution clause can set the tone for the rest of the dispute and have huge implications on the rights and obligations being enforced – not to mention an increase in costs.
Hearts and Partick Thistle
Recently, Heart of Midlothian Football Club plc and The Partick Thistle Football Club Ltd  CSOH 68 saw a well-publicised argument in relation to the application of dispute resolution clauses.
Hearts and Partick Thistle were relegated from their respective leagues following the early conclusion of the Scottish leagues due to COVID-19. Both clubs are seeking to challenge the relegation decision. Hearts and Partick Thistle raised court proceedings in the Court of Session. The SPFL argued that the dispute resolution clause provided that the court proceedings should be paused to allow the dispute to be referred to arbitration. After a (no doubt expensive and demanding) court hearing the court decided that the dispute should go to arbitration.
Alternative dispute resolution
Raising court proceedings is sometimes, but not always, the best way to resolve a dispute. Due to the impact of COVID-19, courts are currently dealing with considerable backlogs and delays in fixing hearings. Alternative dispute resolution such as arbitration, expert determination and mediation will often be quicker and usually more cost effective.
Some points to consider:
- Always check the proposed dispute resolution clause before entering into any agreement. What does it mean in practice? Do you need to consider revising the standard wording?
- How do you want to deal with any future disputes?
- Do you want to refer future disputes to arbitration or expert determination or mediation?
- Should all disputes be dealt with the same way? Do you want to have different rules for different types of disputes?
- What do your current contracts say about dispute resolution? If a project has multiple contracts, do they have conflicting clauses?
A dispute does not have to mean the end of a commercial relationship. With the appropriate guidance, it is possible for parties to negotiate their way through a dispute and emerge at the other side with the relationship intact.
A well thought-out and well-drafted dispute resolution clause will always save parties time and money in the long run. However, unclear and ambiguous dispute resolution clauses can lead to contentious and expensive disputes.
How can we help?
MacRoberts can advise on all aspects of dispute resolution. To find out more, please contact a member of our Commercial Dispute Resolution team.