Dispute resolution clauses are essential clauses found in most forms of agreements. They dictate how disputes arising from the agreement will be resolved, and generally survive the termination of the agreement.
Difficulties may arise when important elements of dispute resolution clauses are not specifically provided for in the clause or, conversely when these clauses are convoluted resulting in differing interpretations, which can lead to delays in resolving disputes. Therefore it is crucial for these clauses to be drafted in such a way that they can be implemented practically and give rise to as little uncertainty and conflict as possible.
Below we set out a checklist of important aspects drafters should consider when drafting dispute resolution clauses:
Pre-arbitration
Is arbitration your first dispute resolution mechanism or does another process come first?
Contracting parties may decide, from the outset, what the first process to resolve the dispute will be. It is common practice for arbitration to be the first and final step in resolving disputes. However, some parties elect to impose a compulsory engagement process first in an attempt to resolve the dispute, for example through a settlement meeting of the parties designated individuals or engaging in mediation proceedings. Should this attempt at finding an amicable resolution fail, the dispute resolution clause will then normally stipulate that the dispute must be referred to arbitration.
Is your contract a construction contract?
In respect of construction contracts, it is common practice that the first step in dispute resolution is the implementation of Dispute Adjudication Board ("DAB") proceedings. This is a voluntary process that makes use of the DAB to make a decision on issues referred to it and the powers of the DAB are provided for in the Dispute Adjudication Agreement. The standard form construction contracts generally include provisions regulating the DAB procedure and the appointment of the DAB members. Normally after the DAB process has been completed the parties have the option to refer the dispute to arbitration, if they are not satisfied with the outcome.
Arbitration
Should the parties agree that arbitration will be the chosen process to resolve disputes, there are a number of aspects for consideration that may be included in the dispute resolution clause in order to facilitate an effective and speedy arbitration process. Arbitration is underpinned and governed by legislation, namely the Arbitration Act 42 of 1965 (the "Arbitration Act"), which recognises party independence on agreeing on an alternative to the courts. Chapter 2 of the International Arbitration Act of 2017 regulates international commercial arbitrations and must be taken into account when drafting dispute resolution clauses where a potential arbitration of this nature is anticipated.
In general, an arbitration clause may set out what will trigger the commencement of arbitration proceedings, the time period within which the proceedings must be initiated, the types of matters that the arbitrator may adjudicate on, the powers of the arbitrator and the time period within which the arbitration process must be completed. There are however specific points which can be initially decided on between the parties in order to render the arbitration clause effective.
Will the arbitrator be nominated upfront?
From the outset the parties may decide whether they should nominate the arbitrator to be appointed, who will adjudicate disputes that arise from the agreement, upfront in the dispute resolution clause. This may alleviate the potential delay and complications that come with nominating an arbitrator only once a dispute has arisen. Alternatively, the parties could include a list of potential arbitrators in the dispute resolution clause, thereby narrowing down the choices and increasing the likelihood of the parties agreeing on the arbitrator to be appointed. The parties may also elect to stipulate that the person nominated as the arbitrator will be dependent on the type of dispute that has arisen between the parties, for example if the issue is primarily a legal matter then a practicing attorney or advocate, however if the dispute is technical in nature then an expert in that field may be required.
Should the arbitrator not be nominated upfront, what process will be followed to appoint the arbitrator?
Should the parties elect not to nominate the arbitrator upfront, the dispute resolution clause may not only set out the process the parties should follow in order to appoint the arbitrator, but also the consequences for failing to comply with this process. Some dispute resolution clauses simply provide that the arbitrator shall be appointed by agreement between the parties within a specified period.
Should the arbitrator be appointed by agreement between the parties, how will a deadlock be solved?
Should the parties not be able to agree on the arbitrator/s to be appointed, it is important to include in the dispute resolution clause what the deadlock breaking mechanism will be. In this regard, it is common practice for parties to stipulate a nominating person/body who shall appoint the arbitrator should the parties fail to agree. Examples of such nominating bodies are the Arbitration Foundation of South Africa (the "AFSA"), the Association of Arbitrators (Southern Africa) (“AoA”), the International Chamber of Commerce (the "ICC") and the Law Society.
** It is crucial to note at this point that time periods are very important to include in dispute resolution clauses, in order to ensure that the clause may be implemented and operate effectively and in order to avoid unnecessary delay and expenses.
What is the arbitration procedure?
Parties can elect and include their own specific procedure to be followed in the arbitration proceedings. This elected procedure will govern the exchange of information/submissions between the parties, the hearing, the delivery of the arbitrator’s decision and the consequences for failing to comply with the agreed procedure.
What procedural rules will the parties follow?
Instead of setting out the arbitration procedure in the dispute resolution clause, the parties may elect to identify upfront the standard procedural rules that will dictate the manner in which the arbitration proceedings will be conducted. Examples of the procedural rules that may be utilised are those of the AFSA, the ICC, the AoA or the Uniform Rules of Court.
What body will administer the arbitration proceedings?
The parties may set out in the dispute resolution clause the administrative body that will oversee the arbitration proceedings.
Is there an appeal process following the decision of the arbitrator?
According to section 27 of the Arbitration Act, unless the arbitration agreement provides otherwise, an arbitration award delivered shall be final and not subject to appeal. Each party is therefore obligated to abide by and comply with the arbitration award in accordance with its terms. However, parties can agree that the decision of the arbitrator can be taken on appeal and should set out the appeal procedure.
**It is important to note that arbitration clauses do not deprive the court of their jurisdiction over certain disputes and are not a bar to court proceedings should such arise.
What is the seat of the arbitration?
The dispute resolution clause may set out where the arbitration is to be held.
What language will the arbitration be conducted in?
For the sake of clarity, the language in which the arbitration proceedings will take place can also be stipulated in the dispute resolution clause.
What is the applicable law governing the arbitration?
The country whose law will be applied in the arbitration proceedings is often stipulated in the dispute resolution clause.
Who will pay for the costs of the arbitration?
The dispute resolution clause may set out how the costs of the arbitration are to be paid. It is common practice for the parties to share the costs of the arbitrators fees, the venue hire and any other administration costs of the arbitration. If the parties elect to use pre-determined procedural rules to administer the arbitration, these rules generally provide for how the costs of the arbitration are to be dealt with. The arbitrator can also make an award on the costs.
Whilst it is the most commonly used dispute resolution mechanism, arbitration is not the only process that can be used to resolve contractual disputes and it is interesting to note that mediation is becoming more popular as a method of resolving contractual conflicts. There are also a variety of nuances and instances where different dispute resolution clauses can be used depending on the industry the agreement operates within. For further information on the most suitable dispute resolution clauses to include in your agreements in order to facilitate the most effective resolution of conflicts, you may contact the Fasken dispute resolution team for advice.
This bulletin was prepared by partner Bianca Da Costa and candidate attorney Julia Hoffman.
