Dispute resolution clauses in international contracts are not a novel subject. However, with the global nature and increasing technical and legal complexity of international commercial projects, it is clear that in many instances parties to international contracts fail to select dispute resolution methods appropriate to their particular needs and objectives. Sometimes the dispute resolution clause is a rapidly added "afterthought" at the end of tough contract negotiations. In other instances, especially in complex projects, although detailed discussion has taken place on the dispute resolution clause, once the project is underway, the method(s) of dispute resolution chosen turn out to be ill-adapted to the practicalities of the project (e.g., in a construction contract the parties need to be able to obtain a fast decision that will allow them to progress the work). What, therefore, are the main points to be borne in mind when putting in place a dispute resolution clause?
First, dispute resolution clauses should not be confused with clauses that choose the law governing the contract. Whilst this article will not discuss the law governing contracts, it is nevertheless worth noting, for "European" purposes, that the Rome Convention on the Law Applicable to Contractual Obligations (1980) has now been ratified by 15 European countries: it provides that a contract will be governed by the law chosen by the parties and, if the parties have made no choice, by the law of the country with which the contract is most closely connected.
Second, it should be ensured that dispute resolution clauses (which, in complex projects, may contain a hierarchy of dispute resolution steps) include a mechanism capable of finally resolving disputes. Such a mechanism will usually be either a national court or arbitration (the latter being a private procedure where the parties appoint one or more arbitrators to reach a decision on their dispute). If arbitration is chosen as the binding method of dispute resolution, the contract parties will have to make a further choice between institutional arbitration (where an arbitration institution, e.g., the International Chamber of Commerce, undertakes the administrative organisation of the arbitration and the arbitration proceeds in accordance with the rules of the institution) and ad hoc arbitration (organised by the parties themselves and in accordance with their own rules).
Third, it must be pointed out that the choice of dispute resolution forum is project-specific. There may be reasons why parties will not wish to have recourse to national courts: understandably, neither party may be enthusiastic about submitting to the jurisdiction of the national courts of the other party; the parties may not wish their grievances to become public; they may prefer to choose persons with appropriate technical knowledge to resolve their disputes; they may wish to avoid complicated procedure and presentation of their case, including often voluminous documentation, in a foreign language; they may wish to obtain a ruling not in law, but in pure equity or trade usage (e.g., in the Channel Tunnel project, the Canterbury Treaty of 12 February 1986 between the United Kingdom and France provided, in connection with the resolution of disputes regarding the Concession, that, inter alia, "recourse may also be had to the relevant principles of international law, and if the parties in dispute agree, to principles of equity"). If the foregoing are considerations, then arbitration should be considered. However, there may be occasions where the parties have no alternative but to submit to the jurisdiction of the national courts (e.g., in some countries public bodies are not entitled to have recourse to arbitration; in other countries, certain areas of law may not be arbitrated, e.g., certain aspects of intellectual property law in France). On other occasions, the parties may simply prefer to have recourse to national courts: they may wish their case to be publicly heard and judged; in some countries and for some types of disputes the national courts may be the better option from the cost point of view. The foregoing advantages and drawbacks of the national courts and arbitration are not intended to be exhaustive or to favour recourse to one or the other: this decision must be made in the light of each individual contract and its parties.
Fourth, having decided on the appropriate binding method of dispute resolution, consideration may and in some circumstances should be given to including a preliminary, non-binding method of dispute resolution which may assist the parties in reaching settlement of a dispute at an early stage, whilst leaving open the possibility of referring the dispute to arbitration or the national courts if the parties are not satisfied with the settlement proposed. Such preliminary, non-binding methods of dispute resolution are sometimes referred to as Alternative Dispute Resolution ("ADR") and are frequently put forward as being a novel means of resolving disputes. Some of these methods are in fact traditional methods such as straightforward negotiations between the parties or mediation or conciliation(note1), where a neutral third party is appointed to assist the parties and steer them towards a mutually acceptable resolution of their dispute. Others are well-known mechanisms contained in standard terms and conditions of contract published by international organisations, such as the FIDIC Conditions of Contract for Works of Civil Engineering Construction, where disputes initially have to be referred to the Engineer appointed under the contract. Yet others are more recent, such as Dispute Review Boards, now compulsory in certain projects financed by the World Bank. Also becoming popular, particularly in the United States, are dispute prevention (rather than resolution) mechanisms such as partnering, where both parties participate in a programme designed and run by third parties to help them avoid disputes and work towards common aims. Again, the foregoing is not intended to be an exhaustive list of possible preliminary dispute resolution mechanisms, and the need for such a mechanism should be considered in the circumstances of individual contracts.
In conclusion, frequently the dispute resolution clause chosen will contain the above two stages (preliminary non-binding method, followed by binding method), or in an especially complex project, may involve a multiple step clause (e.g., the various actors in the UK railway industry are subject to a hierarchy of dispute resolution mechanisms). No general rules can be made as to which methods should be chosen. The only rule to be borne in mind is that the clause should be tailored to the needs and objectives of the particular contract, with the aim of disposing of disputes as fairly, quickly and cheaply as possible.
Note1:In some countries, dispute resolution methods such as conciliation or mediation may have a particular meaning under national law. Consequently, if reference is made to these methods in a contract, it should be made clear whether the reference is to mediation as understood under a national law or to an ad hoc procedure.
Written by Gillian C. Lemaire, Archibald Andersen, Association d'Avocats, Avocat a la Cour (Hauts-de-Seine Bar, France), Solicitor (Scotland)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information, please contact Kristine Karsten, Archibald Andersen Association d'Avocats, Partner S.G.Archibald, Tour Gan - Cedex 13 - 92082 Paris La Defense 2 - France. Tel: (331) 55 61 10 10, Fax: (331)55 61 15 15