Dispute resolution clauses are often used to prevent parties turning to litigation in the first instance when a dispute arises.
Commonly used clauses may require parties to an agreement or a deed to participate in mediation, conciliation, or expert determination to attempt to resolve the dispute.
Why are they important?
It is not uncommon for disputes to arise between parties sometime after they have reached an agreement. When this occurs, it is in the best interests of all parties to deal with the dispute as quickly as possible, with minimal expense as litigation is costly and carries significant risks.
Effective dispute resolution clauses provide the aggrieved party with a guide on what steps they must undertake to seek resolution or justice. Dispute resolution clauses may also contain time limitations in which parties are required to undertake certain steps.
Are parties required to comply with a dispute resolution clause in a contract?
It has long been the position of Australian courts that parties to a contract should comply with the terms of the contract and should not be afforded the opportunity to escape their commitment when it appears beneficial for them to do so, on the grounds that the contract abolishes the jurisdiction of the court.1
More recently, clauses compelling the use of expert determination in disputes requiring determination of a question of law were given approval by the Court of Appeal in Western Australia.2
In that matter, the court unanimously agreed with the appellant that a valid dispute resolution clause does not oust the jurisdiction of the court, but rather serves to limit the matters which a court may consider in the event of agitation. The Court of Appeal held that the issue in dispute did not fall outside the scope of the clause and did not oust the jurisdiction of the court. The effect of a valid dispute resolution clause is to “postpone” rather than “annihilate the right of access to the court”.3
It is uncontroversial that courts will use their discretion to grant a stay of proceedings to facilitate alternative dispute resolution (ADR) where a clause is valid, be it for mediation, arbitration, conciliation,4 or expert determination.5 However, a court will not grant a stay in circumstances where to do so would be unjust, or the agreed method is not appropriate for resolution of the issue in dispute.
In Zeke,6 Chesterman J stated that the default position of any determination into the granting of a stay ought to be that the parties “should be held to their bargain to resolve their dispute in the agreed manner”.7 But there are circumstances in which courts will be reluctant to grant a stay, including:
- when the remedy sought by the applicant is rectification or construction of a contract
- when the dispute is about misleading and deceptive conduct, or misrepresentations by one party8
- pursuing ADR when to do so may result in multiple proceedings being commenced9 and
- if disclosure was required to justly resolve the dispute.10
The Supreme Court of Queensland recently held that the permissive character of language in a dispute resolution clause meant that one of the parties merely had to assert the existence of a dispute for the relevant clause to be triggered.11
In this case, the parties disputed the application of the term ‘can’ as opposed to ‘must’ in the clause. Specifically, the clause provided that “[i]f a party asserts that a dispute exists … the party can give a Notice of Dispute” (emphasis added). The respondent argued that use of the term ‘can’ meant that the clause was not mandatory because, properly interpreted, this clause gave the aggrieved party the option to enforce the dispute resolution clause, but did not compel it to do so. In support of its claim, the respondent pointed to another clause which stated “the other party must provide a Notice of Response” (emphasis added).
Interestingly, the court held that the respondent was correct in its argument, however, the clause was not limited to the aggrieved party and therefore the applicant was entitled to invoke its right under the clause that a dispute existed and serve a notice of dispute. The court gave broad interpretation to the rights under the clause, stating “[c]lause 12 does not require an initial claim to be made by one party, nor does it state that a party must be the first to agitate the dispute in order to provide a notice of dispute”.12
What are the key considerations when drafting a dispute resolution clause?
It is imperative to be clear and precise. A well-constructed clause will cover every aspect of the resolution of a dispute, from the moment a dispute is perceived to exist to its final resolution. A valid clause should clearly outline procedures which the parties must follow to resolve a dispute, rather than merely express a desire to do so without resorting to the courts.
The key considerations when drafting a dispute resolution clause include, but are not limited to:
- the events that will trigger the activation of the clause
- the types of disputes or claims that are covered by the clause
- the type of ADR process that is most appropriate for the disputes or claims that are covered by the clause, for example, mediation, arbitration, conciliation or expert determination
- how and who will appoint the mediator, arbitrator, conciliator or expert (ADR expert) and who will pay the ADR expert’s costs
- what procedures must the ADR expert follow:
(a) how is information to be gathered
(b) how, if at all, are submissions or statements of position to be made by each party
(c) what are the timeframes within which the ADR expert must act, and
(d) what parameters or guides exist for the ADR expert (if any)
(e) are there issues the ADR expert should be excluded from determining
(f) whether the expert will be required to give reasons for their determination and if so, are there any specific requirements for this to be done? Is the decision of the expert to be binding on the parties, and
(g) the available options to a party in the event it is dissatisfied with the determination of the expert determination in circumstances where the decision if final and binding.
It is important that legal practitioners approach the drafting of dispute resolution clauses carefully. Practitioners may also find guidance from various institutions and bodies that have developed model dispute resolution clauses for various ADR processes.
This article appears courtesy of the Queensland Law Society Alternative Dispute Resolution Committee. Aleksandra Moore is Associate Director of Moore Lawyers and a member of the committee.
1 Huddart Parker Ltd v Ship Mill Hill and Her Cargo (1950) 81 CLR 502.
2 Straits Exploration (Australia) Pty Ltd v Murchison United NL  WASCA 241.
3 Freshwater v Western Australian Assurance Co Ltd  1 KB 51.
4 Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194.
5 Zeke Services Pty Ltd v Traffic Technologies Pty Ltd  QSC 135.
6 Zeke Services Pty Ltd v Traffic Technologies Pty Ltd  QSC 135, .
7 Zeke Services Pty Ltd v Traffic Technologies Pty Ltd  QSC 135, .
8 Zeke Services Pty Ltd v Traffic Technologies Pty Ltd  QSC 135.
9 Savcor Pty Ltd v State of NSW (2001) 52 NSWLR 587.
10 Dance with Mr D Ltd v Dirty Dancing Investments Pty Ltd  NSWSC 332.
11 Hooks Enterprises Pty Ltd v Sonnenberg Pty Ltd  QSC 69.
12 Hooks Enterprises Pty Ltd v Sonnenberg Pty Ltd  QSC 69, .