Published on:
18 Jan 2023
2
min read
Pixabay; https://www.pexels.com/photo/sign-pen-business-document-48148/
On dispute resolution clauses, and design thinking: part 2.
[Sales professionals, contract negotiators, and legal managers: this series is for you.]
In the last installment [https://lnkd.in/gfcz4NYJ], we discussed what are dispute resolution clauses. To recap, if a dispute arises in relation to a contract, the dispute resolution clause in the contract determines where the dispute should be heard and decided.¹
In this installment, I intended to discuss the purpose behind dispute resolution clauses, and why we bother to include such clauses in contracts.
But before we go there, let's consider a more foundational question:
Why do we even enter into written contracts in the first place?
Let's explore one reason.²
---
In the commercial world, we agree with our counterparty that they will do A, and we will do B in return. In a perfect world where everyone always does everything they promise to do, A and B would be performed as a matter of course, and there would be no need for a written contract - a handshake would suffice.
Alas, we do not live in a perfect world. We live in a world where it is possible that our counterparty fails to do A, or we end up being unable to do B. So the purpose behind a written contract is to ensure that A and B are done.
But how does having a written contract ensure that A and B are done?
Well, a written contract proves that we had both respectively agreed to do A and B. So, if down the road, either A or B are not done, then there will be consequences for the non-performing party. So our desire to avoid these consequences increases the chances that A and B are done.
But how does having a written contract lead to consequences for non-performance?
Well, the innocent, non-breaching party can sue the non-performing party. They can ask for damages to make good the loss suffered due to the non-performance. In some cases, they can even get an order to compel the counterparty to perform certain specific actions.
So to summarise: one of the purposes behind having a written contract is to allow the innocent party to sue the non-performing party.
To repeat: it is to create the right to sue for non-performance.³
---
In the next part, I will (finally) discuss the purpose behind a dispute resolution clause. Stay tuned.⁴
Disclaimer:
The content of this article is intended for informational and educational purposes only and does not constitute legal advice.
¹ For example, the clause could designate the Courts of a specific country, or state that disputes are to be arbitrated under the rules of a specified arbitration institution.
² Of course, this is not the only reason parties enter into written contracts. Other reasons include, e.g., the need for certainty as to what exactly are the obligations agreed to, or to cater for contingency situations.
³ But hold on. If parties enter into an oral contract, but one party breaches the contract, can't the innocent party sue the non-performing party?
Of course they can. But they may face difficulty proving what exactly were the terms of the oral contract which they say have been breached.
⁴ I know, I know. 2 posts in, and we haven't even gotten started on dispute resolution clauses yet, and what design thinking has to do with it. Do bear with me - I promise it will be worth the wait.⁵
⁵ Actually, no, on further thought, I make no promise. And anyway, I have no intention of creating legal relations with my readers, there would be difficulty in identifying consideration, and estoppel can only be used as a shield, and not a sword.
