On dispute resolution clauses, and design thinking: part 4.

[Sales professionals, contract negotiators, and legal managers: this series is for you.]

In the last installment [https://lnkd.in/dHR_K-KD], we discussed how if the wrong dispute resolution clause is used, the innocent party may be practically unable to sue the non-performing party.

In this installment, we'll discuss some practical considerations when considering the contents of a dispute resolution clause.

Let's begin our analysis with this question:

Who more likely to breach the contract?

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I know this is a pessimistic question. But as we discussed earlier, if we were all eternal optimists, written contracts wouldn't even be necessary.¹ So let's assume the worst - that someday, one of the parties might breach the contract.

Suppose you are fully confident that you will hold up your end of the contract, that the contract will continue to make commercial sense (and profits) throughout its duration, and that nothing will undermine your ability to fulfil the contract. Let's therefore assume that your counterparty is more likely to breach the contract.

If the counterparty is more likely to breach the contract, then you're more likely to be the party suing, not the party being sued. If so, you will want the dispute resolution clause to point towards a forum that:

(a) you are familiar with;
(b) is logistically convenient (in terms of language / communication networks / transport accessibility / time difference / etc);
(c) will deliver a judgment or award reasonably quickly;
(d) will not cause you to incur disproportionate legal costs; and/or
(e) will deliver a judgment or award that can be enforced in a country that your counterparty has assets in.

This is, of course, not an exhaustive list. But the bottom line is that the dispute resolution clause should point to a forum that it makes sense for you to litigate in.

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But let's now flip the script around. Suppose you think that the risk is higher that down the road - perhaps due to circumstances you cannot control² - you end up being the party who is unable to perform the obligations under the contract.

I leave you then to consider what kind of dispute resolution clause you would prefer, to make it harder for your counterparty to sue you.

Cynical, I know. But let's get real - in any contract negotiation, each party pushes for clauses that are to their advantage.³

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In the next (and final) installment, I'll discuss how design thinking is relevant to dispute resolution clauses, and contractual clauses in general - and what that means for your contract negotiations.

(About time, I know!)