At the transactional stage of a negotiation, aside from the detailed commercial and liability terms, companies must carefully consider the costs and risks of the appropriate methods for dispute resolution.
Commercially, we all agree that no one ever walks into a prospective deal expecting a dispute. This would defeat the purpose of the overall intention of most business agreements, but overlooking a dispute resolution clause could be dire to a company in the face of a legal action.
One of the first references in a contract that a case handler refers to when a dispute arises, is the jurisdiction and the dispute resolution clause.
Legal advisors, at the drafting stage of an agreement, will generally counsel principals as to the best remedy in case of a disagreement. Many factors are considered when selecting dispute resolution mechanisms, and it is never a one-size-fits-all approach.
Disputes in maritime
Shipping and offshore energy disputes range from simple matters to complex, multi-jurisdictional, high-value legal actions.
The approach to the most appropriate cause for legal action considers factors such as the type and amount of a dispute, the business relationship between the parties, geographical location, expectations, third-party interests and whether the parties are commercially or legalistically inclined.
Arbitration — generally confidential and private — is becoming increasingly popular in international trade agreements, where awards are easier to enforce and are often more equitable. This is where shipping agreements generally benefit the most.
Template contracts provide ease of choice through standard terms that make express reference to arbitration.
This, for instance, is the case in many standard shipping charter parties. Essentially, parties are bound by this unless it is expressly agreed to resolve disputes through other alternatives, which includes conciliation, mediation or litigation.
Why arbitration?
Arbitration — generally confidential and private — is becoming increasingly popular in international trade agreements, where awards are easier to enforce and are often more equitable. This is where shipping agreements generally benefit the most.
The New York Convention, with its 160 contracting states, along with other multilateral and bilateral treaties, gives parties the comfort that an award need not necessarily be enforced where the arbitration is seated, which is perfect for cross-border, multi-jurisdictional agreements.
Enforcement of an award would in most circumstances fall under the jurisdiction of the place, where assets are registered.
Arbitration is a formal method of dispute resolution with arbitrators taking the place of judges. The arbitrators are more likely to have the appropriate expertise to reside over complex disputes and will be appointed by the disputing parties, subject to a set of rules, such as the EMAC rules. There is also limited scope for appeal and the overall arbitration process is somewhat less rigid than a court. Arbitration allows for parties to choose their seat, language and the number of arbitrators to appoint. Claims of any financial consequence do well in arbitration or mediation.
Ultimately, whatever the option is, looking at your dispute resolution clause is vital and often saves time, cost and that all-important business relationship.
For reference to model clauses that are designed to provide for neutral and regional arbitration or mediation, visit Emac.org.ae or email at info@emac.org.ae
— The writer is in charge of EMAC’s commercial operations
