When entering into a contract, parties usually do not intend – or even anticipate – ending up in a dispute with their counterparty. If a dispute does arise, however, the wording of the dispute resolution clause becomes crucial. Not only might it determine where a dispute is resolved, it may also dictate how a dispute is resolved. Parties may, if they choose, prescribe the structure and process by which a dispute is addressed. Ambiguity in the drafting, or a party’s failure to adhere to specified requirements, could nonetheless affect the ultimate outcome. The clause should therefore be carefully drafted, clear in its terms, and properly reflect the mutual understanding and intent of both parties.
Two recent decisions from the courts of England and Wales illustrate the importance of understanding how a dispute resolution clause may operate when entering into a contractual arrangement.