FUNGAI CHIMWAMUROMBE & LEON GONA
Part 2
Following Part 1 of this article published last week, the authors hope the reader was primed with an understanding of how arbitration clauses often operate.
Notwithstanding the benefits identified in the preceding article, namely, privacy and expediency, arbitration processes have been inundated with issues that should give parties pause before subscribing to the terms of such a clause.
More pertinently, it should be observed an arbitration clause is merely an option amongst other alternative means of dispute resolution including mediation and negotiation.
The authors hereto wish to restate that notwithstanding the propriety of standard clauses, the rule of thumb pertaining to any agreement should always rooted in the utility thereof such that the terms are actionable.
The following discourse will highlight issues that are proving problematic vis-à-vis arbitration, and alternate dispute resolution methods parties may resort in lieu of the traditional form such as litigation and arbitration.
The costs of arbitration have burgeoned beyond parameters in which arbitration should continue to be referenced as a cheaper alternative to litigation.
Moreover, parties are capable of electing the forum to which they should reference any potential disputes; however the costs thereof are rarely factored in to the utility of the arbitration clause.
The authors have noted within their practice a propensity for drafters to incorporate ineffectual arbitration clauses restrained by cost.
For example, parties would conclude an agreement that should be taken for arbitration in Singapore yet either party has the finances to fund instituting arbitration proceedings in the elected forum.
It therefore is imperative that any prospective party to an agreement should consider the arbitration clause or dispute resolution clause from a point of whether such clause allows either party to enforce and protect their respective rights under the agreement.
Time is also a factor that is inherently factored into cost, hence the more protracted the arbitration proceedings the higher the costs parties shall eventually meet.
A note from experience highlights that disputes could erupt over the competency of the forum to adjudicate on the dispute and also the process itself may inherently cause delay.
The authors hereto firmly opine that arbitration has become as equally arduous as litigation.
Drafters of agreements should consider the objectives, value and importance of the agreement as they craft dispute resolution/ arbitration clauses in particular.
A practical impediment to resolving a dispute through the prescribed methods is often that such clauses preclude any other form or method.
This may prove particularly problematic when other forms such as litigation may offer interim or urgent relief to protect either party’s rights under the agreement.
Parties and drafters alike should be alive to the varying forms of alternative dispute resolution mechanisms that can be co-opted into agreements.
A dogmatic approach of constantly electing arbitration with no considered thought on the utility thereof, potentially nullifies the objectives and importance of the agreement to either party.
It should therefore be restated that grain and tenor of the said objectives and importance should be reflected in the clause to an agreement.
It follows that agreements can provide that parties go for mediation, which is an alternative dispute resolution method, in lieu of instituting arbitration proceedings with the elected forum.
This provides a novel solution that potentially circumvents costly processes such as arbitration.
Furthermore capturing such solutions within the confines of the agreement allows the parties to ventilate disputes, and if successful, avert such dispute cascading into a material dispute enough for either party to vitiate such contract.
Indeed alternative methods of dispute resolution should be explored at all material points in time, particularly in matters/agreements relating to high value agreements or where either party benefits substantially from continuing the agreement notwithstanding the dispute.
As noted above mediation is one form of alternative dispute resolution in which a neutral person, styled the mediator, is appointed to assist the disputing parties to come to a mutually agreed resolution.
Mediation proceedings are largely informal as compared to arbitration proceedings, and there are no prescribed rules determining conduct, rights et al of parties to such proceedings.
Moreover, the mediator’s determination is not binding, thus either aggrieved with the finding may escalate the matter further.
This approach is particularly convenient for commercial agreements in view of the additional costs and disputes vis-à-vis termination of the said agreement.
Negotiation is another novel solution that should also be resorted to upon dispute. the aforementioned mechanism is per the ordinarily conceived process of parties discussing and coming to a compromise for the purpose of resolving a dispute.
Negotiation is simple, cost effective and should be co-opted into an agreement, particularly those of much importance and substantial cost/benefit to either party.
The alternative dispute mechanisms mentioned hereunder should not exist exclusively in an agreement in the same way arbitration must not exist as the exclusive method of dispute resolution.
Parties and drafters should promote the use of these mechanisms for a short and defined period of time before resorting to the conventional avenues such as arbitration and litigation.
Arbitration plays a significant role in the resolution of disputes, particularly those pertaining to commercial agreements.
Notwithstanding the utility thereof, it should be common practice to utilise other methods of dispute resolution to avert costly and lengthy proceedings that ultimately undercut profitability or commercial viability underpinning commercial agreements.
Parties and drafters of agreements should co-opt alternative dispute resolution mechanisms into their agreements where possible, as these allow parties to explore varied methods of resolving any disputes.
Moreover, with the issues highlighted pertaining to utilising arbitration as sole method of dispensing with a dispute alternative means such as mediation and negotiation buffers against some of the inequities posed by arbitration such as the length and increasing costs thereof.
Fungai Chimwamurombe is a registered legal practitioner and Senior Partner at Chimwamurombe Legal Practice and can be contacted for feedback at fungai@zenaslegalpractice.com and WhatsApp 0772 997 889. Leon Gona is an Associate and can be contacted on leon@zenaslegalpractice.com
