The dispute resolution clause : A risk mitigator or instigator

By Adriel Z. Marume and Fungai Chimwamurombe

Agreements or contracts are by nature reduced to writing not just for capturing history of transactions but more importantly, to navigate disputes that may arise in connection to the same.
It is not uncommon to find courts of law flooded with cases that stem from contractual undertakings.
However, most parties to contracts are completely oblivious of the importance of the dispute resolution clause and even more so, the type of dispute resolution they choose.
It is imperative to appreciate that while a dispute resolution clause may on their face appear to be problem solvers, they may in fact create a more serious risk for at least one of the parties.
This brief article intends to elucidate how the dispute resolution clause can be a risk.

Improper Forum
In some instances, parties to a contract fail to realise the best form of dispute resolution to employ into their agreement.
For example, a number contracts are drafted with copied and pasted miscellaneous clauses such as the dispute resolution clause.
The most prevalently adopted dispute resolution clause seems to that of arbitration. Parties fail to actually consider whether or not arbitration would be the best approach given the nature of their transaction and the amounts involved. It is important to note that the Arbitration Act binds parties to such dispute resolution form should they append their signatures in confirmation Arbitration is a distinct alternative dispute resolution process which requires hefty amounts of funds to be injected until a decision is reached.
It would therefore be unjustified and risky to employ such a process in a transaction involving a trivial amount. In that case, the dispute resolution clause would have created a risk contrary to the desires or anticipations of the signatories.

Jurisdictional Limitations
Another major risk associated with poorly drafted dispute resolution clauses is jurisdictional uncertainty. Parties may designate a forum that lacks practical or legal competence to deal with the dispute.
This often becomes problematic in cross-border transactions where parties may elect foreign arbitration or foreign courts without considering enforcement realities in their own jurisdiction.
A favourable judgment or arbitral award may be rendered useless if it cannot be recognised or enforced where the losing party’s assets are situated. This creates unnecessary procedural hurdles, additional costs, and delays which could have been avoided by careful drafting.

Ambiguity in Drafting
The wording of the dispute resolution clause itself may also become a source of dispute. Ambiguous clauses, often referred to as “pathological clauses,” create uncertainty on whether the parties intended mediation, arbitration, litigation, or a combination of these. Such ambiguity can trigger preliminary disputes before the substantive dispute is even addressed. For instance, clauses that provide that parties “may” refer disputes to arbitration rather than “shall” do so may leave room for contestation.
This uncertainty often results in satellite litigation on jurisdiction and procedure, thereby defeating the very purpose of including the clause.

Delay as a Strategic Weapon
Multi-tier dispute resolution clause requiring negotiation, mediation, and arbitration before litigation may appear commercially sensible.
However, they may also be weaponised by an unwilling party to deliberately prolong the resolution of disputes. A party acting in bad faith may exploit each stage merely to buy time, frustrate the other party, or dissipate assets.
This can be particularly prejudicial in urgent matters where immediate relief is required, such as breaches involving confidential information, property rights, or perishable goods.

Exclusion of Urgent Remedies
Certain dispute resolution clauses may unintentionally oust the jurisdiction of the courts even in circumstances where urgent interim relief is necessary. While arbitration can determine substantive rights, courts remain essential for granting urgent interdicts, preservation orders, and other interim remedies. A rigid clause that fails to preserve this right may leave a party exposed to irreparable harm pending the finalisation of the dispute resolution process.

Conclusion
The dispute resolution clause should not be treated as a routine boilerplate provision. It is a strategic clause that can either mitigate risk or generate it depending on how carefully it is tailored.
Parties must consider the nature of their transaction, the value involved, the urgency of potential disputes, enforceability concerns, and the practical realities of the chosen forum. Legal practitioners must therefore exercise diligence in advising clients and drafting these clauses.
Ultimately, the efficacy of a dispute resolution clause lies not in its mere existence, but in its suitability to the contractual relationship it seeks to govern.