Practical tips on using dispute resolution clauses

The dispute resolution (DR) clause is often referred to as the “midnight clause”, which may reflect a fact that generally it is addressed at a relatively late, if not the last, stage of business negotiation. When a dispute arises, parties may eat the bitter fruit of their negligence in arranging the DR mechanism. To help readers better address the DR clause, the author provides some observations.

COMPLEX OR SIMPLE?

In most cases, it is sensible to choose a simple DR clause, especially model clauses provided by arbitral institutions or courts. The reasons are straightforward. On the one hand, it is less likely that a simple dispute resolution clause contains inconsistencies per se. On the other hand, when facing complex transactions, conflicts between DR clauses in different contracts can be effectively minimized if all these clauses are drafted in a simple fashion.

An important note: the condition precedent for a DR clause being simple is that it has contained all requisite elements under the applicable law. For instance, an arbitration clause governed by the PRC Law should meet the formality requirements set out in article 16 of the Arbitration Law, namely: (1) expressing the intent to submit disputes to arbitration; (2) outlining the matters to be arbitrated; and (3) appointing an arbitration commission.

If certain deals warrant a complex DR clause, the author suggests that the legal adviser be in place to ensure the DR clause is: (1) valid and enforceable; (2) to the advantage of the client; and (3) consistent with other relevant provisions or agreements.

Cui Qiang is a partner in the Beijing office of Commerce & Finance Law Offices. He can be contacted on +86 10 6569 3399 or via email at cuiqiang@tongshang.com