C O N S T R U C T I O N L AW
The Dispute
Resolution Clause
Four critical considerations
By Graham Henderson, McLennan Ross LLP
Dispute resolution clauses are typically included in
contracts in an attempt to resolve disputes in a timely
and cost-effective manner. Unfortunately, in prac-tice,
the potential benefits of dispute resolution clauses are
often not fully obtained.
Dispute resolution clauses can be particularly problem-atic
if they require arbitration and you have omitted crucial
arbitration rules, you are not aware of the implications of
the arbitration rules, or you have overlooked the arbitration
clauses entirely. This article highlights four of the key topics
that you need to be aware of when reviewing and negotiat-ing
arbitration clauses.
1. Selection of arbitrators
Some of the most important components of arbitration
clauses are the rules regarding the selection of arbitrators.
Failure to include such rules can lead to significant disputes
and delays before the arbitration proceedings even get off
the ground.
As a starting point, arbitration clauses should specify the
number of arbitrators (often one or three) and the process
for selecting the arbitrators. In the event of one arbitrator,
the selection process often requires the parties to agree on
the arbitrator. In the event of three arbitrators, the selection
process often requires each party to nominate one arbitrator,
with the third arbitrator chosen independently.
When reviewing an arbitration clause, you need to ensure
that the process for selecting the arbitrators is fair. For exam-ple,
you would not want to agree to an arbitration clause that
provides the other contracting party with a unilateral right to
appoint the arbitrator(s).
2. Arbitration procedures and timelines
Arbitration clauses contain varying degrees of rules about
arbitration procedures and timelines.
In some arbitration clauses, very few procedures and
timelines are described, and it will be left to the arbitrators
and the parties to design the arbitration process. This has the
benefit of providing the parties with the flexibility to create
a process that is suited to their particular dispute. However,
it requires some upfront time and cost just to negotiate the
process for the arbitration. Further, it comes with the risk
that you could be forced to participate in more or fewer pro-cedural
steps than you envisioned when you entered into
the contract. As more steps are added to the process, the
arbitration can become increasingly similar to litigation in
court, which erodes the potential efficiency and cost benefits
of arbitration. On the other hand, as steps are removed from
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