Dispute Resolution Clauses – Taking Care of Drafting 

Christelle Santos
ADC, Dispute Resolution Associate

Drafting a dispute resolution clause for your contract needs careful attention. Getting it right is important to ensure that when activated, the dispute resolution process runs smoothly for the benefit of the contracting parties. The clause needs to be drafted so as not to produce any doubt on the dispute resolution process to be used or become unenforceable due to inconsistencies. 

As highlighted by Donna Ross in her article “Beware the Champagne Clause: When the Effervescence Fades, It May Just Be Pathological”², dispute resolution clauses can often be an afterthought for parties. In their haste to wrap-up the drafting and celebrate their contract, the dispute resolution clause can​ often be left ‘unclear, incomplete, or contradictory.‘  If ‘good drafting makes for good contracts and good business relationships’, poorly drafted clauses – with a lack of express agreement between the parties on the alternative dispute resolution process and the procedures that govern it – can all too easily be defective and be found inoperative.  

It is vital that the agreement demonstrates clear consent between the parties on the dispute resolution process/es to be used. This is especially vital in multi-tiered clauses.  

Recent caselaw demonstrates how drafting can go wrong  

In the case of Lin & Anor v Lee [2021] QSC 336¹, ACDC (now ADC) was named as the nominating authority in the contract’s dispute resolution clause, but the parties did not use ADC’s tried-and-true sample clauses, which ADC makes freely available and downloadable from its website. Rather, the parties drafted their own clause, and it was this clause that was at issue in the Supreme Court of Queensland.

In his judgement, Martin J held that the dispute resolution clause in the parties’ contract did not represent an agreement between the parties to submit to arbitration, but rather represented a referral of the dispute for ‘final settlement by a single arbitrator.’ Consequently, the clause was not drafted in a way that provided sufficient certainty that there was an express agreement between the parties to submit to an arbitration. As a result, His Honour dismissed the application to refer to the matter to an arbitral hearing. 

Lin & Anor v Lee is a salient example of why parties need to take particular care when drafting their dispute resolution clause. A pathological clause can disrupt the resolution of a dispute; causing delays and adding substantial costs if there is litigation over the interpretation and validity of the clause.  

Effective dispute resolution clauses  

ADC provides sample dispute resolution clauses for contracting parties free of charge on its website. Utilising a proven institutional clause, together with specialist legal advice to make certain that it meets the requirements of the parties, will help ensure that when needed the parties can rely on the efficacy and certainty of their contract clause.

Prudence counsels us not to leave drafting of the dispute resolution clause to the eleventh hour, when the champagne may already be flowing and the risks of future disputes may have not been fully considered.

Download ADC’s Sample Dispute Resolution Clauses HERE.

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