Introduction

Contractual disputes may arise between parties to a contract. When this happens, it is imperative for parties to have some level of certainty on what next and how the dispute should be resolved. Therefore, it is imperative that parties factor in the dispute resolution challenges that may arise at the time of preparing or agreeing to the terms of a contract. From a dispute resolution perspective, it is important to pay attention to the following key clauses in any contract:

1. Dispute Resolution Clause

The dispute resolution clause sets out the preferred mechanism for resolving a dispute. Parties should include a dispute resolution clause so that there is a clear mechanism for resolving any disputes arising from the contract.

The main dispute resolution methods include court litigation and alternative dispute resolution mechanisms such as negotiation, mediation and arbitration.

The three key components to be observed in a dispute resolution clause are:

• The forum where the parties wish to ventilate any dispute arising out of the contract.
• The law the parties wish to apply to their rights and obligations under the contract.
• The venue the parties will use to resolve the dispute.

Parties to a contract may exclusively choose one method of dispute resolution, such as litigation or arbitration, or alternatively, they may agree that litigation or arbitration would be their last mode of dispute resolution after an unsuccessful attempt at mediation or negotiation.

In some instances, contracts may provide that a breach of a certain clause shall be resolved by way of arbitration while the breach of the other clauses is to be resolved through litigation. Such clauses may create conflict when a dispute arises thus it is wise to agree on one dispute resolution mechanism for all disputes. However, it is imperative that while doing so, parties consider whether arbitration or litigation is more suitable given the nature of contract.

• Governing law clause

The Governing law clause provides the law that will govern the rights and obligations of the parties in the contract. The formal requirements for governing law clauses are;  

• it is in writing or evidenced in writing;
• it clearly specifies the law of a jurisdiction; and
• the parties have consented to it.

Some of the factors that help determine the type of choice of law to incorporate in a contract include;

• the place of domicile/residence of the parties;
• the place where the substantial assets of the parties are located;
• the place where the whole or part of the transaction is to be performed; and  
• the nature of the contract and the jurisdictions which have developed jurisprudence in the area.

For example, if the transaction is purely domestic (for example, the parties are domiciled in the same country and the contract involves the supply of goods or services in that country), the applicable law is likely to be the law of that country.

Therefore, by making a choice of law, parties can have some certainty over which law will govern their contractual rights and obligations.

• Jurisdiction clause

The jurisdiction clause allows the parties to a contract to designate a competent court which shall resolve any disputes that may arise between them. This clause gives parties a sense of surety and certainty about the place where future disputes between them will be litigated.

The two main types of jurisdiction clauses are;

• Exclusive jurisdiction clauses which confer exclusive jurisdiction to the courts of the jurisdiction chosen by the parties. These clauses effectively prevent parties from filing proceedings anywhere other than court specified in the clause, and therefore ensure that there is certainty between the parties in the issue of jurisdiction.
• Non-exclusive jurisdiction clauses which are permissive in nature, thus allowing the parties to explore a forum which has not been explicitly provided in the contract. As these clauses open up the possibility of litigation in a jurisdiction other than the one identified in the contract, a party may find themselves defending court proceedings in an unfavorable jurisdiction.

By choosing a suitable and favorable jurisdiction, parties can eliminate uncertainties about the venue, costs and procedure of future litigation between them.

• Notices Clause

The notices clause provides for the method in which parties to a contract may serve notices upon each another. The clause will state the mode of service and when a notice is deemed as delivered.

For purposes of certainty, the clause should specify the address(es), to which notices should be sent and to whom they should be addressed.

• Force Majeure

This clause is relevant where there is an impediment beyond a party’s control, or where the party could not have reasonably been expected to take into account a certain event at the time of execution of the contract that may lead to their failure to fulfill their contractual obligation. This clause may limit a party’s liability when a dispute arises as a result of such circumstances. Thus, it is imperative for parties to provide a non-exhaustive list of which events would be deemed to fall within the meaning of force majeure.

This clause is important as it protects a party from any claim arising out of these events. It can be used as a defense in litigation proceedings, whereby a party to a contract can prove that the breach of contract was beyond their control.

• Indemnity and Contribution clause

The indemnity clause provides for the party which shall compensate the other against any damage, injuries and losses that may arise from the breach of an obligation as per the contract. The contribution clause explains to what extent a party shall contribute when the loss or damage happens.

The key components of this clause are;

• it provides for which instances one shall be compensated;
• it provides for the method of indemnification, for example damages; and
• it defines the liability of a party to a contract.

In most contracts, the liability usually rests on one party or it can be on both parties. It is important for a party to read this clause when entering a contract in order to understand the level of liability that they are agreeing to.

Emerging trends.

With the modern era, the following emerging trends are worth considering when drafting contracts. They include;

• Force Majeure clause– In light of the Covid-19 pandemic, contracts are embracing the inclusion of future health emergencies (pandemics and epidemics) and government measures (restrictions orders, quarantine directives, any other regulations and laws) that may suspend, disrupt or delay supply and procurement for a period of time, in the list of force majeure events. The standard for relief that must be established to excuse performance under the force majeure clause and the consequences of the force majeure events, are now being elaborated in greater detail.
• Use of electronic signatures– Contracting parties are now moving away from execution clauses with a ‘wet-ink’ signature and witness (who must be physically present) requirement and preferring execution clauses that allow use of electronic signatures.  

• Dispute resolution clause– Parties are now embracing the inclusion of tele-conferencing and online platforms in their disputes resolution clauses.

Conclusion.

The above-mentioned clauses are important as they protect the rights of parties in the contract. They also play a major role in dispute resolution as they provide for how parties can institute dispute resolution proceedings and help determine the level of their respective liabilities.

Please contact us at info@cfllegal.com should you require further information.