- Apprentice Lawyer
The Viewpoint: Dispute Resolution Clause
A Dispute Resolution Clause is often the least contested or negotiated clause in a contract. Parties often fail to give a Dispute Resolution Clause the attention it deserves.
This failure, I believe, is generally due to a hesitation to discuss or perceive a dispute at the time the contract is being drawn up or negotiated. Maybe the mood, at that time, is to blame – Who wants to talk about disputes when one can talk about doing business in the hope of increasing one’s fortune?
It is however always sensible to plan for the worse, as any wise man would say. In that spirit, it is essential that due consideration is given to a dispute resolution clause as it has a bearing on various factors in the event of a dispute. The most important factors being time, costs and enforcement.
The two most important questions which often need to be considered in this context are: 1) Where should I resolve my dispute? and 2) How should I resolve my dispute?
Looking at it from an Indian party’s prospective, the answer to the first question usually boils down to a choice between India and the internationally renowned dispute resolution forums of London and Singapore. The answer to the second question is a much more narrower choice between litigation and arbitration.
A choice which is often overlooked, when considering the above-mentioned questions, is giving the English Courts exclusive jurisdiction over the dispute. This is somewhat due to a red-herring that arbitration is always a cheaper and quicker means of dispute resolution than litigation.
The factors to be taken into consideration whilst agreeing to the exclusive jurisdiction of the English Courts are as follows.
The Costs associated with any dispute resolution process can be broken down into a) costs of legal representation (“legal representation costs”) and b) costs payable to the court/tribunal.
About the latter, the fees charged by the English Court are nominal and clearly set-out. To illustrate, for a monetary civil claim, the category under which contractual claims are usually brought, the fees charged by the English Court for filling a claim form is:
- 5% of the value of claim if the Claim exceeds £10,000 but does not exceed £200,000; or
- a fixed sum of £10,000 if the claim exceeds £200,000 or is not limited.
Therefore, the cost fees to commence a multi-million-pound claim could be as less as £10,000.
About the former, whilst it is true that the legal representation costs can be significant in London, the English Courts follows the principle “unsuccessful party will be ordered to pay the costs of the successful party”. Therefore, a successful party is usually able to recover a significant proportion of its legal representation costs (if not all) from the losing party together with any court fees paid to the Court.
In other words, the Costs awarded by the English Courts are not nominal costs, but the real costs incurred by the party. Furthermore, a recent addition to English Civil Procedures Rules, relating to Costs Budgeting, gives the English Court the power to manage and limit the legal representation costs in a matter.
Timely resolution of Disputes
The time frame within which any dispute resolution forum resolves a dispute depends on various factors including the complexity of the case.
Usually, a party can obtain a Judgment from the first instance English court within 1-2 years from the commencement of the case. This is primarily because the English Courts from the very outset, once pleadings have been exchanged, set a timetable for the management of the case.
This is done at a Case Management Conference. The timetable sets out all case management directions, including filing of witness statement and expert’s reports, leading up to the trial. The date or a window for the trial is usually included within this timetable. The compliance with these directions is monitored very strictly by the Court and it is very difficult to depart from that timetable.
It is usually the appeal process which is considered as the real culprit behind delays. The English Judicial system does not give parties an unfettered right to appeal. The right to appeal is restricted.
A party can only appeal a decision of the first instance Court if the first instance Court or the Appellate Court gives the party permission to appeal. A party is granted permission to appeal only in cases where the appeal appears to have a real prospect of success or there is some other compelling reason why the appeal should be heard. Therefore, in majority of the cases permission is refused. In the event permission is granted, the appeals are usually resolved within six months to a year’s time.
English Judgments are widely recognised and enforceable in various countries around the World. They are easily enforceable in countries which are members states of the European Union, under various EU Regulations and Conventions, and in various non-EU member countries, which includes most of the members of commonwealth, under reciprocal arrangements that the United Kingdom has entered for the enforcement of its Courts’ Judgments.
A Judgment from the English Court is easily enforceable in India under S. 44A of Indian Civil Procedure Code because India and United Kingdom have a reciprocal arrangement for enforcing Judgments.
It would be fair to say that prior to Supreme Court Judgment in Bharat Aluminium Co v. Kaiser Aluminium Technical Services (“Balco”) it was easier to enforce an English Judgment in India than a foreign arbitration award. Post Balco Judgment the two seem to have attained parity with regards to enforcement.
Whilst arbitration provides parties greater procedural flexibility (i.e. the ability to tailor procedures) than litigation, litigation provides procedural certainty. There are goods arguments in favour of both flexibility and certainty, I personally tend to tilt towards certainty. This is because procedural certainty allows parties to plan their proceedings in a better manner.
Whilst the English Civil Procedure Rules provide strict timelines for the parties to file their pleadings, the Case Management Conference, which I have described above, allows the English Court to tailor make the timetable for other steps in the litigation process. This provides a balanced blend between certainty and flexibility.
Procedural certainty also avoids the need for the parties to litigate over procedural matters. To illustrate, it is very common for the Courts to get involved when the parties fail to constitute an arbitration tribunal. Procedural certainty negates the need for the parties to incur time and costs over procedural issues.
The English Judiciary has an impeccable reputation around the World. It is regarded as the most, or one of the most, independent and neutral Judiciaries which has expertise of dealing with international cases. Most of the cases filed in the English Courts have a foreign element and for that reason the English Commercial Court is regarded as an International Court – where foreign commercial cases are routinely resolved.
The concept of following precedents enables the English Court to maintain consistency and provides the required certainty to litigants as to the approach the Court is likely to take in deciding a point of law.
In my view, considering all the factors set-out above, giving English Courts exclusive jurisdiction over the dispute is one of the options that Indian parties should seriously consider whilst entering into a contract. It provides for a swift and costs effective resolution of disputes by a Judiciary known for its integrity, independence and neutrality.