contractual disputes

Why incorporating Alternative Dispute Management in contracts in a necessity

Conflicts are inevitable occurrences in contractual relationships. Often, they are characterized by breaches of contractual obligations among parties; sometimes as a result of unforeseen circumstances that frustrate the contractual relationship.

While drawing a contract/agreement or Memorandum of Understanding, whichever title you give it, it is important to include a dispute resolution clause that gives parties a faster or prior solution before resorting to ordinary courts. In different instances, some conflicts are too minor to litigate upon.

Whereas other conflicts may become complicated to evaluate, adjudicate and decide upon, all conflicts require special attention to resolve and therefore necessary to deal with from a mutual point of view. This is where parties have to draw contracts to include the ‘Arbitration, Mediation and Conciliatory’ avenues when need arises.

The intent of this brief series on alternative dispute management in contracts posits the requirement for inclusion of dispute resolution methods that are effective for domestic and international contracts/agreements, etc.

The actual need for dispute resolution

First, it is because conflicts, breaches and termination of contracts exist. Many disputes arise after a contractual obligation has been entered into and a binding document is in place to evoke these duties.

To assume that all parties will wholly act on their duties is uncomforting in the present economic atmosphere. The unforeseen events will somehow render performance impossible and one or more parties will definitely suffer loss.

Secondly, traditional courts still have jurisdiction over the legal processes of dispute resolution tribunals and also confirm, reject, cancel, alter or offer any other remedy in case there is a disagreement on how the process was handled.

Depending on traditional courts for legal solutions is not dealt away with. What alternative methods of solving a conflict do is postpone traditional court process until after successful deliberations on settling a dispute have been met or there is an appeal against the same.

Parties therefore, refrain from resorting to litigation to resolve the conflicts before employing and exhausting alternative dispute resolution methods.

Thirdly, alternative dispute mechanisms are recognised world over. The current economy is heavily dependent on globalization which hinges on international contracts governed by the world economy.

Countries, individuals and organisations contract among each other on cross border terrains. These parties must understand the need to formulate a resolution process and venue where such resolution is concluded.

For example, the contract in Uganda’s famous ‘Golden Handshake’ case which involved the state and an independent entity dictated that any appeals to a conflict be made to England for Arbitration. This means that the parties included a ‘choice of court clause’.

The procedure of alternative dispute management may differ but the principle remains: to solve conflicts just like the parties agreed they would.

Where alternative dispute management is at risk in contractual relationships

  • The cost effect of handling the processes is overwhelming.

When parties calculate the actual cost of employing alternative methods of conflict management, they are often shocked by the exorbitant figures. Parties are entitled to finance their choice tribunal panelists. The process may be lengthy, thus take more time than anticipated. And, the venues for the tribunal may be costly to cover.

Imagine an arbitration sitting in London to adjudicate matters of a cooperative whose annual gross remissions do not exceed £150,000=! Chances are that the company may fall bankrupt if the process is to last for, say, half a year!

  • Mistrust in the efficiency of alternative dispute resolution methods

It is easy to incorporate a clause like an alternative dispute resolution to evoke in case of conflict. However, it is difficult to convince a breaching party to adhere to the process, despite its presence in the binding document.

Sometimes, the breaching party is comfortable with traditional court process because of the lengthy deliberation process which often gives it time to correct its wrong.

On the other hand, the aggrieved party may assume that traditional courts offer better security when it comes to enforcing a decree against the breaching party.

  • Waste of resources due to parties’ unwillingness to settle amicably

In other instances, some or all parties may have severed all avenues of reconciliation or commitment to performing their obligations and alternative dispute mechanisms are merely for show.

These and many other reasons defeat the need for alternative mechanisms of dispute resolution. However, they do not stop you from incorporating one suitable for your position, given that some breaches and contractual frustrations do not reflect unwillingness to perform one’s obligations.

Conclusion

The practicability of enforcing decisions is not alienated. Whether or not an appeal rises, the award in a fairly constituted tribunal is as binding as a court decision/ruling/judgment.

Safe to say, courts will still confirm the Arbitrator’s award should it confirm that it made it within legal boundaries by the alternative dispute tribunals.

Because the tribunals consist of skilled professionals with expertise to handle alternative dispute management, every contracting party should not be afraid of resorting to their expertise in case of conflict.

Your decision to include this clause, however, is still dependent on your special circumstances.

BY ATUHAIRWE AGRACE

This article appears in our digital law newsletter, The Deuteronomy Vol 4, Issue 3 of April 21st 2017

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