Jacob Knutson and Jacqueline O’Keefe
Dispute Resolution Provisions: Why they should be Included in Every Contract
Most business and individuals do not enter into contracts with the goal (or expectation) of pursuing litigation. Contract negotiations often focus on reaching an agreement on the terms of the deal rather than where or how a dispute over the deal will be resolved. But expectations rarely match reality, and, as anyone who has been in business for long enough will agree, avoiding a lawsuit is not always possible. In those situations, including dispute resolution provisions in a contract can save significant amounts of time and money fighting costly battles over where, how, and under what rules the parties will settle dispute, should one arise. Indeed, by negotiating these issues at the outset of a contractual relationship, parties can eliminate uncertainty and expedite dispute resolution. Some useful provisions to consider are jurisdiction, venue, choice-of-law, arbitration, or jury waiver clauses.
Jurisdiction and venue clauses allow parties to select the particular court and location in which they wish to resolve the contractual disputes that may arise during the course of their agreement. Inclusion of these provision allow the parties to ensure they will not be forced to travel to an inconvenient forum in another state (or country) to resolve a future conflict.
Choice-of-law clauses select the law that governs the contract. For example, certain types of provisions may be enforceable in some states, but not others. These clauses can encourage settlement by identifying the law that will be applied to resolve disputes, which enables the parties to determine the strength of potential claims. They also reduce the costs of litigation by making it unnecessary for a court to engage in a choice-of-law analysis.
Arbitration clauses are also common, but should not be included in every contract as a matter of course. Arbitration often reduces costs due to limitations on discovery and recoverable damages, and may result in a more expeditious resolution of the controversy. Arbitration is also either confidential or quasi-confidential and can protect businesses from the bad publicity that may arise during a court proceeding. An additional benefit of arbitration is the ability for parties to choose the arbitrator who will hear the dispute. This allows those involved to pick an arbitration who has experience and who can better understand the nature and nuance of the conflict.
But arbitration is not without its drawbacks. In some cases, it can be just as costly and take just as long as court litigation when arbitrator fees and arbitration-specific procedural rules are accounted for. Additionally, court rules available in traditional litigation allow for the dismissal of baseless claims without a trial, whereas such mechanisms are more limited in arbitration. And while limitations on discovery can save time and money, it also may make it more difficult for a business to enforce its rights under a contract. Further, an arbitration decision is binding and cannot be appealed. This means that you cannot later take the matter to court or attempt arbitration again with another arbitrator simply because you did not like the arbitrator’s conclusion.
When negotiating a contract, businesses should consider the pros and cons of arbitration to determine whether an alternative dispute resolution provision would better serve their purposes. For example, some of the same benefits of arbitration are available through a waiver of jury trial rights. A waiver of jury trial rights establishes that a judge (rather than a jury of lay persons) will decide the dispute, but does not dispose of all the rights and procedural tools available in court litigation, such as the right to appeal. A jury waiver might be helpful in situations where the substance of the contract is complex, but without the added cost of paying an arbitrator or sacrificing the right to appeal.
Dispute resolution provisions are an important part of any contract and should be approached from an agreement-specific standpoint. If utilized correctly, dispute resolution provisions can not only reduce the cost of litigation, but help avoid litigation altogether.
Jacqueline O’Keefe recently joined JDSA after working for two years at the Washington State Court of Appeals. Jacqueline attended Lewis & Clark Law School in Portland, Oregon. She currently represents a broad range of clients involved in civil litigation. Her legal practice primarily involves appeals, natural resource law, and general business matters
Jacob M. Knutson joined JDSA in 2018 after graduating from the University Of Washington School Of Law. He represents clients with Business & Commercial civil litigation, employment and labor law and intellectual property law matters.