Law Times

LAW TIMES / APRIL 21, 2008 FOCUS PAGE 11 Standard clause is short but complex, warns expert BY HELEN BURNETT Law Times parties may resort to using a stan- dard clause instead of a personal or sophisticated one. But while some may only be two lines long, they are still complex, cautions one expert. Helena Erickson, senior vice I n many commercial contracts, dispute resolution clauses are left until the final hours, where president of the International In- stitute for Conflict Prevention and Resolution, says that, in the com- mercial contracts she deals with, she sees mostly multi-step clauses that provide for a process of ei- ther negotiation, mediation, a com- bination of both, or, as a last resort, arbi- tration. CPR sees mostly sophisticated claus- es, which she doesn't think is the norm in the outside world. The American Ar- bitration Associa- tion is much more likely to see routine clauses, she says. Rob Nelson, of Nelson ADR Rob Nelson in Ottawa, says there's certainly a lot more sophistication in draft- ing dispute resolution clauses than there was even 10 years ago. "I would say that the major civil disputes are being resolved outside of the courts now, and internationally there's always a recourse in the contract to arbi- tration or mediation, in my ex- perience," he says. In terms of the dynamics of contracts, however, Nelson notes two parties can work over months to put together what could be a complicated deal. "There's so much analysis go- ing into a major contract, because you're bound by it that often what happens is you get near the end, you haven't got the same energy to go into the dispute resolution clause, so that sometimes you fall back on a standard clause," he says. A standard clause can be just two lines, but by including it, par- ties have legally incorporated an "enormous and complicated" set of rules, says Nelson. "The theory is they'll sit down ment system in place, where they want to do an early case assessment and they know that they're going to be able to settle the cases early, then they want to build that into their contracts," says Erickson. "There is certainly, with enlight- ened business people, a view that, if this is going to be a long-standing business relationship, then we bet- ter have a way of resolving mat- ters to which we feel comfortable. [This] is happening in major con- struction projects now, where they incorporate in the contract, and through the construction process, an ongoing method of resolving disputes . . . Very positive, very exciting," he says. Nelson says that, often, lawyers who give advice in dis- pute resolution mat- ters are asked at the last minute to look at a clause that is incor- porating the rules of an institution. "I say, please read the rules before you advise on this . . . but I can tell you from real life the tension is on you to sort of pass on this . . . when you really need to sit down quietly and look at those rules," he says. "If you're being asked to . . . ad- vise on a dispute resolution clause, with the high-speed technology, you must have some time to reflect on it," he says. says. "There was a little better time to have done that: before the con- tract was signed." While standard clauses are at- tractive on the surface, he says, parties have given the way the dispute will be resolved over to another organization. "The truth of the matter is: it comes up all the time in contracts . . . where the parties have just slapped in or thrown in a standard clause. And that may work well; they just should appreciate that they have incorporated an enormous, complicated system," says Nelson. "Everyone has to look at each individual contract or deal and evaluate whether, for that particular deal or contract, a multi-step dispute resolution clause is appropriate. may be cases in which such a clause is not appropriate, but each individual contract or deal would have to be evaluated on its merits," says Erickson. There LT GILBERTSON DAVIS EMERSON LLP BARRISTERS AND SOLICITORS practice restricted to CIVIL LITIGATION, INSURANCE LAW John L. Davis Professional Corporation Richard Hayles R. Lee Akazaki James W. Wilson Nazanin Aleyaseen Jody W. Iczkovitz Angela Emerson John L. Davis Counsel: James E. Adamson What happens, he says, is the contract is signed and it "slumbers along" for months or years, and then a dispute arises, which is when lawyers will start analyzing it, word for word. "When the dispute actually ex- plodes, then people start to look at the words under a microscope," he 20 Queen Street West, Suite 2020 Toronto, Ontario M5H 3R3 Donais. B.•WPTW 4/16/08 10:37 AM Page 1 Tel: (416) 979-2020 Fax: (416) 979-1285 email: office@gilbertsondavis.com quietly and work out a way of re- solving disputes, but often, in the hurly-burly of the final hours of the contract formulation, they may resort to using a standard clause, or simply referring to the rules of an institutional arbitration organiza- tion," he says. Many firms are advocating a sophisticated form of ADR, but in their actual clauses they just put in a standard AAA clause, which Erick- son says she used to see in practice. "I think the reason for that is because, when you get two parties negotiating, the dispute resolu- tion clause is very often the very last thing that they do, and rather than negotiate they just look at each other and say, OK, we'll just put in the standard AAA clause, OK? And both parties say OK. Or we'll put in the standard ICC clause if it's an international contract. And both parties say OK. 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