Patrick Lim
Partner at Raj, Ong & Yudistra
Today we look at the last two focus clauses when reviewing legal contracts – dispute resolution and governing law clauses. It goes without saying that while we have discussed the types of clauses to focus on during a legal contract audit, there are other types of clauses to look at but those are usually more on a case to case basis.
Here we go.
Dispute Resolution
The next item on the contract review checklist is “Dispute Resolution“. When reviewing this item, you should consider the following:
- Identify the provisions related to dispute resolution: Make sure that you understand the provisions related to dispute resolution, including any provisions for alternative dispute resolution such as arbitration or mediation. Look out for words like “arbitration”, “mediation”, “escalation”, “discussion”, “negotiation”, and “review”.
- Check for balance: Ensure that the provisions related to dispute resolution are fair and reasonable, considering the rights and obligations of the parties under the contract.
- Check for any unreasonable or one-sided provisions: Review the contract to ensure that it does not contain any unreasonable or one-sided provisions related to dispute resolution that are unfairly weighted in favor of one party.
- Consider the jurisdiction and governing law: Review the provisions related to jurisdiction and governing law and confirm that they are appropriate for the company’s needs.
These kinds of clauses are usually glossed over or not considered a primary term in an agreement. However, if you step back and think about it, it may just be one of the essential term of a contract. Much like a sphincter, it is usually not thought about unless there is an issue that requires it, and by the time you get around to fixing it while there is an issue, the matter just becomes more messy.
Governing Law
The final item on the contract review checklist is “Governing Law“. This is basically identifying the house rules. If you are not clear about the house rules, you will not be able to play the game properly. When reviewing this item, you should consider the following:
- Review the provisions related to governing law: Make sure that you understand the provisions related to governing law, including the jurisdiction that will apply to the contract.
- Confirm that the provisions are appropriate for the company’s needs: Ensure that the provisions related to governing law are appropriate for the company’s needs, considering the location of the parties and any legal or regulatory requirements that may apply.
- There should only be one: You cannot play under two house rules. You will not know how to win. Similarly, there should only be one governing law in a contract.
- Consider the impact on dispute resolution: Review the provisions related to dispute resolution and confirm that they are consistent with the provisions related to governing law.
- Convenience matters: It is easy to discount words on a paper. But the ill considered governing law will not only increase the cost of dispute resolution, but also make a contract hard to enforce. This is in addition to the possibility of the governing law affecting the legitimacy of contract clauses that are imported from other jurisdictions.
Overall, it is important to review the provisions related to governing law and to confirm that they are appropriate for the company’s needs. This helps to ensure that the contract is enforceable and that the parties have a clear understanding of the legal framework that will apply to the contract.
And there you have it folks. Three volumes and twenty one articles. We hope that you have learned something from this journey with us. See you in the next series.