Model Clauses

Ensure an effective and proportionate response in the future should a dispute arise
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Have you checked your model dispute resolution clause lately?

Recommended model clauses are included at the end of this page. You can also download a pdf of our Model Clauses Guide here.

When was the last time you checked your model dispute resolution clauses that you include in your contracts or services agreements? Almost all private dispute resolution processes require the agreement of the parties to engage in the process. Almost always the dispute resolution clauses included in contracts and agreements for services are old, outdated and, in many cases, ineffective and unenforceable. Such clauses are typically added to contracts/agreements at the 11th hour when everything else has been scrutinised, debated, and agreed.

Dispute resolution clauses are usually not seen as particularly contentious or important. At a time of heightened interest and excitement about the subject matter of such contracts, there is often little appetite to talk about something that might be perceived as negative, or indeed threatening towards the relationship. Often the hope or presumption is that it is something that is included in a contract but will never be needed. Unfortunately, our experience tells us that conflict is an almost inevitable consequence of many commercial transactions/business relationships.

Parties already in dispute are highly unlikely to agree on anything, let alone to refer their dispute to a particular dispute resolution process/service. This is what makes good model clauses critical to enabling the prompt, proportionate and cost-effective resolution of disputes, should they arise in the future.

What makes for a good model clause? One that can be effectively and efficiently relied on to enable a dispute to be resolved promptly by whatever process is agreed. Model clauses need to be clear and certain in terms of both the process and the means of securing the appointment of the relevant third party neutral (for example, arbitrator, mediator, expert). Simply referring disputes arising to mediation or arbitration is ineffective and inefficient. Parties routinely spend significant time (and money) arguing over what the process should look like, who to appoint to be the mediator or arbitrator and procedural and timetabling matters. This can all be easily avoided by careful drafting of dispute resolution clauses.

What about multi-tiered or waterfall clauses?

Many multi-tiered clauses are both unenforceable and inefficient and, overall, we would caution against using such clauses.

Multi-tiered clauses typically require the parties to work their way through different dispute resolution processes, starting with direct negotiation, then (failing success in negotiation) mediation, then (failing success in mediation), arbitration.

Arguments often arise as to whether parties have adequately attempted negotiation and mediation, prior to initiating arbitration. Those arguments are costly and delay the ultimate resolution of the dispute.

Ultimately, parties can attempt to negotiate or mediate their dispute at any time. Forced negotiation or mediation by virtue of a dispute resolution clause will not necessarily be the best option for the parties at the time they are contractually bound to engage in those processes. A forced and poorly timed negotiation or mediation process early on that is unsuccessful may serve to dissuade parties from attempting the same at a later date, when the issues have been defined and there has been a sufficient exchange of information and positions such that the time is right and ripe to engage in those processes.

Building Disputes Tribunal’s approach

Rather than encouraging multi-tiered or waterfall clauses, the Building Disputes Tribunal rules for arbitration and mediation allow the parties to move from one process to the next, in an efficient manner. They do this by:

(a)   requiring any arbitration to be stayed in the event the parties wish to mediate; and

(b)   allowing a party to initiate arbitration in the event a mediation does not result in a full and final settlement of the dispute.

We recommend all commercial parties ensure an effective model clause is included in any contract they enter into. The model clauses set out below will provide you with effective and efficient access to the dispute resolution process of your choice, should you need it.

Recommended Model Clauses

Below are recommended model clauses which may be incorporated into your agreement. If you have any questions, or are at all unsure, contact our Registry team today for assistance.

Adjudication under the Construction Contracts Act 2002

You should not include a model clause for adjudication in your construction contract, for two reasons:

1.    parties cannot contract out of the Act, and you can access adjudication as a statutory right; and

2.    any agreement will in any event be unenforceable because an agreement as to an adjudicator, a nominating body, or an authorised nominating authority reached prior to the dispute arising is not binding under the Act and will likely only add another layer of dispute as to jurisdiction where the same is sought to be acted upon

Clause 33 of the Act states:

33      Selection of adjudicator

(3)        An agreement about the choice of an adjudicator or a nominating body or an authorised nominating authority is not binding on the parties to the adjudication if that agreement was made (whether under the relevant construction contract or otherwise) before the dispute between them arose.

Arbitration

We recommend including one of the following two model arbitration clauses in any contract to ensure you can access that process in the future should a dispute arise.

What about mediation? At any stage the parties can still attempt to mediate (or negotiate) their dispute and, in the case of arbitration under the Building Disputes Tribunal’s Arbitration Rules (option 1 below), there will be a mandatory stay of the arbitration proceeding where the parties wish to refer the dispute to mediation after the arbitration has commenced.

The two options for arbitration are:

1.    Arbitration under the Building Disputes Tribunal’s Rules – this model clause will ensure that any dispute is automatically filtered into the most proportionate arbitration process based on the value of the dispute (the parties can always agree on another process, but the default is the most proportionate option in terms of time and cost):

$2.5M or greater Standard Arbitration Rules

Timetable to be agreed by the parties or determined by the arbitral tribunal

Hearing, unless parties agree otherwise

$1M up to $2.5M ECA90 Arbitration Rules

90 working days to an award

5 working day hearing, unless parties agree otherwise

$250k up to $1M ECA60 Arbitration Rules

60 working days to an award

3 working day hearing, unless parties agree otherwise

Up to $250k or declaratory relief ECA45 Arbitration Rules

Documents only

Fixed fee service available*

45 working days to an award

* terms and conditions apply

2. Ad hoc arbitration – this model clause ensures you can access the Building Disputes Tribunal’s case management and administrative oversight and support.

Either option allows the appointment of the arbitral tribunal to be agreed by the parties. However, in the absence of agreement (which is often the case), either model clause will ensure the parties have an effective mechanism for the prompt and efficient appointment of the arbitral tribunal, allowing the arbitration to proceed without unnecessary delay.

Model Clause for Arbitration under Building Disputes Tribunal’s Arbitration Rules

The following clause should be included in contracts where the parties wish to have any future disputes resolved by arbitration under the Building Disputes Tribunal’s Arbitration Rules:

“Any dispute or difference arising out of or in connection with this contract, or the subject matter of this contract, including any question about its existence, validity or termination, shall be referred to and finally resolved by arbitration in accordance with the Arbitration Rules of the Building Disputes Tribunal.”

Note: parties to an existing dispute that have not incorporated the Building Disputes Tribunal Model Arbitration Clause into a prior agreement may still agree to refer that dispute to arbitration under the Building Disputes Tribunal Arbitration Rules by signing the Arbitration Agreement in the form found at Appendix 2 to those Rules.

Model Clause for ad hoc Arbitration under the Arbitration Act 1996

The following arbitration clause should be included in contracts where the parties wish to have any future disputes resolved by arbitration under the Arbitration Act 1996:

“Any dispute or difference arising out of or in connection with this contract, or the subject matter of this contract, including any question about its existence, validity or termination, shall be referred to and finally resolved by arbitration in accordance with the Arbitration Act 1996. The arbitral tribunal shall be appointed from the panel of arbitrators maintained by the Building Disputes Tribunal and, in the event the parties are unable to agree on the composition of the arbitral tribunal within seven days of written notice of the dispute being given, the arbitral tribunal shall be appointed by the Building Disputes Tribunal upon application by any party to this agreement.

 

The number of arbitrators shall be one. [or may choose three]

 

The language to be used in the Arbitration shall be English. [or choose another language]

 

The governing law of the contract shall be the substantive law of New Zealand. [or choose another country]”

Note: parties to an existing dispute that have not incorporated this Building Disputes Tribunal Model Clause into a prior agreement may agree to refer that dispute to arbitration under the Arbitration Act by signing one of the Arbitration Agreements available on the Arbitration Guides and Resources page.

Mediation

The following mediation clause should be included in contracts where the parties wish to have any future disputes resolved by Mediation under the Building Disputes Tribunal’s Mediation Rules as the primary method of dispute resolution:

“Any dispute or difference arising out of or in connection with this contract, or the subject matter of this contract, including any question about its existence, validity or termination, shall be referred to mediation in accordance with the Mediation Rules of the Building Disputes Tribunal.”

NOTE: parties to an existing dispute that have not incorporated the Building Disputes Tribunal Model Clause into a prior agreement may agree to refer that dispute to Mediation under the Building Disputes Tribunal Mediation Rules by signing the Mediation Agreement in the form found at Appendix 2 to those Rules.

If the mediation does not result in full and final settlement of the dispute, the Mediation Rules allow a party to initiate arbitration within 30 days.

Arb-Med

Arb-med is a hybrid dispute resolution process that combines the benefits of arbitration and mediation, including speed, procedural flexibility, confidentiality, choice of decision maker, ease of access to the tribunal, continuity, finality, and enforceability of the outcome.

The following arb-med clause should be included in contracts where the parties wish to have any future disputes resolved by Arb-Med under the Building Disputes Tribunal’s Arb-Med Rules:

“Any dispute or difference arising out of or in connection with this contract, or the subject matter of this contract, including any question about its existence, validity or termination, shall be referred to and finally resolved by arbitration in accordance with the Arb-Med Rules of the Building Disputes Tribunal.”

NOTE: parties to an existing dispute that have not incorporated the Building Disputes Tribunal Model Clause into a prior agreement may agree to refer that dispute to Arbitration under the Building Disputes Tribunal Arb-Med Rules by signing the Arb-Med Agreement in the form found at Appendix 2 to those Rules.

Expert Determination

Expert Determination is a simple means of binding dispute resolution. Unlike adjudication or arbitration, Expert Determination is not governed by legislation. Expert Determination is a consensual process by which parties to a contract agree to refer matters in dispute to an independent person ‘expert’ to decide.

Looking for a model clause to put in your contract for future disputes? The following clause is recommended:

“In the event of any dispute or difference arising out of or in connection with this contract, or the subject matter of this contract, including any question about its existence, validity or termination, the parties must refer that dispute in the first instance to Expert Determination in accordance with the Expert Determination Rules of the Building Disputes Tribunal.”

Unless the parties intend for Expert Determination to be final and binding, we recommend that the above clause then be followed by the following model arbitration clause:

“If either party is dissatisfied with the expert’s determination, either party may, by service of a Notice of Arbitration, require the matter in dispute to be referred to arbitration in accordance with the Arbitration Rules of the Building Disputes Tribunal.”

If a dispute has already arisen and there is no agreement between the parties to refer the dispute to Expert Determination, the parties may enter into an agreement for those purposes, and the following clause is recommended. The words in square brackets should be deleted/completed, as appropriate.

“[Name of first party] and [Name of second party and Ors] hereinafter referred to as the parties, are parties to a contract entered into on or about [enter date].

 

The parties have agreed that [all matters in dispute between them/the matters in dispute between them set out in the Schedule attached hereto] shall be referred to Expert Determination by [Name of Expert] in accordance with the Agreement for Expert Determination and Rules for Determination of Disputed Matters by Expert of the Building Disputes Tribunal (BDT), which procedures and rules are deemed to be incorporated by reference herein.

 

[if the parties are unable to agree upon the identity of an Expert within [five (5)/ten (10)] working days from the date of this agreement, then the Expert shall be appointed by BDT upon the application of any party.]”

Early Neutral Evaluation

Early Neutral Evaluation is a consensual, confidential and relatively informal process in which parties to a dispute use the services of an independent, neutral evaluator to provide a non-binding evaluation of the facts, evidence and legal merits of the matters in dispute.

The process is specifically designed for disputes which are already in litigation or arbitration. The key elements of Early Neutral Evaluation are that a dispute has already arisen, the parties are a long way apart and looking at lengthy court or arbitral proceedings. In such cases the parties might benefit from an independent assessment or evaluation of the issues that have arisen and the likely outcome and range of damages if the matter is to proceed, to promote settlement discussions.

The parties may enter into an agreement for those purposes, and the following clause is recommended. The words in square brackets should be deleted/completed, as appropriate.

“[Name of first party] and [Name of second party and Ors] hereinafter referred to as the parties, are parties to [[a contract entered into on or about [enter date]] or [ proceedings in the [ ] Court referred to as CIV- ]].

 

The parties have agreed that all matters in dispute between them shall be referred to Early Neutral Evaluation by [Name of Evaluator] in accordance with the Agreement for Early Neutral Evaluation and Rules for Early Neutral Evaluation of the Building Disputes Tribunal (BDT) which procedures and rules are deemed to be incorporated by reference herein.

 

[if the parties are unable to agree upon the identity of an Evaluator within five (5) working days from the date of this agreement, then the Evaluator shall be appointed by BDT upon the application of any party.]”

Download our complete guide to model clauses here as a pdf or read online below.

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