What Constitutes a Dispute or Difference under the Contract?

What Constitutes a Dispute or Difference under the Contract?

Commonly standard forms of contract state that if there is a dispute or difference which arises under or out of the contract that either party may seek to have such dispute or difference may be resolved eventually by Arbitration in accordance with the dispute resolution clause as contained within the standard form.

It is of the greatest importance that an identifiable dispute has arisen before it can be referred to arbitration or otherwise the arbitrator will not have the jurisdiction to deal with it. It might be thought that the existence or otherwise of a dispute would be fairly obvious, but questions have arisen often based on the argument that the reference to arbitration has been premature, before the dispute has crystallised.

As an example, if a Contractor lodges a claim with an Architect stating that he expects a reply within two weeks and, having received no response within the allotted time, issues a notice of intention to settle the matter by Arbitration citing the Architect’s failure to decide the subject matter of the claim there are a number of considerations which need to be made.

The first consideration is whether there was a dispute when the notice was issued, and secondly was it reasonable for the Architect to respond in two weeks period demanded by the Contractor. In the event that it was not reasonable, there would be no dispute and the arbitrator would have no jurisdiction to decide on the matter.

The Courts generally seek to establish if indeed a dispute exists between the parties by considering the following:

1)   The word ‘dispute’ as contained in the arbitration clause should be given its normal meaning. It does not have some special or unusual meaning which may be conferred upon it by lawyers.

2)   Despite the simple meaning of the word ‘dispute’, there has been much litigation over the years as to whether or not disputes existed in particular situations. Unfortunately this litigation has not generated any hard-edged legal rules as to what is or is not a dispute. However, the accumulating judicial decisions in Malaysia and England have provided some helpful guidance in addressing the existence of a dispute.

3)   The fact that one party notifies the other party of their claim or disagreement with an instruction or certificate or similar matter does not automatically and immediately give rise to a dispute. It is clear, both as a matter of language and from judicial decisions, that a dispute does not arise unless and until it emerges that the claim is not admitted or it is disputed.

4)   Circumstances from which it may emerge that a claim is not admitted are Protean. For example, there may be an expressed rejection of the claim. There may be discussions between the parties from which objectively it is to be concluded that the claim is not admitted. The respondent party may attempt to evade, thus giving rise to the inference that they do not admit the claim. The respondent party may simply remain silent for a period of time, thus giving rise to the same inference.

5)   The period of time for which the respondent party may remain silent before a dispute is to be inferred depends heavily upon the facts of the case and the contractual structure. Where the substance of the claim is well-known and it is obviously controversial, a very short period of silence may suffice to give rise to this inference. Where the claim is notified to some agent of the respondent who has a legal duty to consider the claim independently such as the Engineer or Architect and then give a considered response, a longer period of time may be required before it can be inferred that mere silence gives rise to a dispute.

6)   If the claiming party imposes upon the respondent party a cu-off-date for responding to the claim, that cut-off-date does not have the automatic effect of curtailing what would otherwise be a reasonable time for responding to the claim. On the other hand, a deadline and the reason for its imposing may be relevant factors when the court comes to consider what a reasonable time for responding is. This would especially be the case where delays and extension of time claims are the matter in dispute or the dispute involves exceptionally large sums of money which would be detrimental to either party’s ability to continue operation.

7)   If the claim as presented by the claiming party is so vague and ill-defined that the respondent cannot sensibly respond to it then neither silence by the respondent nor even an expressed non admission, is likely to give rise to a dispute for the purposes of arbitration.

Generally the courts observed in most cases it will be obvious when there is a dispute and that the requirement that there must be a dispute will not be interpreted with such legalistic rigidity. It also relevant when the phrase ‘dispute or difference’ is used in a dispute resolution clause in the contract, it is less hard-edged than using the word ‘dispute’ alone.