Planning for Every Eventuality with a Dispute Resolution Clause
Entering into a contract is hopefully the start of a positive business relationship, so it’s tempting to downplay the possibility of potential contractual disputes. Unfortunately, life doesn’t always go to plan, so it pays to inject a healthy dose of realism into the process.
Drafting a thorough contract that sets out the steps to be taken in the event of a disagreement is an important consideration. Including a well-drafted dispute resolution clause can significantly mitigate the risk of entering into a stressful, protracted and costly contractual dispute.
Resolving Contractual Disputes
Everyone needs contingency plans for when things go off course. A dispute resolution clause is designed to provide both parties with a clear framework for what should happen in the event of a disagreement. While many contracts include a standard clause, it’s a good idea to cover all bases by tailoring your clause to suit your particular situation.
To be truly effective, your clause should be practical, concise and unambiguous in its wording. There are lots of elements to consider when drafting clauses, which include identifying:
- The types of disputes which may arise
- The available remedies and which would be the most suitable for your situation
- The jurisdiction under which decisions will be made
- How the dispute resolution process can be triggered
- What the rights and responsibilities of both parties are
- A timeframe for carrying out different steps of the dispute resolution process
- What will happen should steps of the resolution process fail
- The enforceability of the available remedies
As well as benefits, there are also potential risks with dispute resolution clauses. A lack of clarity could mean you not only find yourself at odds over the initial dispute but also entering into further expensive and time-consuming disputes over how to interpret the clause itself. So, it pays to get things right.
What remedies are available?
There are a number of binding and non-binding options available to resolve contractual disputes.
- Negotiation – the parties or their chosen representatives come together to try and reach an agreement
- Mediation – an independent, neutral third-party acts as a go-between to help both parties reach a compromise
- Early Neutral Evaluation – a third party gives an unbiased evaluation of the facts before them and what the likely outcome would be should the evidence be heard in court
- Arbitration – the parties agree on an independent arbitrator who will make a legally-binding ruling based on the evidence presented
- Expert Determination or Adjudication – an expert in the industry in question makes a decision which is enforceable in the courts.
- Litigation – the dispute is taken to the courts to have them make a judgement
The remedies the parties agree upon need to be appropriate to the type of contract and specific business relationship. It should be noted that in recent years, the courts have favoured parties taking initial steps to resolve issues through alternative dispute resolution (ADR) rather than litigation.
When considering which remedies are suitable in your individual circumstances you need to think about the potential business impact of your chosen course of action. It should aim to minimise the chances of becoming embroiled in processes that could:
- Incur costs that significantly affect your businesses finances
- Eat into your time, affecting your ability to run your business as normal
- Cause problems with maintaining corporate confidentiality
- Negatively affect your reputation in the business world
Get professional help from dispute resolution experts
No-one wants to have the stress of a dispute hanging over them when they’re trying to run a successful business, so it’s always sensible to consult an expert when entering into a contract. Covering all bases could save you time and money in the future.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.