Why the dispute resolution clause in your contracts is important (A.K.A. Everyone is friends until they’re not!)

In preparing commercial contracts a clause will often be inserted (generally at the prompting of the drafting lawyer) to provide a procedure for dealing with disputes.

Often, very little consideration is given to such clauses as parties to the contract are (quite understandably) more excited and focused on the project at hand and the best case scenario outcome of contracting with their new and exciting business soulmate.

Unfortunately, in some circumstances the proverbial hits the fan and parties are in the unenviable position of scrutinising what their rights are in circumstances of a dispute.

Not all dispute resolution clauses are created equal. Ideally, the type and structure of the dispute resolution clause should be adapted to the contracting relationship. For example, clauses can be drafted to:

  • Compel parties to engage in alternative dispute resolution (such as good faith negotiation and/or mediation) prior to initiating legal action in a Court or Tribunal.

This can often minimise costs for parties in circumstances of a dispute, particularly if a professional body to appoint a mediator is nominated in the contract.

  • Set timing for resolution steps and provide for certain obligatory notices to be exchanged between parties setting out the nature of the dispute.

Such a structure can often assist the parties to distil true issues underlying a dispute, leading to faster and more efficient resolution.

  • Compel parties to submit to an experienced arbitrator for a binding decision (rather than protracted and potentially expensive litigation).

Whilst inherent with risk, where the continued operation of a contract is important (i.e. where the project is stalled pending a resolution to the dispute), arbitration can offer an expedited and appealing alternative.

  • Set an agreed jurisdiction for disputes

This is often important when dealing with interstate or overseas parties. Knowing that any dispute will certainly be resolved in your home State court or forum can be integral to cost effective dispute resolution.

Considering the resolution of a dispute at the start of what one hopes will be a beautiful relationship can be daunting, depressing and (let’s be honest) quite frankly a snooze-fest. However, giving a moment’s thought to how you can minimise risk and cost in the event of a dispute may, in some circumstances, turn out to be your most prudent decision in preparing a contract.

If you need advice or assistance in relation to formulating contracts which are tailored to the needs of your business and properly provide for potential disputes, contact a member of our team for on-point, practical guidance.

Joseph Carneli, Senior Associate

2019-02-05T21:37:10+00:00February 5th, 2019|Business Advice, Business Partnerships, Contracts, Corporate Advisory, Dispute Resolution|Comments Off on Why the dispute resolution clause in your contracts is important (A.K.A. Everyone is friends until they’re not!)