Dispute Resolution Clauses – Why You Need One in Your Business Contract

The commercial reality of business is that even the most agreeable of parties, can butt heads over issues arising in the course of operations. If disagreements aren’t resolved quickly and effectively, it can have a huge effect on your business. This is why including a dispute resolution clause in your business contract is so important.

A dispute resolution clause sets out how the parties involved in the contract will resolve a dispute. It allows a clear view of the process from the outset, which can help preserve your business relationship, keep things professional, and save time and costs associated with drawn-out disputes. A well-drafted dispute resolution clause can help you bring your disagreement to an end before you need to engage lawyers, or undertake formal court processes.

Dispute resolution clauses need to be clear, unambiguous and set out a process which the parties are to follow. As such, they should be drafted deliberately and carefully according the particulars of your business arrangement and the contract, rather than simply using a templated version.

A dispute resolution clause which is not well thought-out will not be effective if and when it comes time to actually use it.

So, how do you draft a dispute resolution clause which is specific to your business arrangements?

  1. Get good legal advice!

A lawyer will know the ins and outs of dispute resolution methods and terminology. They will also be able to help you identify some of the potential disputes which could arise and the legal scenarios they would create.

  1. Make the clause a precedent to formal court action.

A dispute resolution clause cannot prevent either party from commencing court proceedings. However, it should be clear that the clause provides an alternative dispute resolution process which is a condition precedent to litigation (i.e. – undertaken before litigation is commenced). An aggrieved party may still apply directly to the court however an application may be made to “Stay” proceedings and to enforce the dispute resolution process prior to court.

  1. Anticipate problems which may arise.

Think about the kind of problems that may arise under your particular business contract. Which parties would be involved? What are the potential issues? What would each party’s interests be in these problems? What would the key factors in the resolution of the problems be? (For example – timeliness? Cost?

  1. Include key details:
    Most dispute resolution clauses typically include the following:
  • The way in which a party is to provide notice to other parties to the contract that there is a dispute, and the nature of the dispute. This will trigger the dispute resolution process to begin.
  • A single tiered, or multi-tiered, approach to resolution:
    • The first step in the resolution process, for example a meeting to negotiate.
    • The next step in the resolution process, if the parties were unable to resolve their dispute at step one. The process used in step two will depend on your unique needs, but commonly it is mediation. If mediation is chosen, the clause should stipulate who will mediate the dispute, or how a mediator will be chosen; the timeframe of when mediation is to take place; any guidelines on how the mediation will be conducted; and how the parties will meet the cost of the mediation.
  • Guidelines for when the dispute resolution process is at an end and, if unsuccessful, the parties may commence formal court proceedings.
  • What jurisdiction any litigation should be commenced in.

As always, we strongly recommend you seek legal advice to assist you in drafting a dispute resolution clause which is specific to your business needs, and can help you save time, money and preserve your business relationships.

You can contact Brandon and Gullo Lawyers for legal advice regarding Business Contracts on (07) 5479 4733.