How Important Is Your Dispute Resolution Clause?

Dispute resolution clauses can be effective when drafted properly and to your needs. They need to spell out the steps to conflict management clearly. Whether you are about to enter into a contract or whether you have already done so, you should not only know whether your contract contains a dispute resolution clause, but you should also have a full understanding of its implications.

What is a Dispute Resolution Clause?

A dispute resolution clause can be either a single provision or many provisions which set out the steps the parties to a contract must take in circumstances where a dispute arises. A dispute resolution clause will commonly require a party to serve a notice of the dispute on the other party. The other party will then be allowed a period to either comply with the contract and/or rectify the problem.

If the problem remains unresolved, a dispute resolution clause will then generally require the parties to take other steps to resolve the dispute. This could include an informal meeting between the parties or mediation and is often called alternative dispute resolution.

A dispute resolution clause can be as simple or as complex as the parties deem appropriate. What’s important is that the right dispute resolution process is chosen based on the parties’ circumstances.

Commencing Proceedings Without Complying With A Dispute Resolution Clause

Where the parties have entered into a written contract that contains a dispute resolution clause, they will be bound to comply with that clause should a dispute arise.

In circumstances where court proceedings have commenced without first complying with a dispute resolution clause, the defendant in those proceedings may make an application to the court to have the proceedings stayed.

The court has a broad discretion as to whether it will grant a stay of proceedings. It is a matter for the plaintiff (the party who has commenced the proceedings) to persuade the court that it would be unjust to require the parties to adhere to their dispute resolution clause.

Often, this is a difficult element for a plaintiff to prove.  The plaintiff will need to show that the dispute resolution process would be fruitless.

For example, a dispute which is very technical in nature may be unable to be resolved via informal discussions or mediation.  In this circumstance, it would be unjust for a plaintiff to be deprived of their right to have their claim determined judicially.

A Recent Example:  Santos Limited v Fluor Australia Pty Ltd [2016] QSC 129

In June 2016, this issue arose before the Supreme Court in Queensland where the plaintiff commenced court proceedings without first adhering to a dispute resolution clause contained in the contract.

The plaintiff argued that the parties had been unsuccessful in resolving similar disputes in the past using the mechanism provided in their dispute resolution clause.

In determining whether it would be unjust to stay the plaintiff’s proceedings, the court took into account the following determining factors:

• The fact that previous successful negotiations of similar disputes had occurred after the commencement of court proceedings;
• The dispute resolution clause did not deprive the plaintiff of having its claim judicially determined (once other alternate dispute resolution processes had been attempted); and
• The potential to avoid unnecessary court time and costs.

Ultimately, the court stayed the plaintiff’s proceedings pending the parties’ compliance with their dispute resolution clause.

Key Takeaways

Dispute resolution clauses need to be effective in the event of conflict. As such, it needs to be well drafted and tailored to your specific needs. Obtaining a review of your contract before signing it, can save you substantial time and money in the long run.  Similarly, seeking advice from a litigation expert when a dispute starts to arise can put you on the road to resolving your dispute as quickly and efficiently as possible.

If you require assistance drafting your contract or have a question relating to dispute resolution, get in touch with LegalVision’s dispute resolution lawyers by calling us on 1300 544 755 or by filling out the form on this page.