Are you entering into a business contract? Although we may not like to think about it at the outset, it is a commercial reality that parties will disagree. These disputes can sometimes have disastrous effects on your business. It is important for you to consider what possible disputes may arise from the contract that you enter. We explain why if you haven’t already, you should include a dispute resolution clause in your contract. 

What is a Dispute Resolution Clause?

A dispute resolution clause essentially specifies how the parties to a contract will go about resolving a dispute. The purpose of a dispute resolution clause is to allow you and the party you are contracting with to set your guidelines as to how you will resolve any potential issues. These guidelines can not only assist in preserving your business relationship but can also reduce the time and expense associated with any dispute that does arise. If a dispute does arise, a dispute resolution clause can assist you in resolving your dispute before formal Court proceedings are required.

What Makes an Effective Dispute Resolution Clause?

An enforceable dispute resolution clause must be clear, unambiguous and include a specific process for parties to follow. If a dispute resolution clause fails to provide a clear mechanism to enable the parties to finalise their dispute, it can be rendered void for uncertainty.  

A dispute resolution clause must not attempt to prevent the parties from commencing proceedings in a Court. However, it is important that such a clause sets out the alternate dispute resolution process that is to take place before any formal court action commences.

A dispute resolution clause will typically include:

  • The way in which one party is to provide notice to the other party, specifying the nature of the dispute.
  • The first step in the dispute resolution. This could be a formal meeting between the parties for them to discuss the dispute and negotiate a resolution.
  • The next step in the dispute resolution. This is commonly mediation. 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 has come to an end, enabling the parties to commence litigation.  
  • What jurisdiction any such litigation should be commenced in.  

Why Do I Need One?

Dispute resolution clauses are beneficial for various reasons. They give the parties to the contract more flexibility and control in determining how they wish to resolve their dispute. Including a requirement of alternative dispute resolution (such as mediation) before the commencement of any formal court proceedings can save you considerable time and expense, allowing you to concentrate your efforts back on your business.  

Key Takeaways

Dispute resolution clauses should be drafted specifically to your needs, and you should consider them carefully. If not drafted with skill and due diligence, they can be purposeless. If you are considering adding a dispute resolution clause to your contract, or you simply require one to be reviewed, let our disputes team know on 1300 544 755. 

Vanessa Swain

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