Dispute Resolution Clauses: Everything You Need To Know

Feb 8, 2021
Reading Time: 3 minutes
Written by Romaan Dulloo

When running a business you will likely be constantly signing contracts. It may be starting up your business with a partner, conducting negotiations with contractors or hiring suppliers. These relationships are never formed with the intention of anything going wrong. However, when drafting a contract it is critical to ensure there is a plan in place if something does go wrong. This article will explain what a dispute resolution clause is, and why it must be a part of any contract you sign when you are running a business.

What is a dispute resolution clause?

A dispute resolution clause is a provision of a contract which sets out what should happen in the event of a disagreement between the contracting parties. If a dispute arises, the clause outlines the steps to take that in order to solve the issue. Dispute resolution clauses will save business owners lots of time, money and effort. They help you avoid the cost of pursuing litigation and give you more control over the process of resolving disputes.

Key provisions

Dispute resolution clauses can have a number of different provisions within them. For example, they can explain whether a dispute will be settled through arbitration or the courts. They can establish the jurisdiction in which a dispute will be settled as well as any methods of appeal for a decision that is made. In this section, we will explain some of the potential provisions within an effective dispute resolution clause.

Choice of forum

One of the most important aspects of dispute resolution clauses is the forum in which a dispute will be resolved. There are a number of different avenues which can help parties resolve disputes. The starting point is usually deciding between litigation and alternative dispute resolution (arbitration or mediation). Each method has its advantages and disadvantages depending upon the context of the contract. Having a clear venue for dispute resolution gives all parties more certainty and information should a dispute arise.

Timing and jurisdiction

Dispute resolution clauses can place time limits upon the parties’ ability to sue the other over a dispute. Therefore, parties receive more certainty and stability within the contractual relationship.

In addition to this, a dispute resolution clause will establish where any dispute will take place. Contracts often form between parties across different legal jurisdictions that have different laws. It is critical that before signing a contract, each party has certainty over where any legal disputes will take place.

Privacy and confidentiality

Privacy relating to commercial disputes is often very important. Sensitive information such as intellectual property, commercial strategy, financial information or even personal information may be exposed in public. This is often detrimental to a business. A dispute resolution clause can help to protect contracting parties by setting steps up to protect confidential information. For example, processes such as arbitration tend to be much more conducive to protecting information than public court battles. Additionally, express confidentiality provisions are particularly important in cross-jurisdictional contracts as different jurisdictions usually have varying attitudes towards confidentiality.

Notice

Problems can sometimes occur without the knowledge of each party to a contract. Instead of these problems turning into disputes before there is a chance to communicate – having a notice provision within a clause means that a party has to inform the other of an issue via formal communication. Formal communication like this can open up a useful dialogue between the parties to help resolve any problems that do occur.

Conclusion

Entering into contracts is a critical part of any business. Ensuring those contracts are drafted effectively is critical to preserving the future of your business. Clear dispute resolution clauses are vital to contracts, and will help your business reach quick and fair resolutions to any problems that arise. If you need assistance with dispute resolution clauses, or anything else related to contracts we recommend that you contact Lawpath’s contract lawyers today.

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