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The importance of a well drafted dispute resolution clause in contracts

Disputing the dispute resolution process. Sounds like an ironic situation, but unfortunately it's all too common in a lot of contract disputes.

At least in the 19th Century the method for resolving disputes was certain, there was a guaranteed resolution of a dispute… Often a duel took place, both parties raised their swords or pistols and not long after the matter would be resolved.

In the 21st century it is not nearly as straightforward, there is far more to be considered, and many other options available. Thankfully a duel is not one of the current options.

Resolving civil and commercial disputes can be time consuming, costly and upsetting.

Disputes can occur before, during or after entering an agreement or relationship, in some cases disputes arise about the resolution of the dispute… quite often what was originally a substantive dispute about performance of the agreement, also becomes a procedural dispute. Of course, this means more time and money spent trying to resolve an issue that would not have arisen with effective drafting of a dispute resolution clause.

There are a number of options available to people entering agreements with respect to alternative dispute resolution (ADR) methods, including written notice, negotiation, mediation, conciliation, third party (expert) adjudication, arbitration and of course litigation, through the courts. Nonetheless, it is not always as simple as just stating what method is desired and without further detail.

Contracts may specify a dispute resolution method, for example:

  • A notice of breach is served; and
  • Informal or formal negotiation occur between the parties; and
  • If the first two steps are unsuccessful, the parties proceed to arbitration.

This is an example of a ‘multi-tiered’ ADR clause. The benefits of which may include saved time and cost, and maintaining relations between parties.

Another issue that arises from ADR clauses in contracts is when the clause itself is not sufficiently certain and the process, when challenged, results in the ADR clause being bypassed and the matter proceeding through to Court.

It is important for anyone contemplating entering an agreement to ensure the ADR clause and process is well considered and drafted; if it isn’t, the desired ADR method may not be available to the parties. Parties spend time and money to resolve the dispute about the ADR process and the substantive issue is pushed aside, which is the real dispute that brought about the secondary one in the first place!

A duel was a binding and enforced mechanism to resolve disputes. Unlike the duel, many of the ADR clauses that we come across are far less enforceable or not enforceable at all. It is therefore important to ensure the ADR clause is well drafted and ensures an agreed pathway to the resolution of any dispute.

We strongly recommend that you seek legal advice prior to entering into any agreement which contemplates an ADR clause to avoid the need for a modern day duel. If you do find yourself in the middle of a dispute and the ADR process seems unclear, R.B. Flinders can assist you to reach a timely and cost effective resolution. Contact George Spiliotis, Managing Principal, for more information on how we can help you.

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