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Contracts come in different forms (verbal or writing) and are used in a range of settings, all binding. Written contracts provide greater clarity about the parties’ expectations' are more easily enforced, and can help prevent misunderstandings.
Therefore, it is important to have an agreed approach to resolving disputes in contracts. This clause is an important expression of the parties’ intention about how they’re going to work together. The more the dispute resolution clause is clearer it will generally provide lower cost and timely approaches to resolving disputes and may help preserve relationships and obviously prevent the parties from ending up in court.
This is why the content of the dispute resolution clause(s) should be deliberately and carefully considered and drafted to meet the particular context and needs of the situation. Doing this up front can save time, costs and problems later on.
When a party accuses the other of violating the agreement, the contract is brought to the forefront. And that’s when a Dispute Resolution Clause in the contract comes in handy.
What is a Dispute Resolution Clause?
It is common to assume that when parties have an agreement than nothing will go wrong. This assumption is false mainly for long term agreements where disputes may rise even after 10 or 15 years from contract signature. The dispute resolution clause lays out a mechanism for the resolution of disputes between the parties involved.
Since there is always a chance that a dispute will occur, a dispute resolution clause in the contract allows quick resolution under mutually agreed upon terms.
Why always have a dispute resolution clause in the contract?
Avoid Litigation
When a dispute clause has not been agreed not added to the contract, the parties are forced to approach tribunal or court (with the legal authority to rule on the dispute). Even an agreed external arbitration process becomes many time out of the control of the parties, and is time and money consuming. However, solving a dispute in the court is expensive, tedious, and public. The judicial system can take over a year or more to rule on the dispute. Also, a case that goes to court is under the public eye and can be scrutinized by media. This can negatively effect on the brand and company PR.
Solve Disputes Easily
When a dispute occurs, there are multiple ways to solve it. A Dispute Resolution clause sets clear who can help resolve a dispute, when, where and how.This avoids prolonging any disagreement by starting the resolution process quickly.
Decide on which law of the land to follow
Any inter-provincial or across the borders of countries agreement means that the contract can be disputed according to the different laws of the land.
For example, imagine a dispute of New Delhi Cooperative Limited v Kashmir Inc occurred over New Delhi and Kashmir. The dispute was over a product that became defective and was bought 11 years earlier.
At the outset of the court proceeding, the court needs to decide whether New Delhi or Kashmir law would be applied. This could have been pre-agreed in a Dispute Resolution clause.
Salvage Business Relations
In the business environment, disagreements are bound to occur. Choosing an agreeable dispute mechanism beforehand, a dispute can be solved in a clean manner without damaging the business relationship between the parties.
Conclusion
Next time, ensure that any contract signed between you and another party has a Dispute Resolution clause. This is an excellent way to ensure any dispute that occurs is resolved in the best manner possible.
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