Business contracts can define every aspect of the relationships between businesses, partners and shareholders. A well-drafted dispute resolution clause can help these parties resolve conflicts efficiently.
Including specific elements in this clause can prevent costly and time-consuming disputes in the future. This will help business operations run smoothly, with minimal disruption even during times of harsh disagreements.
Choice of dispute resolution method
Clearly stating the preferred method for resolving disputes is an essential first step. Your contract can include processes for undergoing negotiation, mediation or arbitration. Mediation and arbitration often provide faster and more cost-effective solutions compared to litigation.
Selection of arbitrators or mediators
If the contract dictates the use of arbitration or mediation, the clause should outline how to select arbitrators or mediators. Specify the number, qualifications and method of selection to help ensure a fair and impartial process.
Timeline for resolution
Setting deadlines for each stage of the dispute resolution process can help resolve conflicts in a timely manner. This may include deadlines for initiating proceedings, submitting documents and reaching a final decision. Doing so not only holds each party accountable but also helps mitigate disruptions to business.
Costs and fees
The clause should address how to allocate the costs of dispute resolution. This may include mediator or arbitrator fees, administrative expenses and certain legal costs. Defining these terms in advance can prevent disagreements about financial responsibilities.
Exceptions to dispute resolution
Certain disputes may require immediate court intervention. For example, breaches involving intellectual property or urgent injunctive relief may call for bypassing typical dispute resolution. The clause should clarify any and all such exceptions to the dispute resolution process.
Good faith requirement
Encouraging each party to engage in the resolution process in good faith can foster cooperation and improve the chances of reaching a mutually beneficial solution. The contract should specify what constitutes “good faith behavior.” Each participant in the contract should fully understand what good faith entails before signing the contract.
Including these elements in a contract’s dispute resolution clause can provide clarity and help parties resolve conflicts effectively. Prolonged disputes can irreparably harm the business and important professional relationships. It is important to reduce these risks as much as possible.