You may have noticed a standard dispute resolution clause in one of your contracts. They normally appear after what are considered the ‘more important’ working clauses of an agreement, towards the end of the document.
What is a dispute resolution clause?
A dispute resolution clause is a mechanism that provides a peaceable and fair way to work through and resolve questions, disputes, misunderstandings or differences that may arise from time to time throughout the operation of your contract in your dealings with the other party.
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Why do you need one?
A dispute resolution clause will minimise the possibility of a dispute or misunderstanding escalating to the point where the parties are faced with a time consuming and expensive Court action to resolve their differences. Often the parties to a contract will be required to undertake the dispute resolution process before starting court action.
What can a dispute resolution clause achieve?
A dispute resolution clause can save you time and money, by keeping you:-
- engaged positively with your co-parties; and
- out of the Court system.
However, there are some things you need to know about these superstar clauses for them to be effective.
A dispute resolution clause must be certain.
The process set out in the dispute resolution clause must be clear and certain. This was highlighted by the Court recently in WTE v RCR*, when it confirmed these general guidelines for dispute resolution clauses:-
- The clause does not need to be overly structured, but it must be sufficiently certain to be enforceable.
- If the dispute resolution process is not sufficiently defined, it will be uncertain and therefore, unenforceable.
- If the process is subject to further negotiation and agreement, it will be uncertain and unenforceable.
- There cannot be stages in the process where agreement is needed before the process can proceed.
A dispute resolution clause should not amount to an “agreement to agree”
For an agreement to be enforceable, all of the essential terms of the agreement must be sufficiently defined and certain. An “agreement to agree” to essential terms at a later date will not be enforceable. As such, a dispute resolution clause should not enforce between the parties what is essentially an ‘agreement to agree’, to either the issues that are in dispute or to the method of the dispute resolution process. Rather, a dispute resolution clause should enforce a clearly defined ‘process’ from which a resolution between the parties may result.
Next time you’re negotiating a contract take the time to consider what the dispute resolution process will be and document the process clearly in the dispute resolution clause. You’ll be glad you did. Do you know that we have a wide range of business, employment and leasing contract templates that you can use to drastically cut your legal fees? See them at www.rpemery.com.au
*WTE Co-Generation & Anor V RCR Energy Pty Ltd & Anor [2013] VSC 314 (21 June 2013)
