Dispute Resolution Clauses in Commercial Contracts

Most commercial contracts will have a dispute resolution clause. This clause will outline the steps the parties are to take if a dispute arises.

These clauses are used to minimise the costs of resolving disputes through the Courts. Typically the process outlined by a dispute resolution clause will be as follows:

1. The Innocent or non-defaulting party is to formally notify the defaulting party in writing of their breach of the contract;
2. The Non-defaulting party is to give the defaulting party a period of time to rectify the breach, or respond to the notice;
3. If the defaulting party does not respond or rectify, the non-defaulting party is entitled to terminate the contract and sue for damages.

It is important to note that where a non-defaulting party does not comply with the dispute resolution clause and rushes off to court, the defaulting party may be able to halt any Court proceedings.

The Court will generally be inclined to halt the proceedings to allow the parties to perform the dispute resolution procedure in the following circumstances:

1. Where previous disputes have been resolved successfully
2. Where the dispute resolution clause allows the non-defaulting party to go to Court after having attempted the dispute resolution procedure;
3. Where the Court’s time may be unnecessarily wasted.

Given the costs of going to Court, parties to a contract should include and comply with a dispute resolution clause.

In order to understand your obligations under your contract please contact us to have your contracts reviewed.

If you have further questions, please contact us at frank@franklaw.com.au.

This is not legal advice.