Including a dispute resolution procedure in your contract is a sensible precaution. For example, this might require you to take the following steps before legal proceedings can commence:
- Give the other party written notice setting out the nature of the dispute
- Hold discussions with the other party (directly or through representatives) within five days of receiving written notice
- Refer the dispute to an independent third party (for mediation, arbitration or expert determination).
This process allows the parties to try to resolve a dispute quickly and cheaply in a manner that ensures that the parties can continue to do business with each other.
To reduce the cost of resolving a dispute, ensure the contract requires that each party pay its own costs in the dispute resolution process. Timeframes and deadlines should be included in a dispute resolution clause to avoid it dragging on.
There are several ways you can resolve a dispute.
Negotiation: In many cases, it is best to try to resolve a dispute by negotiation rather than involving outside parties, or resorting to the courts.
Alternative Dispute Resolution:
You could ask the other party to agree to seek help to resolve the dispute - for example, through conciliation, mediation or arbitration. These are all forms of alternative dispute resolution, or ADR. ADR involves an impartial third person who assists the parties with resolving the issue for themselves. In conciliation and mediation, the third person is there to help you communicate and negotiate an outcome (not come to a decision about who is right or wrong). In arbitration, the third party can come to a decision to resolve the dispute. It is best to set out in the contract what person or organisation will act as a mediator or arbitrator if there is a dispute. This avoids a dispute over who will mediate a dispute!
Taking the matter to court: The court process can be time consuming and costly and in most situations should be the last resort. But if you feel that the other party is not doing what they are supposed to under the contract and they are not prepared to negotiate or participate in ADR, you could go to court to seek damages or specific performance for breach of contract.
Example: Elaine has a contract with Remus Ltd under which she is required to distribute their products each week to their clients. In return Remus Ltd is required to pay Elaine $600 a week. Elaine is upset because Remus Ltd is two months behind on payment.
As a first step Elaine talks to the Human Resources Manager of Remus Ltd about the payment. He tells Elaine that she will get her payment ‘when we are good and ready’.
Elaine is upset by this and considers taking the matter to court. Luckily she first looks at her contract to see what it says about disputes. It says that she must first discuss the issue with the Finance Manager and then if the issue is not resolved it will be dealt with by an independent third party.
Elaine talks to the Finance Manager, who says he is not happy with some aspects of Elaine’s work. They are unable to reach agreement. The contract states that the second stage of resolving the dispute is to attend alternative dispute resolution. Both Elaine and the Finance Manager agree to mediation with an independent mediator as the next step to resolve their dispute.