Question

In a dispute involving a commercial contract, there is often a clause which prescribes escalating steps to resolve a dispute. If you were writing such a clause, what dispute resolution steps would you include, and why? I am not asking you to write a contract clause, just tell my what steps in dispute resolution you would choose. You may wish to indicate what type of contract you are thinking about, how big, how complex.

Answer 1

A multi-step dispute resolution clause is a contractual provision that requires the parties to an agreement to escalate a dispute through varying levels of management or other processes, such as mediation, using agreed-upon procedures before litigation or arbitration may proceed.

Below, we set out five ways you can resolve a dispute with your contractor to minimise the impact on your business.

1. Review the Contract. The first step to resolving any dispute you may have with your contractor is to carefully re-read your contract. ...
2. Negotiations Between the Parties.
3. Mediation
4. Arbitration
5. Litigation

Dealing with contractors is essential for all small businesses, but unfortunately, disputes can sometimes arise. Below, we set out five ways you can resolve a dispute with your contractor to minimise the impact on your business.

1. Review the Contract

The first step to resolving any dispute you may have with your contractor is to carefully re-read your contract. When reviewing your contract, you should pay particular attention to some specific clauses, including:

• The clause(s) that specifically relate to your dispute. Have you and your contractor both fulfilled your obligations?
• Any dispute resolution clause. A dispute resolution clause will set out the procedures you need to take when attempting to resolve your dispute.
• The termination clause(s). This clause will set out how you can end your contractual relationship if you wish to do so.

2. Negotiations Between the Parties

It is always recommended that you attempt to negotiate your dispute with your contractor before taking any further legal action. You should approach any negotiations calmly and professionally while trying not to make accusations against the other party. During negotiations, you should clearly communicate to your contractor:

• What you believe they have done or failed to do.
• What action you want your contractor to take to remedy the problem including a specific timeframe.

Finally, give your contractor a chance to respond. It is possible that there has simply been a miscommunication between you and your contractor.

3. Mediation

If your negotiations with your contractor fail to reach a suitable outcome, mediation may be your next step.

Mediation is a more structured negotiation process, overseen by an independent person known as a mediator. The mediator will help parties identify the issues in dispute and reach a mutually satisfactory agreement. Any agreement parties reach during mediation is not binding unless reduced to writing. An agreement should set out the terms of the resolution and both parties need to sign it.

Mediation is advantageous for parties that wish to retain control during the dispute resolution process.

4. Arbitration

Arbitration is an alternate dispute resolution process commonly used in circumstances where the parties ability to negotiate has broken down completely. An independent third party, known as an arbitrator, acts as a judge and will hear the dispute and make a determination. Arbitration cannot take place unless both parties consent to the process. It is highly recommended that you seek legal advice before agreeing to participate in arbitration, as any determination made by an arbitrator will be legally binding on the parties.

5. Litigation

Litigation should be used as a last resort to resolve a dispute with your contractor. Litigation involves one party commencing court proceedings against another party for the purpose of enforcing or defending their legal right. Litigation is structured, and the court dictates its processes. Litigation is finalised when a magistrate or judge hands down their decision. If you are unsuccessful in your litigation, the court may require you to pay part of your contractor’s legal costs of the proceedings. Likewise, if you are successful, there is a possibility that you may recover some of your legal costs from your contractor.

Litigation can be costly and time-consuming, and you should consider these factors before commencing any court proceedings.

Key Takeaways

If you can’t resolve your dispute with your contractor through negotiations, it is important that you seek legal advice before taking your next steps. A lawyer can advise you on the best course of action for your business.