Dispute resolution: Overview, definition, and example
What is dispute resolution?
Dispute resolution refers to the methods and processes outlined in a contract for addressing and resolving disagreements or conflicts that may arise between the parties. It specifies how disputes will be handled, whether through negotiation, mediation, arbitration, or litigation, and often includes details on the procedures to be followed.
For example, a contract might require that disputes first be mediated by a neutral third party before proceeding to arbitration.
Why is dispute resolution important?
Dispute resolution is important because it provides a structured and agreed-upon approach for managing conflicts, reducing uncertainty, and minimizing costs. By specifying how disputes will be resolved, parties can avoid prolonged legal battles and maintain a professional relationship.
For SMBs, having a dispute resolution clause in contracts helps prevent costly litigation, ensures fairness, and provides clarity on the steps to take if a disagreement arises.
Understanding dispute resolution through an example
Imagine a software licensing agreement where a dispute arises about whether the software meets agreed performance standards. The dispute resolution clause might require the parties to first attempt negotiation:
- “In the event of a dispute arising under this Agreement, the Parties shall first attempt to resolve the matter through good-faith negotiations.”
If negotiation fails, the clause might specify arbitration:
- “If the dispute is not resolved within 30 days, it shall be submitted to binding arbitration conducted in accordance with the rules of the American Arbitration Association.”
An example of a dispute resolution clause
Here’s how a dispute resolution clause might appear in a contract:
“In the event of any dispute, claim, or controversy arising out of or relating to this Agreement, the Parties agree to first attempt to resolve the matter through good-faith negotiations. If such negotiations fail, the dispute shall be submitted to binding arbitration in accordance with the rules of the [Insert Arbitration Body], with the arbitration taking place in [Insert Location]. Each Party shall bear its own costs of arbitration unless otherwise determined by the arbitrator.”
Conclusion
A dispute resolution clause provides a clear, structured approach for resolving conflicts, helping parties avoid costly and time-consuming litigation. By outlining the methods and steps for resolving disputes, it fosters efficiency, fairness, and clarity.
For SMBs, including a well-defined dispute resolution clause in contracts is essential for minimizing risks, reducing legal expenses, and ensuring that disagreements are handled professionally and effectively. It supports smoother business relationships and provides a roadmap for resolving conflicts amicably.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.