Parties entering an agreement regularly overlook the dispute resolution clause which is often buried in the "general" section of a contract. Then, when a dispute arises, the parties often don't want to engage in the dispute resolution process set out in the contract.

Partner Selina Nutley says it's important to look at the dispute resolution clause in a contract to identify what will happen if a dispute arises.

What types of disputes will the clause cover?

It is important to consider whether the dispute resolution clause should be broad and cover every dispute connected to the contract or whether the clause should be restrictive. Sometimes it may be appropriate to have different processes for different types of disputes under the contract. A payment dispute may be appropriately dealt with through the litigation process but a dispute about commercially sensitive information may be best dealt with by arbitration.

Is the clause clear?

A dispute resolution clause must be more than simply an agreement to agree or it will not be enforceable. An effective dispute resolution clause provides certainty by setting out the mechanisms allowing the parties to give effect to the clause.

If the parties are required to agree upon a course of action, a clear mechanism must be in place to allow them to reach this agreement. For example, if a dispute resolution clause requires appointment of a third party (ie mediator, arbitrator, expert), the clause may allow proposals by either party and if the parties cannot agree then an independent body can appoint the third party.

Jurisdiction of the courts

A dispute resolution clause should not oust the jurisdiction of the courts but instead require engagement in the dispute resolution process before any litigation. If a clause prohibits a party from commencing proceedings and only allows them to participate in arbitration, a court may say the dispute resolution clause is unenforceable as it has effectively ousted the jurisdiction of the courts.

If you have any queries about the effect of a dispute resolution clause in contracts for your business please contact a member of our Litigation team.