When Wandzel drafts contracts for its clients, our attorneys devote considerable attention to the dispute resolution section. This section directs the parties on how to resolve a dispute when it arises. Disagreements stemming from partnerships, payment terms, intellectual property, or performance obligations are common examples of where a drafted dispute resolution section becomes essential.
For starters, business disputes often involve two sides that are bound by a contract. A dispute comes when parties disagree on rights or internal performances. Commonly, both parties want a resolution, but they cannot resolve the issue on their own. When the dispute is left unmanaged, the situation could escalate. For this reason, contracts help to resolve disputes in specific ways outlined by the agreement.
In drafting contracts, Wandzel usually recommends that a conflict resolution clause include an incremental step process. This process includes negotiation, mediation, and arbitration, which are the three core ways for out-of-court dispute resolution. These methods are recommended because they avoid litigation. As you know, litigation costs more time and money for your business.
Negotiation is a discussion between parties aimed at resolving a dispute without third-party decision makers. This is the most direct type of dispute resolution and can be confrontational. Effective negotiation seeks alignment in ideas by identifying interests and crafting solutions that manage both parties’ risks and opportunities. Its primary advantage is in the creation of new value through resolution with lower time and cost investment.
After negotiation is typically mediation. Mediation involves a neutral third party who facilitates the discussions and helps the parties reach a mutually acceptable resolution. The mediator can rationally assess the facts and circumstances involved in the dispute, while remaining emotionally detached. The mediator then recommends an outcome that is nonbinding to the parties.
Then there is arbitration, and you will see it as such, commonly used in agreements:
Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.
This means that a dispute related to a contract will be settled through arbitration. Arbitration invites a third-party decision maker called the arbitrator, who can make a final, binding decision after taking the parties through a process dictated by rules. In the clause above, the set of rules applied is the American Arbitration Association’s Commercial Arbitration Rules. The parties may rewrite the rules in the contract, and so having a Wandzel lawyer write the agreement can be a very advantageous way to dictate how the dispute is handled through arbitration.
A well-drafted dispute resolution clause does more than address potential conflict; it creates foresight that alleviates anxiety and contention between the parties. It outlines the procedures to follow when a dispute arises and can save time and money. So, when your business encounters a dispute, instead of facing uncertainty, you can follow a contractually defined protocol designed for your protection.