Dispute Resolution Clause

Dispute Resolution Clause Defined

Dispute resolution clauses are contract terms that resolve disputes as a non-binding or binding solution. They sometimes include rules that require the parties to engage in alternative disputation, such as mediation and arbitration. The alternative is going to civil court.

Necessary contract law conditions in dispute resolution clauses include governing law and the use of arbitration agreements.

Here’s an article about dispute resolution clauses.

Dispute Resolution Clause Explained

Dispute resolution clauses help parties avoid the hassle of going to court, which is expensive and on public record. They offer peace of mind to all parties that you intend to settle your contract disputes as amicably and quickly as possible.

Purpose of Dispute Resolution Clause

The purpose of dispute resolution clauses is to offer reassurance regarding the amount of time and money spent resolving conflicts. They can foster better business relationships and offer comfort that breach of contract cases are resolved privately and inexpensively.

Dispute Resolution Clause Example

Examples of dispute resolution clauses include:

• Example 1. Business partners wanting to settle disputes out-of-court
• Example 2. Engaged parties, including provisions in a prenuptial agreement
• Example 3. Construction companies resolving negligence liability claims

Dispute Resolution Clause Samples

Sample 1 – Purchase and Sale Contract

Dispute Resolution. Any controversy, dispute, or claim of any nature arising out of, in connection with, or in relation to the interpretation, performance, enforcement or breach of this Contract (and any closing document executed in connection herewith), including any claim based on contract, tort or statute, shall be resolved at the written request of any party to this Contract by binding arbitration. The arbitration shall be administered in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association. Any matter to be settled by arbitration shall be submitted to the American Arbitration Association in the state in which the Property is located. The parties shall attempt to designate one arbitrator from the American Arbitration Association. If they are unable to do so within 30 days after written demand therefor, then the American Arbitration Association shall designate an arbitrator. The arbitration shall be final and binding, and enforceable in any court of competent jurisdiction. The arbitrator shall award attorneys' fees (including those of in-house counsel) and costs to the prevailing party and charge the cost of arbitration to the party which is not the prevailing party. Notwithstanding anything herein to the contrary, this Section 13.24 shall not prevent Purchaser or Seller from seeking and obtaining equitable relief on a temporary or permanent basis, including, without limitation, a temporary restraining order, a preliminary or permanent injunction or similar equitable relief, from a court of competent jurisdiction located in the state in which the Property is located (to which all parties hereto consent to venue and jurisdiction) by instituting a legal action or other court proceeding in order to protect or enforce the rights of such party under this Contract or to prevent irreparable harm and injury. The court's jurisdiction over any such equitable matter, however, shall be expressly limited only to the temporary, preliminary, or permanent equitable relief sought; all other claims initiated under this Contract between the parties hereto shall be determined through final and binding arbitration in accordance with this Section 13.24. 

Reference:

Security Exchange Commission - Edgar Database, EX-10.42 2 aipl2landmark_ex10z42.htm EXHIBIT 10.42, Viewed May 10, 2021, <https://www.sec.gov/Archives/edgar/data/711642/000071164209000488/aipl2landmark_ex10z42.htm>.

Sample 2 – Asset Purchase Agreement

Tax Dispute Resolution. If Buyer and Seller are unable to resolve any disputes regarding Tax matters relating to the Purchased Assets (including the Purchased Subsidiary) within 60 days, the disputed issue or issues shall be referred for resolution to a partner at a “Big 4” accounting firm (or other internationally recognized accounting firm) reasonably acceptable to Buyer and Seller, who shall be requested to resolve the disputed issues, on the basis of the position most likely to be sustained if challenged in a court having initial jurisdiction over the matter (which, for U.S. federal income tax issues, shall be deemed to be the United States Tax Court). The scope of the accounting firm’s engagement (which will not be an audit) shall be limited to the resolution of the disputed issues. The decision of such accounting firm shall be delivered within 90 days following the submission of such matter and shall be final and binding on the parties, and the costs of such accounting firm shall be borne equally by Seller and Buyer. If a disputed Tax Return becomes due (taking into account extensions of time to file, which shall be sought as necessary to avoid the delinquent filing of any Tax Returns), it shall be filed as determined by the Party responsible for the preparation and filing of such Tax Return pursuant to this Agreement, and shall be amended and re-filed as required by the outcome of the referral to the accounting firm as provided herein.

Reference:

Security Exchange Commission - Edgar Database, EX-2.1 2 dex21.htm ASSET PURCHASE AGREEMENT, Viewed May 10, 2021, <https://www.sec.gov/Archives/edgar/data/1428669/000119312510013625/dex21.htm>.

Sample 3 – Share Purchase Agreement

Arbitration. Any dispute, controversy or difference arising among the Parties out of or in relation to this Agreement or for the breach thereof shall be resolved exclusively by arbitration in the Hong Kong Special Administrative Region of the Peoples’ Republic of China. Such arbitration shall be conducted in the English language in accordance with the Rules of Arbitration of the International Chamber of Commerce by three (3) arbitrators, of whom one shall be appointed by Purchaser and/or Parent, another shall be appointed by Sellers, and the third shall be appointed by the first two (2) arbitrators. If the third arbitrator is not so appointed within one (1) month after the appointment of the first two (2) arbitrators, the third arbitrator shall be selected in accordance with the Rules of Arbitration of the International Chamber of Commerce. The decision of the arbitrators shall be made on the principles of majority rule. The award made by the arbitrators shall be final and binding upon the Parties and may be enforced in any court of competent jurisdiction. Notwithstanding the foregoing provision, the Parties shall have the right to bring judicial proceedings to obtain preliminary injunctive relief at any time during the pendency of arbitration proceedings, provided that such preliminary injunctive relief shall be subject to final arbitral decisions. Unless the arbitrators decide otherwise, the cost of arbitration shall be shared equally by Purchaser and/or Parent, on the one hand, and Sellers, on the other hand.

Reference:

Security Exchange Commission - Edgar Database, EX-4.12 3 dex412.htm SHARE PURCHASE AGREEMENT, Viewed May 10, 2021, <https://www.sec.gov/Archives/edgar/data/1329394/000119312507148404/dex412.htm>.

Common Contracts with Dispute Resolution Clauses

Common contracts with dispute resolution clauses include:

• Arbitration agreements
• Settlement agreements
• Insurance contracts
• Construction contracts
• Real estate contracts
• Escalation clauses and contracts
• Demand letters

Dispute Resolution Clause FAQs

Dispute resolution clauses are complicated. Learn more by reading the dispute resolution clause FAQs below:

Are dispute resolution clauses enforceable?

The enforceability of dispute resolution clauses depends upon where you live. However, courts generally uphold them. Make sure your dispute resolution clauses are legal by reviewing them with contract lawyers.

Here’s an article about the importance of drafting dispute resolution clauses.

What happens if there is no dispute resolution clause?

If there’s no dispute resolution clause, the parties follow the contract’s governing law or local contract laws.

Does a dispute resolution clause survive termination?

Yes, dispute resolution clauses survive contract terminations.

What are the methods of dispute resolution?

Methods of dispute resolution include:

• Method 1. Arbitration
• Method 2. Mediation
• Method 3. Settlement conferences
• Method 4. Early neutral evaluation
• Method 5. Negotiation discussions
• Method 6. Demand letter issuance

Here’s a web page with a dispute resolution checklist. However, you should speak with litigation lawyers if you need legal advice.