So, you have fallen out with the other party to a contract.

Next stop Court, right? Not necessarily.

Lots of contracts include a clause which requires the parties to go through a form of informal dispute resolution before having to bother the Court with their arguments. For example, they might agree that they negotiate or mediate before proceedings can be issued.

So why would they do that? If they have fallen out, shouldn’t they just ask a Judge to decide who is ‘right’?

There are practical and commercial benefits to these types of clauses. They mean the parties would have to try to resolve the dispute themselves before involving the Court. Their commercial and trading relationship may be saved if the problem can be sorted through a frank exchange of views and a commercial solution everyone can live with. It also means they save the time and cost of litigation.

The Courts are coming around to making sure that parties stick to what they have agreed in these clauses too, provided it is clear what the parties approved.

Sounds too good to be true. Are there any downsides?

Yes, possibly. The party in the wrong may not want to play ball and would rather drag out the process by going through the motions of trying to sort out the problems commercially. This may cause a problem if you have limited time to bring a claim in the Court.

To minimise this you should think about this sort of clause carefully. They are a good idea, but can be open to abuse. Agreeing a clear process and time limits within which the steps should be taken is essential if you want to try to ‘stay together’ without limiting your other options.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.