Disputes between the contracting parties: Overview, definition, and example
What are disputes between the contracting parties?
Disputes between contracting parties refer to disagreements, conflicts, or breaches that arise between the parties involved in a contract. These disputes can relate to contract terms, payment obligations, performance failures, misinterpretations, or breaches of contract.
For example, if a supplier agrees to deliver goods by a certain date but fails to do so, the buyer may dispute the supplier’s failure to meet the contract terms and demand compensation.
Why are disputes between the contracting parties important?
Contract disputes are important because they can lead to financial losses, business disruptions, and legal action if not resolved properly. A well-drafted contract should include a dispute resolution clause to clarify how conflicts will be handled. Key methods of resolving disputes include:
- Negotiation – The parties try to settle the dispute informally.
- Mediation – A neutral third party helps the parties reach a voluntary agreement.
- Arbitration – A private process where a third party makes a binding decision.
- Litigation – The dispute is taken to court, where a judge decides the outcome.
Including clear dispute resolution terms in a contract helps avoid unnecessary legal costs and ensures conflicts are handled efficiently.
Understanding disputes between the contracting parties through an example
Imagine a construction company contracts with a developer to build an office building by a set deadline. Due to delays in material deliveries, the project is completed three months late. The developer refuses to pay the full amount, arguing that the delay caused financial losses. The construction company disputes this claim, stating that the delay was beyond their control.
Since the contract includes a mediation and arbitration clause, both parties first attempt mediation. When they fail to agree, they proceed to arbitration, where a neutral arbitrator decides how much the developer should pay based on contract terms.
In another scenario, a software company signs a service contract with a business client. The client claims the software does not meet the promised specifications and refuses to pay. The contract includes a dispute resolution clause requiring both parties to negotiate before taking legal action. They enter discussions, revise the contract terms, and agree on a solution without going to court.
An example of a dispute resolution clause
Here’s how a disputes between contracting parties clause might appear in a contract:
“In the event of any dispute arising out of or relating to this Agreement, the parties shall first attempt to resolve the dispute through good-faith negotiations. If negotiations fail, the dispute shall be submitted to mediation. If mediation does not resolve the dispute, the matter shall be referred to binding arbitration in accordance with the rules of [Arbitration Institution].”
Conclusion
Disputes between contracting parties can arise over contract terms, obligations, or performance failures. Without a clear resolution process, disputes can escalate into costly legal battles.
By including a well-defined dispute resolution clause, businesses can reduce legal risks, resolve conflicts efficiently, and maintain good commercial relationships.
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.