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Consider an arbitration clause when creating business contracts

On Behalf of | Dec 14, 2020 | Contract Disputes

Not all business contracts go as planned. Contract breaches can occur for a variety of reasons. Some are intentional, others due to unavoidable circumstances. However, when one side does not uphold their part of the deal, it can have consequences for both businesses. Arbitration is one way of resolving the issue.

Arbitration has many advantages over litigation

When someone breaches a business contract, there are various legal ways of resolving the issue. Litigation is the best known. However, it can prove expensive for both sides as well as souring your relationship. It can also take up a considerable amount of time, leaving both of you unable to get on with running your companies.

Arbitration is typically a more efficient way of settling contract disputes than litigation. Many businesses insert a clause stating that you will resolve any disputes by arbitration, not litigation.

For instance, imagine you run a business sewing custom-made suits. If your supplier fails to deliver the cloth, it could leave you unable to continue. There may be a reason behind the supplier’s failure. Perhaps they import the fabric from overseas and have been unable to secure deliveries due to the current global situation. How do you sort this out?

Sometimes you do not know the answer to the problem. You may understand the cloth supplier’s difficulties. However, when you placed your order with them, you relied on them fulfilling it. By sending your dispute to arbitration, you allow someone knowledgeable in the area to assess the evidence and make a decision. When you enter into arbitration, you agree to follow the arbitration panel’s decision whether it goes against you or for you.

An arbitration clause can help preserve business relationships when difficulties occur. By drawing on an impartial third-party’s wisdom, it reduces the risk that a contract breach becomes personal.