Contractual Obligations

Commercial contracts are the basis of doing business. Whether they are purchase orders, supply contracts, exclusive agency agreements, partnership agreements, franchise agreements, or leases, small businesses enter into contracts with others on a daily basis.

Disputes arise when parties to a contract don't do what they agreed. It is preferable to resolve the dispute without court action wherever possible.

First, read the contract and other associated documents to clarify the rights and obligations of each party about the issue in question. In many cases, a well-written contract will set out what both parties have agreed and the action required will often be obvious.

Also, check your contract for a clause that outlines a process for dealing with disputes between the parties. If the contract or other associated documents do not clarify the issue, obtain professional advice 


There are three options available to resolve your contract dispute:

1. Informal negotiation: The cheapest and easiest thing to do is attempting to resolve the dispute through discussion. Try to resolve the problem through talking and informal negotiation with the other party. Often the parties to the contract can negotiate a resolution that is satisfactory to both without the need for formal mediation. Remember to confirm any verbal agreements in writing.

2. Mediation and arbitration: mediation or arbitration is another option to resolve the dispute if informal negotiation fails. It is a way of reaching an agreement that is usually cheaper and quicker than using the courts. An independent mediator will assist to negotiate an outcome which meets the interests of both parties. Mediation is not a binding legal process but the agreement can be enforced if necessary.

Arbitration is a more involved process similar to court proceedings but much less formal. An arbitrator is an independent third party that will decide the dispute between the parties. The arbitrator considers the evidence of the case presented by both parties and then makes a decision that can be legally enforced.

There are numerous private mediators with skills and experience in small business issues. Find a mediator or arbitrator at:

The Institute of Arbitrators & Mediators Australia

The Citizens Advice Bureau offers mediation, conciliation & facilitation services.

3. The Courts: you may find it necessary to take the dispute further if other forms of resolution have not been successful.

Before you seek a resolution in the courts, carefully consider whether the issue is worth the damage it may cause to the relationship with the other party. Further, this option can be expensive and time consuming. However, if you have a good case and the dispute cannot otherwise be resolved this could be your best option.

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