In case of a dispute, it is a good idea to have a well-written and precise contract to determine the different parties’ legal position and, eventually, limit the extent. Disputes occur if, for example, the different parties in a purchase agreement are in disagreement over who has breached the contract. It can also occur if an employee feels they have been illegitimately terminated by their employer. Unless both parties reach an agreement, it will result in a dispute. A dispute can be settled in many ways but most commonly this happens by way of a lawsuit, in front of an arbitration tribunal or through a settlement. A good contract, e.g. a shareholder agreement or a confidentiality agreement, is designed to avoid disputes. Should they occur anyway, it is advantageous if they include details about the procedure as, for example, how the dispute is to be settled (jurisdiction).
Lawsuit and civil litigation
For a dispute to result in a lawsuit, one of the parties has to file a subpoena. Afterwards, the counterparty has to answer the subpoena with a defense.
The lawsuit itself can last for 6-18 months. This includes hearings to schedule the dates for the main trial in court.
One should always deal with the legal expenses prior to the decision to file a lawsuit. All lawsuits bear the risk that your case does not hold up (litigation risk). Hence, you should always consider whether it will pay off to file a lawsuit.
Whether you’re liable to pay for the winning party’s attorney fees depends on which country you're litigating in.
The so-called “English Rule” states that you’re liable to pay the other party’s attorney fees if you lose your court case.
On the other hand, if you’re in America, you follow the “American Rule” which states that each party is responsible for their own legal expenses unless there’s a prior contract or statute overriding the rule.
A dispute is usually settled in court but it is also possible to settle it through arbitration. This means agreeing to leave the dispute’s resolution to an expert umpire, binding to all parties involved. It requires both parties to agree and can be put down in a written agreement, if need be.
Arbitration is a form of private court where the parties themselves select one or more arbitrational judges, benefits being that a decision is reached faster and that it is often cheaper than normal lawsuits. At the same time, a private lawsuit lets you avoid the public spotlight and bad publicity.
Settlement in disputes
Settlement refers to both parties negotiating until the dispute is solved. This way, the case is closed without sentencing.
Since many lawsuits bear the risk for both parties of their position not succeeding (litigation risk), it can be beneficial to reach a solution via settlement.
When a settlement is signed and approved in a court of law, it is as binding as a court sentence while it functions like a contract privately.