Most people who find themselves (fortunately) not acquainted with litigation imagine various dispute decision (or “ADR”) clauses of their contracts are primarily boilerplate language that’s recycled repeatedly in each contract. Nonetheless, well-drafted ADR clauses cannot solely offer you an enormous benefit if a problem comes up, they could additionally trigger your counterparty to again away from litigation utterly. If carried out proper, arbitration clauses ought to be just right for you, not towards you.
Backing up – ADR provisions often state that if a problem or dispute arises, the events must first work in good religion to discover a resolution, mediate, and/or arbitrate earlier than or as a substitute of submitting a lawsuit. And our workforce of litigators agree: the ADR provisions we’ve been seeing lately are getting extra artistic and typically, harder to abide by for our shoppers. Sadly, we’ve seen some clauses which can be actually terrible for our shoppers in that it requires a course of that may be dragged out for years earlier than an arbitration continuing or lawsuit may even be filed. This can be a drawback as a result of arbitration clauses ought to be just right for you if carried out proper. Some frequent examples we’re seeing are:
- The availability requires that the events attempt to resolve any disputes on their very own. Typically, we see language like “in good religion” to point the events shouldn’t be utilizing this as a delay tactic, however that sort of language is obscure and really laborious to implement. Different occasions, we see language indicating how lengthy the events want to do that, however it might fluctuate from 30 days to so long as 1 yr – and belief us, in case you’re not making a lot progress on working via your problem in 30-60 days, the probabilities of you making far more progress in 1 yr is slim to none. Our suggestion right here: in case you’re going to incorporate this step, be certain that a brief timeline is included.
- The availability requires that if the events can’t resolve the difficulty on their very own, they’re required to mediate. In probably the most egregious examples, a consumer introduced me a contract that required him to mediate 3 separate occasions earlier than he may file a lawsuit. Bear in mind, mediation is usually a nice possibility, however it can be costly. A mediator additionally has no authority or energy to make events settle – the very best a mediator can do is get the events to see as a lot frequent floor as attainable, see the failings of their positions, and notice that settling the case early (however at a reduction) should take advantage of financial sense. Our suggestion right here: once more, in case you’re going to incorporate this step, ensure you’re not committing your self to quite a few mediations and ensure the discussion board, steps for initiation, and so forth. are all spelled out.
- The availability requires arbitration however is tremendous obscure on the mechanics of the arbitration. Arbitration can also be a terrific possibility to contemplate as a substitute of initiating a public lawsuit, however arbitration can be a really costly course of. In arbitration, you’re not solely paying for lawyer time, you’re additionally paying for arbitrator time (and extra prices to the discussion board that’s operating the arbitration, which usually does embrace an initiation charge). Our suggestion right here: be certain that the settlement spells out precisely methods to provoke an arbitration, the place it’s going to be held, what number of arbitrators you’re going to make use of, and so forth.
The underside line is, don’t skirt over the ADR clause when drafting your contracts. No person needs to consider their enterprise or partnership going awry sooner or later, however the extra you think about the way you’re going to deal with potential disputes down the road, the extra you’re defending your self and doubtlessly saving tons of cash down the road. And since we’re more and more seeing ADR provisions which can be designed to make the method complicated and impractical, it’s extra vital than ever to verify your ADR clauses be just right for you, not towards you.