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Your Business Is PersonalAlternative Dispute Resolution, or “ADR”, is growing in popularity among contracting parties in almost every industry. The ability to customize the proceedings, the potential costs savings, and the perceived greater fairness all tend to the parties involved make ADR an attractive alternative to litigation.
There are two aspects to our ADR practice: Drafting well-suited ADR clauses for our clients, and representation should a dispute arise and the ADR clause needs to be relied upon.
Generally, in the course of drafting your contract, we recommend the inclusion of an escalating ADR clause. This allows the parties to utilize all tools at their disposal to resolve a dispute before the next step (which are usually more costly and involved) need to be engaged.
Conciliation and Negotiation
First requiring parties to attempt to reconcile their differences through structured communication provides a direct avenue to resolution. Particularly if the parties had a working relationship at some point in the past, often a breakdown in communication and understand is the cause of the present troubles. Important matters were never discussed, decisions were made that appeared one-sided, and the interests of others might appear to have been forgotten. Also, just like relationships in any other sphere of life, relationships in business can come down to personal feelings. All of these issues usually need to be addressed.
Realigning business strategies, creative solutions and renewed purpose can get a business relationship back on track. Often in this process, new ideas are discussed that lead to opportunities never envisioned before the dispute occurred. There is a great likelihood of both parties walking away with a better understand on their business, their relationship, and future possibilities. In our experience more than 50% of dispute can be resolved at this stage, not only leading to a better future for the business, but likely avoiding a fortune in costly litigation.
Sometimes the structure of the conciliation stage fails to provide the framework necessary to forge a solution to the disagreement. Mediation utilizes a third party (a “neutral”), to help the parties understand mutual needs, concerns and risks. A mediator is not a decision-maker. A good mediator will keep the discussion moving in a positive direction until the parties reach an agreement.
The parties are free to contractually agree to whatever mediation structure they prefer, as contained in their ADR clause. However, there are a number of organizations that provide a standard set of mediation procedures, as well as vet and refer neutrals. Parties usually choose from among the organizations and their rules as to how they want to structure their mediation. Structuring options can include who can qualify as a neutral, where the mediation is help, how communication occurs, etc. This provides the parties with the situation that best suits their needs in resolving their dispute. Of those parties utilizing mediation, more than 50% resolve their dispute at this stage.
If mediation fails, rather than head to court with the dispute, arbitration is the next step. Arbitration has the advantages of customization, greater specialization, and expediency. Like mediation, parties are free to contractually agree to virtually any arrangement they choose in arbitration, and there are a number of organizations that provide model rules and arbitrators. The arbitrator could be a specialist in the field of the parties, giving her a better understanding of the issues at hand. Parties could choose one arbitrator together, or a different number with a different approval process. There could be no discovery or unlimited discovery – just the same with interrogatories, depositions, etc. The process can be tailored to the needs of the clients to reduce cost and increase efficiency.
Arbitration has additional advantages in an international context. Choosing a jurisdiction in either of the parties’ home countries can be unappealing as a home bias is feared. It can be agreed that the arbitration take place in a neutral third party jurisdiction with a neutral arbitrator to minimize bias. In terms of enforcement, enforcement of a court judgment across international borders can be difficult or impossible as many countries have no provisions or agreement relating thereto. In contrast, most countries, particularly those with substantial economic involvement, have provisions for enforcement of arbitral awards. This has made arbitration, as opposed to government courts, the preferred dispute resolution method for most modern international business transactions.
However, arbitration is still adversarial (meaning both sides generally require legal representation, as in a court). Depending on how the arbitration is structured, it can costly, even approaching the cost of a trial. While in a trial the judge is paid by the state, the parties themselves usually pay for the arbitrator’s time. If the arbitration rules require a panel of three arbitrators, that would triple the associated cost. Some arbitration rules allow a good deal of discovery, interrogatories, and depositions, which are all also potentially very costly and reduce the arbitration’s efficiency as compared to a court.
More often parties settle in the course of the arbitration. While the previous steps did not produce an agreement, the prospect of having a disinterested third party hand down a potentially unfavorable decision can compel parties to accept terms they previously deemed unacceptable (just the same as in a courtroom).
If the parties allow the arbitrator to decide the case, the arbitrator’s award is given to a judge for confirmation. States have a set of rules that arbitrations must adhere to, and as long as those rules are followed, the judge will confirm the arbitrator’s award and it will have the same effect as any other court judgment. These decisions are usually unappealable (unlike court decisions) outside of a very limited set of circumstances, such as fraud. The purpose of this is to promote finality and reduce costs associated with a lengthy appeals process.
The above are all good reasons to have competent counsel draft a well-suited arbitration clause in your contract. Furthermore, should the need arise to utilize the ADR clause, you deserve to be well-represented for a fair, efficient arbitration hearing.
We look forward to offfering a free consultation, and deomonstrating what we can do for you. Call or contact Duffy Law today to finally get the legal service you deserve.