Business owners who are negotiating contracts should actively strategize on how to save money and prevent litigation. One important clause to include in contracts is one that requires the parties to use alternative dispute resolution (ADR) instead of litigation. It is important to understand that you must do more than simply state that ADR is required. Below are a few items to consider when drafting an ADR provision:
Type of ADR
There are several different types of ADR, but the two most commonly used are mediation and arbitration. Both mediation and arbitration are more casual, flexible and affordable than litigation.
Mediation involves using a neutral, third-party to serve as the mediator to resolve the dispute. The parties can agree to the mediation being binding or non-binding. The sole function of the mediator is to facilitate negotiations, but the parties are ultimately in control of whether a settlement can be reached.
Arbitration involves the parties agreeing to resolve their disputes by using a neutral, third-party arbitrator. A panel of arbitrators can also be used. Arbitration is binding and it is a substitute for going to court. In fact, a hearing is held before the arbitrator and a ruling is rendered. In certain instances, the arbitrator’s decision may be appealed.
Using ADR is an effective way to avoid litigation. It is important for your contract to cover as many details as possible regarding how the ADR process will occur, such as:
- Jurisdiction where the ADR hearing must be held
- Which law will govern the ADR process?
- What issues must be decided by ADR?
- Will the ADR proceeding be kept confidential? If so, how will this be accomplished?
- Are certain damages available to the parties?
- Can the ADR decision be appealed to a court of law?
Including an ADR provision in your agreements requires planning, but it is time well-spent because it can save you a substantial amount of money if a contractual dispute arises.
The above are just a few examples of issues an attorney can help you with when drafting business contacts. Obtaining the right advice from the start can significantly increase the likelihood of your business being a success. Contact The Swenson Law Firm for help.