The last thing on everyone's mind when entering into a new business relationship is dispute resolution. If the arrangement (whether a partnership or contract of any other type) is established with any degree of formality, there is probably some dispute resolution clauses lurking in there somewhere.
You may be tempted to dismiss the language as mere boiler plate. However, not every deal works out as anticipated and disputes do happen. It pays to review dispute resolution clauses at the start to make sure the rules of engagement meet your needs.
Under the early Common Law of England, dispute resolution generally involved trial by combat. Each party risked life and limb or used a champion to determine who should prevail. Gradually trial by combat shifted to the court system and the use of jury trials. One of the last recorded major trials by combat involved a pitched battle between two teams of 30 men each. Of the original 60 combatants only 12 survived.
In many ways litigation is similar to trial by combat. The main difference is rather than actual blood, the litigants end up hemorrhaging money and time. Anyone who has been involved in the litigation process recognizes the tremendous expense and time drain involved. In "The Devil's Dictionary," Ambrose Bierce described litigation as "a machine which you go into as a pig and come out of as a sausage."
Because litigation is so expensive and time consuming many dispute resolution clauses require the use of alternate dispute resolution (ADR). Arbitration and mediation are the two primary mechanisms.
Arbitration is like litigation in that the parties deliver decision making power to an arbitrator whose decision will be binding. Arbitration is often touted as being less costly than litigation. That is true in some cases. However, a major arbitration case will also involve the same kind of discovery, witness preparation, legal arguments and trial that you have in a litigation case.
Arbitration does have the advantage of being a private proceeding and in most instances the results will be confidential. Thus where the parties wish to avoid potentially adverse publicity, arbitration will have a significant advantage over litigation.
Another major difference between litigation and arbitration is the finality of the decision. In litigation the losing party may generally appeal the result. Even if the result is sustained, there is very significant delay and additional cost. On the other hand, the right to appeal a decision provides protection against a wrong result. With an arbitration decision there is generally no right to appeal. Generally even if the arbitrator was wrong on both the law and the facts there is still no appeal. Thus you are trading finality and certainty for risk of getting a wrong result.
The rules of arbitration are often set forth in the dispute resolution clause in some detail or in the alternative the rules of a particular governing body are adopted. The American Arbitration Association (AAA) is the most commonly recognized organization providing arbitrators and arbitration services.
The AAA provides a variety of standard rules covering various businesses. Contracting parties can agree to deviate from those rules ahead of time provided they address the matter in their contract. The AAA Web site at www.adr.org has a substantial volume of additional information. Many industry groups also have their own rules and arbitrator panels. For example, on health- care-related matters the American Health Lawyers Association provides ADR services with information available at www.healthlawyers.org\adr.
Some of the provisions regarding arbitration rules which should be considered include location of the arbitration, qualification of the arbitrators, discovery procedures, remedies available, confidentiality and assessment of attorney's fees. The dispute resolution clause of a contract can set out the rules for dispute resolution with great specificity. For example, some contracts include what is known as a baseball arbitration clause whereby each party submits their last best offer to the arbitrator who is limited to awarding only one of the two figures submitted.
Another popular ADR mechanism is mediation. Mediation is a structured negotiation session that is facilitated by a neutral mediator. The parties remain in control of the situation and neither is obligated to resolve the case at mediation. This retention of control by the parties allows for creative solutions that may not be available to arbitrators or other fact finders. Like arbitration, mediation is generally confidential.
The use of a mediator promotes reasonable dialogue and can often salvage business and personal relationships that are frayed by the dispute and would be ruptured if the matter went to arbitration or litigation. The mediator can also help the parties evaluate the strengths and weaknesses of their respective positions.
Before you formalize business relationships, the documentation should be reviewed for ADR language. Procedures should be carefully examined to make sure they meet your anticipated needs and concerns. A little bit of attention at the beginning of a relationship may save a great deal of expense and difficulty in the long run.
Robert L. Manley of the law firm Manley & Brautigam, P.C. can be reached at (907) 334-5600, or by e-mail at bob@mb.lawyers.pro.
