Adr Contract Clauses
| Publication year | 1989 |
| Pages | 867 |
| Citation | Vol. 05 No. 1989 Pg. 867 |
1989, May, Pg. 867. ADR Contract Clauses
When parties enter into contract negotiations, they often spend most of their time structuring the substantive terms of the transaction. Issues of dispute resolution, if they are addressed at all, are "solved" by the instinctual insertion of a boilerplate arbitration clause. However, for many corporate clients, this approach to contract drafting is no longer acceptable. In fact, some large companies have publicly stated that failure to include an appropriately designed alternative dispute resolution ("ADR") clause in their agreements will constitute a "deal breaker."(fn1)
The reason companies use ADR clauses is simply that it makes good business sense. By agreeing in advance to a consensual method of resolving potential disputes, a company can save an inordinate amount of time and money. It can protect confidential information, preserve long-term relationships and increase good will. As a practical matter, ADR clauses provide a means by which business differences can be resolved without elevating them to major legal disputes.(fn2) This article discusses the design, drafting and enforceability of such clauses.
A dispute resolution analysis should be part of every transactional negotiation. This procedure, a portion of which is likely to flow naturally from the substantive discussions, requires the contracting parties to select the ADR models
To perform the analysis, the parties first should identify the following:
1) their business and contractual objectives;
2) the factual and legal context in which disputes are likely to arise; and
3) the potential barriers that could prevent resolution.
Once the parties are able to clarify their contractual interests and requirements, they should choose the ADR models which are most likely to meet those needs.
Some basic ADR models and their characteristics include the following:
Negotiation. This is a private, voluntary, nonbinding process that is generally informal and unstructured. It enables the parties to focus on their interests rather than their positions and to emphasize their relationship rather than procedural rules. Generally, there is no third-party facilitator present. Successful negotiations result in contractual agreement. Principled negotiation (interest-based bargaining) is particularly helpful when used during the early stages of a dispute, before substantive and emotional polarity occurs.
Mediation. Mediation is also a private, voluntary, nonbinding process. The usually informal meetings are conducted by a neutral and impartial third party who facilitates communication between the parties and has no authority to issue an opinion. Again, emphasis is placed on the parties' interests and relationship. If successful, mediation results in an agreement that would be enforceable in court.
Settlement Conference. This process may be voluntary or mandatory and can result in a binding or nonbinding decision. It is a private process in which a third-party expert or judge conducts the conference. Although...
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