CHAPTER 12 DISPUTE RESOLUTION PROVISIONS IN MINING AGREEMENTS
| Jurisdiction | United States |
(May 1991)
DISPUTE RESOLUTION PROVISIONS IN MINING AGREEMENTS
Faegre & Benson
Denver, Colorado
I. INTRODUCTION
Traditionally, disputes arising out of commercial contracts, including mining agreements and other natural resource contracts, have been resolved by means of formal or informal negotiation, arbitration and litigation. As mining agreements, and the relationships reflected therein, have become more complex, the resolution of disputes arising from those agreements and relationships has become increasingly complicated, expensive and time-consuming. As a result, more attention is being given to the avoidance of disputes and the efficient resolution of disputes through careful drafting and negotiation of mining agreements and through inclusion of dispute resolution provisions.
Other than negotiation, litigation is perhaps the most widely recognized and most frequently invoked method of commercial dispute resolution. There are, however, numerous other methods for resolving disputes which are finding increasing acceptance in many commercial contexts. This paper will focus on the use of alternative dispute resolution methods in mining and other natural resource agreements. The paper will briefly examine the types of dispute resolution provisions that may be incorporated into mining agreements, will address considerations that should go into negotiating and drafting such provisions, and will discuss what should be contained in these provisions.
II. ALTERNATIVE DISPUTE RESOLUTION: WHAT IS IT?
Alternative dispute resolution, or "ADR," is a generic term used to designate a wide variety of methods for resolving disputes in ways other than by litigation. The methods employed may be used individually or in serial fashion, usually progressing from less formal to more formal processes. Although classified as alternatives to litigation, these methods may also be used in conjunction with litigation. ADR methods may be employed as preliminary efforts to achieve a resolution prior to the commencement of litigation or, after litigation has been initiated, to resolve the dispute prior to trial. The most widely recognized forms of alternative dispute resolution include arbitration, mediation, mini-trials, neutral
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fact-finding or neutral expert evaluation, negotiation, summary jury trials, private judging, and use of special masters.1
Alternative dispute resolution methods may be used voluntarily by the parties to a dispute or may be mandated by courts or statutes.2 Parties may agree to the use of and procedures for alternative resolution methods before or after disputes arise. The outcomes may be binding or non-binding, depending upon the wishes of the parties or the legislative or judicial requirements.
Some forms of alternate dispute resolution have been widely recognized and accepted by courts and legislatures. In particular, arbitration has been increasingly favored by courts as a means of resolving a wide variety of disputes.3 Legislation at both the federal and state levels is
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increasingly promoting the use of alternative methods of dispute resolution.4 The increased recognition of the utility of alternative dispute resolution by legislatures and the judiciary is, in part, a result of growing concern about the costs and delays involved in traditional litigation and the acknowledgment that litigation may not always effectively resolve commercial disputes and may adversely affect on-going commercial relationships.5
Similar concerns have stimulated interest in alternative dispute resolution methods among business and industry leaders and participants in commercial transactions. Alternative dispute resolution is increasingly seen as an efficient and effective way to resolve commercial disputes, while avoiding costly and time-consuming litigation. Organizations, such as the Center for Public Resources, which promote the use of alternative methods and develop model procedures and agreements to facilitate their use in business contexts, have significantly contributed to the increase in interest in and use of ADR. There is now a growing trend among businesses to adopt corporate or business policies to attempt
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to resolve disputes by means other than litigation.6 In addition, as the awareness and use of alternative methods expands, the recognition of ADR's applicability to a broad range of situations and problems in the natural resources industry is growing, as is the sophistication and comprehensiveness of the methods employed.7
Although some forms of ADR, such as arbitration, summary jury trials and mini-trials, can be relatively expensive, ADR generally is less expensive since the methods are generally less formal than litigation and, if implemented properly, should require far less time from commencement to completion. The quicker resolution of disputes is a major advantage of ADR, particularly in cyclical businesses such as the mining industry, where timing is often critical.8 Another major advantage in using ADR is that the methods are generally more conducive to the preservation of the long-term relationships that may arise out of commercial transactions, such as mining agreements. Other advantages of ADR include greater procedural flexibility, greater control over the process by the parties themselves, greater privacy and control over confidential information, and greater opportunity for use of expert advisors and decision-makers.9
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One aspect of the flexibility of ADR is that it can be agreed upon and utilized at almost any stage in the commercial relationship. Inclusion of dispute resolution provisions in contracts governing relationships and transactions allows the parties to agree upon and structure the dispute resolution process before any disputes arise. However, even if no contractual arrangements exist predating a dispute, ADR methods may be agreed upon by the parties after a dispute has arisen, either before or after the commencement of litigation. In addition, ADR methods may be mandated by courts once litigation has been initiated.
III. CONTRACTUAL PROVISIONS FOR DISPUTE RESOLUTION
A. ADVANTAGES OF AND IMPEDIMENTS TO DISPUTE RESOLUTION CLAUSES
The development and inclusion of dispute resolution clauses in mining agreements and other mineral development contracts should force the contracting parties to consider carefully the potential trouble spots in their relationship and in the transaction, and to establish appropriate and effective means for addressing conflicts. Too often, standardized dispute resolution clauses, such as general arbitration clauses, are included in commercial contracts without sufficient thought being given to their implementation or effectiveness.10 Careful consideration in negotiating and drafting such clauses is warranted, however, as an effective dispute resolution clause may significantly contribute to the success of the transaction and the maintenance of the relationship reflected in the agreement.
One of the principal advantages of including a dispute resolution clause in the initial or basic agreement between the parties to a mining or mineral development venture, such as a mining partnership, mineral lease or long-term sales contract, is that it allows the parties to agree upon dispute resolution procedures prior to the occurrence to any dispute. At the time the basic agreement is being negotiated, the parties are more likely to be oriented towards reaching agreements about the nature and conduct of their relationship and may be more inclined to agree on methods for maintaining the relationship and resolving disputes.11 Further,
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negotiation of dispute resolution procedures at the time the parties are formulating their basic agreement may facilitate agreement on more of the details of the dispute resolution process than might be gained by waiting until after a dispute has arisen, when the parties may not be thinking as clearly or acting as calmly.12
By agreeing on the procedures at an early stage, the parties will be better able to structure the dispute resolution process according to their interests and the nature of their relationship. In addition, inclusion of dispute resolution provisions in the contract may assist in avoiding disputes about the methods for resolving substantive disputes and therefore, may be perceived as a dispute avoidance technique, as well as a dispute resolution technique. Inclusion of dispute resolution clauses may also facilitate the avoidance of litigation, by pre-establishing the dispute resolution process to be implemented. In the absence of such provisions, the parties may be more inclined to jump into litigation when disputes arise, without giving serious thought to alternatives.
By structuring their own dispute resolution process, the parties to an agreement are better able to control factors such as the protection of confidential information and the use of expert advisors and decision-makers. Preservation of confidential information concerning discoveries, reserves, recovery methods, product prices and proprietary technology is often a particularly critical issue in mining industry disputes. Use of ADR methods, which are generally private, may insure greater confidentiality, at less cost, than can be had in the public arena of litigation. In addition, disputes arising in mining and mineral development contexts often involve complex economic, scientific and technological issues, the resolution of which may require input from or decisions by technical experts. ADR methods provide greater opportunities for focused and cost-effective expert decision-making or, at least, for more direct guidance than is generally available through litigation.
Even with the obvious advantages of agreeing on dispute resolution procedures at the contractual...
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