How to Avoid Court in Your Contracts: The Business Forum Show, March 19, 2014

On the March 21, 2014 edition of The Business Forum Show, Co-Host Kevin Hunter and I discussed how to avoid costly and time consuming litigation over contractual disputes through inclusion of “alternative dispute resolution” provisions within your business contracts.  Click here to listen to the discussion.

Alternative dispute resolution – often referred to as “ADR” –  refers to the use of a process or processes to resolve a dispute between parties short of litigation.  While ADR takes many forms, the most popular forms are mediation and arbitration.  Mediation is a process where a third party — the mediator — assists the parties to negotiate their own settlement.  Most often, the opposing parties are placed in separate rooms with the mediator shuttling back and forth between them, trying to bring them closer together with each respective visit.  Some mediators may start the mediation session by placing all parties in the same room (but for the most contentious of cases, most mediators avoid this step).  Mediation is usually non-binding, meaning that the mediator does not issue a decision by which the parties are then bound.

By contrast, arbitration is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons (the “arbitrators”, “arbiters” or “arbitral tribunal”), by whose decision (the “award”) they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides.  Arbitrations are conducted pursuant to certain rules – for example, there exists an organization called the American Arbitration Association (“AAA”) that has promulgated a set of rules for various industries.  If the arbitrator finds for a party and awards a judgment, that judgment is entered in the applicable district court and has the same legal effect as if rendered by a court of law.

A savvy business owner would be wise to consider a mediation or arbitration clause in his/her business agreements, whatever they may be.  Either process is less time consuming than litigation (even without the aforementioned budget-imposed time delay) and is certainly less expensive than litigation (although the mediator or arbitrator has to be paid and it is wise to hire an attorney to represent you in the process). 

How does one include proper ADR provisions in their business agreements?  The answer to this one is simple:  hire a good business attorney to draft them into the agreements. 

Archived segments are available by visiting The Business Forum Show page of my website, and be sure to tune in live (or listen to a podcast recording of the show) here.