by Jihee Ahn, Attorney at Harris Bricken
Most people who are (luckily) not familiar with litigation believe alternative dispute resolution (or “ADR”) clauses in their contracts are essentially boilerplate language that’s recycled again and again in every contract. However, well-drafted ADR clauses can not only give you a huge advantage if an issue comes up, they may also cause your counterparty to back away from litigation completely. If done right, arbitration clauses should work for you, not against you.
Backing up – ADR provisions usually state that if an issue or dispute arises, the parties need to first work in good faith to find a solution, mediate, and/or arbitrate before or instead of filing a lawsuit. And our team of litigators agree: the ADR provisions we’ve been seeing in recent years are getting more creative and sometimes, more difficult to abide by for our clients. Unfortunately, we’ve seen some clauses that are really awful for our clients in that it requires a process that can be dragged out for years before an arbitration proceeding or lawsuit can even be filed. This is a problem because arbitration clauses should work for you if done right. Some common examples we’re seeing are:
The bottom line is, don’t skirt over the ADR clause when drafting your contracts. Nobody wants to think about their business or partnership going awry in the future, but the more you consider how you’re going to handle potential disputes down the line, the more you’re protecting yourself and potentially saving tons of money down the line. And because we’re increasingly seeing ADR provisions that are designed to make the process confusing and impractical, it’s more important than ever to make sure your ADR clauses work for you, not against you.
Re-published with the permission of Harris Bricken and The Canna Law Blog
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