Alternative Dispute Resolution (ADR)
Alternative Dispute Resolution (also known as External Dispute Resolution in some countries) includes dispute resolution processes and techniques that fall outside of the governmental judicial process. Although ADR varies by country and culture, this QuickCounsel shall focus on the common elements.
Because Arbitration is a creature of contract, make sure the unique and inherent advantages available with arbitration/mediation are included in the terms and conditions.
Cost Saving Terms in Arbitration/Mediation Clause:
Here is a non-exhaustive list of the many great benefits of ADR:
Three historic arenas exist: (1) outside of the official judicial mechanisms, (2) informal methods attached to or pendant to official judicial mechanisms, and (3) independent methods outlined with a particular program or entity.
Negotiation: participation is voluntary; parties alone facilitate the resolution process or impose a resolution.
Mediation (non-binding): a third party mediator facilitates the resolution process but does not impose a resolution on the parties. In some countries (for example, the UK), ADR is synonymous with what is generally referred to as mediation in other countries.
Collaborative Law: each party has an attorney who facilitates the resolution process within specifically contracted terms. The parties reach agreement but no one imposes a resolution on the parties. It is a formalized process that is part of the court system.
Arbitration (binding): a third party, as a private judge, imposes a resolution.
*Note: Online ADR, known as Online Dispute Resolution ("ODR"), can be provided by government entities and on a global scale (e.g., in the case of the Uniform Domain Name Dispute Resolution Policy "UDRP" and domain name disputes). Since it is provided by government entities, ODR does not technically satisfy the "alternative" element of ADR.
U.S. Federal Statutes
The clause may also include references to applicable arbitration rules and stipulations and must be tailored to ensure enforceability in the applicable jurisdiction.
Mediation Clause: To the extent that a claim or dispute arises out of, or in relation to, the terms, construction, interpretation, performance, termination, breach, or enforceability of this contract, the parties hereby agree that they shall attempt to settle the claim or dispute through mediation. The parties agree that they shall mutually select a qualified mediator from the panel offered by [Insert ADR Entity] and the rules of [Insert ADR Entity Rules & Regulations]. The parties further agree that the costs of the mediation shall be divided equally between them.
Arbitration Clause: To the extent that a claim or dispute arises out of, or in relation to, the terms, construction, interpretation, performance, termination, breach, or enforceability of this contract, the parties hereby agree that the claim or dispute shall be settled by binding arbitration. The parties agree that they shall mutually select an arbitrator, or a panel of three arbitrators, from the group of individuals offered by [Insert ADR Entity] and the rules of [Insert ADR Entity Rules & Regulations]. The arbitrator(s) shall base the award on applicable law, and judgment on the award may be entered in any court having jurisdiction. The parties further agree that the costs of the arbitration shall be divided equally between them.
The two clauses above also may be combined to create a two-step, hybrid approach to resolving disputes.
* Note: In recent years, the enforceability of arbitration clauses, particularly in the context of consumer agreements (e.g., credit card agreements), has drawn scrutiny from courts. Although parties may appeal arbitration outcomes to courts, such appeals face an exacting standard of review. In addition, consumer 'class action' arbitrations have been under scrutiny with the Supreme Court (i.e., AT&T Mobility LLC v. Concepcion, Stolt-Nielsen S.A. v. AnimalFeeds International Corp.)
About the Author
Ellen M. Zavian is a AAA certified arbitrator and conducts high profile arbitration cases in the Sports and Entertainment industry.
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Reprinted with permission from the Association of Corporate Counsel
2010 All Rights Reserved
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Arbitration and Mediation in Asia-Pacific: Interviews with Mediation and Arbitral Centers and Law Department Best Practices
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May 2012 Form & Policy
A sample standard alternative dispute resolution clause.
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