When disputes arise in business, arbitration can be beneficial over litigation. It can provide a more streamlined, cost-effective, and confidential way to resolve conflicts. To ensure that this serves your interests, it's crucial to understand how to set it up effectively.
Arbitration is an alternative to litigation as a means of resolving disputes. It is based on the parties' agreement: all parties must agree to submit the dispute in question to arbitration. This is different than mediation. Mediation is a non-binding settlement process where a neutral third-party tries to help resolve the dispute but will not impose a decision. In these scenarios, much like litigation, there is a winner and loser.
Here are key strategies to help you develop a beneficial Arbitration Agreement.
1. Include Limiting Language
The flexibility of arbitration can be a double-edged sword. Without proper constraints, things can spiral into an extensive and expensive process without appellate rights. To prevent this, it is essential to include limiting language in your contract before you ever consider a dispute with the opposing party. The terms that you agree to in your contract, master agreement, terms and conditions, etc., will govern how your dispute is resolved years later. Here's how:
- Set Clear Time Limits: Specify a timeline for the entire process, from the filing of the claim to the final award. This helps avoid prolonged proceedings.
- Limit Discovery: Restrict the scope and duration of discovery (the process of gathering evidence) to keep the focus on essential information, limit how/when documents are searched for and produced and the number of depositions.
- Define the Scope: Clearly outline what issues can be arbitrated to avoid broad or ambiguous interpretations and include guardrails on the scope of the arbitration.
2. Understand Your Goals and Objectives
At the time you negotiate the contract and again before filing an arbitration claim or counterclaim, it is crucial to have a clear understanding of your goals and objectives. This clarity will guide your approach and help you make informed decisions throughout the process.
- Identify Key Outcomes: Determine what you hope to achieve through arbitration, whether it's a monetary award, specific performance, or a declaratory relief.
- Prioritize Issues: Rank the issues at stake by importance. This will help you focus on the most critical aspects and streamline the process.
- Consider Potential Resolutions: Think about acceptable outcomes and compromises. Being open to various resolutions can facilitate quicker agreements.
- Who Must Be a Party to the Dispute: Arbitration agreements generally bind only the parties to the agreement; so if a necessary party to a dispute is not a party to the agreement, arbitration may not be in your best interest.
3. Engage in Preliminary Discussions and Mediation
Arbitration should not be the first step in resolving a dispute. Preliminary discussions and mediation can help narrow down the issues in dispute beforehand. You have the ability to require mandatory mediation in your contract beforehand. Here's why that may be helpful:
- Early Settlement Opportunities: Mediation can lead to an early settlement, saving time and therefore money.
- Clarification of Issues: Preliminary discussions can help both parties understand each other's positions and refine the issues to be arbitrated.
- Improved Relationships: Engaging in good faith negotiations can preserve business relationships that might otherwise be damaged by adversarial arbitration.
4. Choose the Right Arbitrator
The choice of arbitrator can significantly impact the outcome and efficiency of the arbitration process. Consider the following when selecting an arbitrator:
- Experience and Expertise: Ensure the arbitrator has relevant experience and expertise in the subject matter of the dispute.
- Reputation and Neutrality: Choose an arbitrator with a reputation for fairness and neutrality to ensure an unbiased process.
- Arbitration Style: Some arbitrators are more formal and procedural, while others take a more relaxed and facilitative approach. Choose one whose style aligns with your goals.
5. Draft a Comprehensive Arbitration Agreement
A well-drafted agreement sets the stage for a smooth process. Make sure your agreement includes:
- Clear Arbitration Clause: Detail the procedure, scope, and rules of arbitration.
- Confidentiality Provisions: Protect sensitive information by including confidentiality clauses.
- Enforcement Mechanisms: Ensure that the arbitration award is enforceable by specifying the jurisdiction and relevant laws.
Arbitration can be a powerful tool for resolving disputes efficiently and effectively, but only if the arbitration agreement contains the correct language. By including limiting language, understanding your goals, engaging in preliminary discussions, choosing the right arbitrator, and drafting a comprehensive agreement, you can ensure that arbitration serves your interests. Remember, the key to successful arbitration lies in meticulous planning and strategic execution. If done right, this can save you significant time and money while achieving your desired outcomes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.