Most litigation attorneys will readily admit that, when all is said and done, they are the only real "winners" left standing after completion of a lawsuit. The truth is that litigation is by far the most expensive and emotionally draining way to resolve a business dispute. It is rare for such cases to be taken by an attorney on a fee basis other than an hourly rate, and the time it takes to thoroughly prepare a case for trial, let alone actually go all the way through a trial, often bears no relationship to the amount in dispute. Legal fees can quickly become way out of proportion to the importance of a case, and that does not take into account lost productivity and distress experienced by the client in providing the attorney with the documents and information needed.
There are, however, alternatives, often referred to as ADR, or Alternative Dispute Resolution, and it may make sense and save time and money to include in business contracts a provision which requires ADR to resolve any dispute. Such a provision should spell out the type of ADR required, and should also provide the prevailing party will be awarded attorneys fees and interest, in order to encourage both parties to seriously consider early settlement.
There are three primary types of ADR available.
Arbitration
The dispute is submitted to one or more arbitrator who hears the parties' respective versions of the dispute and who renders a final and binding decision. Often, an organization such as the American Arbitration Association is used, who provides a panel of available arbitrators and detailed rules of procedure.
While less formal and certainly faster and less expensive than litigation, arbitration is adversarial in nature.
Mediation
A neutral party, often an expert in the area of business in issue, is agreed upon by the parties who assists them in attempting to talk through and resolve their dispute. The mediator has no authority to impose a resolution, and makes no such rulings or decisions. Instead the mediator helps the parties define the issues that separate them and helps them to formulate and transmit settlement options.
Mediation is even faster and less expensive than arbitration, and is often the ADR method of choice when the parties prefer not to escalate the adversarial nature of their dispute in the hope that they can maintain an otherwise mutually advantageous relationship.
Negotiation
The parties, with or without the assistance of attorneys should always attempt to meet and try to reach an agreement. Needless to say, this is by far the fastest and least expensive method of ADR.
A sample ADR clause in a contract
may read as follows:
MEDIATION
The parties agree that if a dispute under this Agreement arises, they shall first attempt to directly resolve such dispute but, if such direct resolution is unsuccessful, they shall participate in at least six (6) hours of mediation to be facilitated by a mediator mutually acceptable to them and under the mediation procedures set by the mediator. If the parties cannot agree on the same mediator, each shall designate a mediator and the two (2) so designated shall choose a third mediator to conduct the session and such choice shall be binding on both parties. The mediation session shall be conducted within thirty (30) days of the date on which the mediator receives the request to mediate. The parties further agree that the costs of such mediation shall be shared equally by them unless they define other agreeable terms between them. If however, they do not resolve their dispute through direct negotiation or mediation, then they shall be entitled to proceed to litigation, or, if agreed between them, other dispute resolution procedures. The parties understand and agree that any mediation pursuant to this Clause shall not be binding on either party and shall not be admissible in any subsequent litigation.
or:
ARBITRATION
Any controversy or claim arising out of or related to this Agreement or the breach thereof, shall be settled by arbitration in accordance with the applicable Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof. Notice of demand for arbitration shall be filed in writing with the other party to this Agreement and with the American Arbitration Association.