It is important to regularly review your dispute resolution provision to ensure it still meets your needs.
What is a Dispute Resolution Provision?
This provision exists solely to make resolving breaches of contract easier. They come in all shapes and sizes.
Choice of Law
We discuss choice of law in another blog. You should be sure that your contract meshes with your needs in this area.
Jurisdiction and Venue
Jurisdiction and venue are also very important. Your jurisdiction is primarily what state or court system has authority to hear your case. Venue is the specific location.
Binding arbitration is one of the most common forms of these clauses. However, that doesn’t mean it is always the best for you. Arbitration comes with a higher upfront cost than court. Conversely, it can sometimes also have a lower overall cost. It all depends on the type of case. You certainly wouldn’t want a binding arbitration clause if you think you may have to collect under $5,000. Spending $5,000 to get $5,000 is bad business. Arbitration essentially is a miniature trial with relaxed rules of evidence. The arbitrator makes a decision at the end of the case. If binding, the decision by the arbitrator may be filed with a court to become a judgment to collect on.
Mediation is more common in partnership or relationship-based agreements. It cannot be binding because there is no decision maker. Mediation puts the parties in a room and facilitates them coming to a settlement. Therefore, when using mediation, you must also have a backup process to resolve disputes.
Cost is an important factor when evaluating your dispute resolution provision. Arbitration and mediation both have high costs. In mediation, you have to pay your attorney as well as the mediator. For arbitration, you usually have an arbitration fee due at the beginning of the process. In court, fees are usually lower, but the case can last a lot longer and have more expansive discovery.
Arbitration is the fastest of the options. Court is not quick at all. Mediation is a wildcard because it can, often times, rapidly resolve disputes in one day with a mediator. You must make the determination based on the type of relationship you’re creating in your contract.
If you need to be able to use discovery and have more investigative powers, you want court. In mediation, there is usually no discovery process. With arbitration, you have limited discovery. Additionally, any discovery is arbitration is held to the arbitrator’s limits.
Be careful with your dispute resolution provisions if you ‘re dealing with unequal bargaining power. For example, if you’re a software service with millions of users, your provision cannot force costly arbitration out-of-state on your users. Do a double check for how fair your policy is and you should eliminate 99% of public policy issues.
In conclusion, there’s no one-size-fits-all provision for your dispute resolution policies. If there were, I’d give it to you. What you need to do is figure out what disputes might come up and figure out the best option for those disputes.
If you’d like help drafting your dispute resolution provision, feel free to contact us using the form below. Additionally, we can be reached by email at firstname.lastname@example.org or by calling 919-912-9640.