Today’s Draw the Law: Using ADR to Remedy Your Contract Breaches
We all know how costly lawsuits can be, and sometimes the value of the contract is just not worth going toward that direction. Therefore, many times the best way to resolve the breach is to talk it out, but sometimes you are too close to the deal. You need a third-person to look at the situation and come to a decision or help resolve the dispute. This is where alternative dispute resolution (ADR) steps in.
Arbitration is similar to a court proceeding, as it is adversarial and the arbitrator makes a decision (like a judge); mediation is more concerned about asking questions to define the problem and having the parties sit down and find a solution.
There are two types of ADR: (1) mediation; and (2) arbitration. They are NOT the same process. In addition, you can put in an ADR clause in your contract to determine what the procedure is in a dispute. It can be one or the other, it can be both, or it can be neither. This is a negotiation matter.
Mediation: No Judging, Just Identifying the Problem
Mediation is less about blame and more about figuring out what the problem is and possible solutions. This tends to be more constructive, but only effective if both parties are willing to sit down for mediation, which is not always the case for breach of contract situations.
In mediation, a mediator does not act like a judge. Nor are they the lawyer for either side. All they do is help both sides resolve disagreement by identifying and defining the items you disagree with. The goal here is cooperation through informal and problem-solving processes, and is NOT adversarial. Generally, this is suitable for divorces and neighbor-to-neighbor disputes, but can work out situations among business partners, customers, and misunderstandings that need clarification.
If you are curious for more information and our in the State of Hawaii, go visit the Mediation Center of the Pacific‘s site by clicking here.
Arbitration: Informal Court
Before you even get to trial in a lawsuit there are a lot of pre-trial motions, evidence-gathering, etc . . . procedures. Sometimes it can be close a year before you even get to the trial portion and because of this lawsuits are costly (time and money wise). Arbitration, acts like a faster version of court, condensing things that may take months into an abbreviated period.
Arbitration functions like an informal court proceeding. On the one hand it is more formal than mediation, but less formal than going to court. It is usually faster and cheaper than a lawsuit because it eliminates many of the processes of formal litigation and trial work. Everything is sped up. Typically, the arbitrator is a former judge, but has extensive knowledge in your trade and industry. They will take in witnesses and evidence, and then issue a written decision. More often than not this decision is binding on the two parties; if you lose in arbitration, you may not be able to go to court even if you disagree with the outcome. Usually, to be binding, you and the other party has put in the ADR clause that arbitration will be binding.
Last Word: Partnership Agreements, Operating Agreements, and Bylaws are Contracts!
I think one thing I want this post to impart, and the fact that I did a Basics on Contract Law talk and have a Business Entity Formation talk coming up is that people who join together to start a business is that the internal document that guides the arrangement, whether a partnership agreement, operating agreement, or the bylaws, they are contracts.
Why is this important? Because many times the owners of a business get into arguments or disagree, and sometimes there is a breach of the internal agreement. At that point you have to ask yourself: Do you want to sue your business partner?
Sometimes, the answer is yes, but sometimes the answer is ADR is the better solution and remember you can always use ADR clauses or agreements to force everyone into this less costly route than a suit. You may save money and your business venture.
[author] [author_image timthumb=’on’]http://www.alohastartups.com/wp-content/uploads/2011/09/RyanKHew.png[/author_image] [author_info]I am a practicing attorney in Honolulu, HI helping small businesses with their transactional and compliance needs. Contact Me Today: Web| 808.944.8400 @RKHewEsq Ryan K. Hew, Attorney At Law[/author_info] [/author]
*Disclaimer: This post discusses general legal issues, but does not constitute legal advice in any respect. No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction. Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.