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What Type of Mediation and Arbitration Provisions Should You Include in Your Next Commercial Contract in Massachusetts

In my last blog, I discussed the importance of alternative dispute resolution as a viable route to resolve business disputes without the need to go to court. Business disputes are contentious, costly, and complex whether they arise from a breach of a commercial lease or result from allegations of fraudulent conduct in the performance of a contract. Despite the best intentions of parties when they enter into a contract, conflicts can often arise in business deals in a variety of different situations.

If costly and contentious litigation is not in your company's best business interests then you should give further thought to the alternatives of mediation and/or arbitration. Alternative dispute resolution or mediation is an alternative that is here to stay and offers parties a quicker and sometimes more effective way to resolve a dispute rather than resorting, at least initially, to filing a claim in court. To that end, parties to a contract can actually include provisions in their contracts to ensure that alternative dispute resolution clauses in their contracts in order to later require the parties to proceed to mediation in the first instance in the event of a dispute.

1. A well-written and well-crafted mediation or arbitration clause is the foundation of an effective and practical dispute resolution process. It is incumbent upon the parties to any contract to select and utilize language in their contracts that clearly demonstrates their intent in the event of a controversy or dispute. The well- crafted inclusion of alternative dispute resolution and/or arbitration provision allows contracting parties to customize any future dispute resolution process.

2.  Having said this, a sample mediation provision is set out as follows: "The parties agree that any dispute or controversy arising out of or in connection with this Agreement or any alleged breach thereof, shall be subject to mediation if all parties agree thereto.  If the parties mutually agree to mediation, any such mediation shall be administrated by the "National Mediation and Arbitration Company"( NMC) and governed by their comprehensive dispute resolution rules and procedures and the fee schedule in effect at the time such claim is filed with NMC. If the controversy is not resolved through mediation then the controversy shall be resolved through final and binding arbitration to be administered by NMC."

3. If mediation for some reason does not resolve the dispute and the parties then need to move on to arbitration for dispute resolution the following provision is a sample of a basic arbitration clause: "Any dispute not resolved through mediation in accordance with paragraph A of the contract shall be resolved by final and binding arbitration in accordance with the rules of the American Arbitration Association. The arbitration will be held in Springfield, Massachusetts using one arbitrator unless the dispute exceeds one million dollars in which case the parties shall agree to appoint three arbitrators as an arbitration panel to adjudicate the proceedings. It is understood between the parties that the arbitrator may award costs and/or attorney's fees to the prevailing party. The parties also acknowledge and understand that arbitration is final and binding and that they are waiving all rights to the enforcement of this agreement before any United States Court of Law."  Here, the key phrase is final and binding. Unlike mediation, arbitration is binding on the parties and there is little room for a successful appeal under the provisions of the Uniform Arbitration Act once an arbitrator has rendered his decision.

4. In some cases, I have had clients combine both mediation and arbitration provisions into one all-encompassing paragraph. The following is a sample of such a provision: "If a dispute arises from the Agreement, and if the dispute cannot be settled through the parties' negotiations within 30 days, the parties agree to commercial mediation procedures before NMC. If the matter cannot be fully resolved before NMC through mediation then the parties agree to submit any dispute arising or relating to this agreement shall  be resolved before the NMC in full compliance with NMC's rules and any award rendered by the arbitrator may be entered in any court having jurisdiction thereof."

5. The samples provided above do not include other salient provisions such as the appointment of a mediator or arbitrator or selection of a venue for arbitration. Additionally, mediation and arbitration clauses will vary according to the industries involved. For example, there are certain elements that should present in mediation/arbitration provisions in insurance contracts that would not apply to situations involving construction disputes. The parties can include provisions as to time in which to notify the other party of their intent to mediate, the time frame to mediate, and then the format of the mediation itself. I would highly recommend that you do not use the same person to both mediate and arbitrate even if the parties choose to both mediate and arbitrate before the same agency. As to the cost for mediation, there is generally a provision that requires both parties to pay their equal share for the mediation costs unless otherwise agreed.

In order to avail yourself of these options, you should consider working with an attorney who is experienced in drafting dispute resolution clauses that fit well with both your industry and specific business requirements. For that reason, give us a call at the Katz Law Group at 508-480-8202 to find out how we can make our experience work for you when it comes to selecting mediation and arbitration clauses for your contracts. In light of the ongoing national crisis, our office is now open from 8 a.m. to 8 p.m. Monday through Friday and on weekends. 

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