Why Do You Need Alternative Dispute Resolution Clauses in Agreements, Contracts?
In almost all commercial endeavors, there are times when businesses must enter into a contract or an agreement. This could be at the beginning of a venture, as partners and investors establish and carve out responsibilities and obligations. Or this could be during negotiations with suppliers or service providers as to the extent and deadline of various deliverables. All this is understood by sales and purchase agreements between businesses during a merger or acquisition transaction. With all these circumstances and more, it is prudent to record the various terms as well as the relevant parties’ agreement to those terms with a signature.
However, there may come a time that one or more parties to an agreement will take issue with the terms or execution of the said agreement. In alleviating conflicts in litigation confrontations, many people will consider, if not insist on, including an alternative dispute resolution clause (ADR clause) in their contract or agreement.
What is an ADR Clause?
An ADR clause, when signed, is a written agreement among parties as to how they will handle a disagreement or dispute. As part of a contract or agreement, the ADR clause details the steps each party must take to bring up, address, and solve issues without going to court. ADR clauses are included in contracts to avoid expensive lawsuits by providing parties a less contentious alternative than the court to resolve problems stemming from that contract or agreement.
The Purpose of ADR Clauses and Why are they important.
An ADR clause is where parties to an agreement or contract set out how they would resolve conflicts that could arise during the execution of that contract or agreement. Conflicts could include cases where one party believes the other is not fulfilling an obligation as detailed in the agreement, or one party feels the other is neglecting their responsibilities under the contract.
The ADR clause could be a mediation or arbitration clause, or steps including both in anticipation of escalation. Ultimately, the clause outlines the ADR process, such as at which dispute resolution center the ADR will take place so that the parties in dispute can avoid costly litigation. Furthermore, these clauses can help parties avoid disputes as potential issues are discussed and negotiated as the contract and ADR clause are drafted; however,ADR can offer a more relaxed approach to dispute resolution that can also help salvage business relationships better than an antagonistic court proceeding.
The Advantages of ADR Clauses
The advantages of ADR clauses stem from the underlying alternative dispute resolution methods. Court litigation is often thought of as the main form of dispute resolution, but this involves rigid court rules and schedules that parties must abide by, as well as advisors that may cost more than either party is willing or able to pay for.
ADR clauses allow all parties involved a less costly dispute resolution method whereby they also get to assert control over proceedings by prescribing negotiation, mediation, and/or arbitration first. This control includes proceeding rules, scheduling, location, and appointing of arbitrators or mediators.
Types of ADR clauses
The main types of ADR clauses include those that outline negotiation, mediation or arbitration services. Sometimes, parties will insist on a combination of different ADR procedures, depending on their needs or perhaps the type of conflict they anticipate. While negotiation, mediation, and arbitration clauses represent distinct ADR methods, they all should be clear, feasible, and straight to the point. THAC will describe in detail the importance of information and procedures. The ADR clause should include:
- Defined rights and obligations of the parties involved
- Outlined process to follow, taking into consideration the parties’ situation for fairness
- Detail the state of contract performance during the ADR
- Specify enforcement of the ADR clause
- Define what is a dispute and how the ADR is triggered
There are other elements to consider when drafting an ADR clause. Namelyor example, to ensure that every party is fairly treated and that the clause will stand up to scrutiny, parties contemplating a contract or agreement may want to discuss their options with trusted experts in alternative dispute resolution.
Drafting Your Agreement with THAC
Dispute resolution centers, such as THAC, offer ADR services that begin with drafting ADR clauses. There are experts that parties can consult and model, or template, clauses with language that parties can amend to suit their specific needs. A model mediation clause could explain:
Any dispute arising out of or in connection with this contract, the parties agree to settle the disputes by conciliation in accordance with the Rules of Thailand Arbitration Center and under the management of the Thailand Arbitration Center. Furthermore, the parties agree to participate in the conciliation in good faith and undertake to abide by the terms of any settlement reached.
A model arbitration clause could be:
Any dispute, controversy or claim arising out of or relating to this contract or the breach, termination or invalidity thereof shall be referred to and finally resolved by arbitration in accordance with the Arbitration Rules of the Thailand Arbitration Center for the time being in force. The conduct of the arbitration thereof shall be under the administration of the Thailand Arbitration Center.
To ensure that an ADR clause is drafted to include all factors required to guide disputing parties in their ADR process successfully, it is highly recommended to seek advice or assistance from a reputable dispute resolution center, such as THAC.
THAC Provides Assistance with ADR Clauses
The Thailand Arbitration Center (THAC) provides affordable solutions for alternative dispute resolution in a convenient location. With offices in central Bangkok, accessible by public transportation, including the BTS Skytrain, and by major roads and highways connected to international airports, parties can reach THAC from Bangkok, other regions in Thailand, and around the world. THAC also offers state-of-the-art facilities ideal for in-person and remote hearings, allowing local and cross-border ADRs to choose this dispute resolution center. Parties can also benefit from the many skilled mediators and negotiators as well as the full range of administrative support available at THAC. Cutting-edge innovations also include TalkDD, an online dispute resolution platform that can help settle disputes between consumers and online retailers.
Please feel free to contact us at [email protected] or +66 (0)2018 1615. THAC is looking forward to helping you.