How to Use a Mediation/Arbitration Step Clause in a Commercial Contract - ADR Systems

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A mediation/arbitration step clause provides for mediation prior to arbitration. Parties contractually commit to mediating their dispute before arbitration can commence. This gives the parties a chance to resolve the matter or narrow the issues in mediation before the arbitration is commenced. At ADR Systems, about 91% of our mediations are settled. If, however, the parties cannot come to an agreement in mediation, the step clause provides for the next step: arbitration, where the matter will be resolved, avoiding the even steeper costs and commitments of litigation.

A mediation/arbitration step clause, therefore, helps parties resolve their disputes in a more efficient manner. But what should attorneys consider when writing a mediation/arbitration step clause into a commercial contract? Our neutrals’ insights can help counsel understand the many options before them.

ADR Provider, Neutral & Format

Counsel can write an ADR provider, neutral requirements, and the choice of law and location of the proceeding into their step clause. When the contract specifies these items, it removes ambiguity from the who, how and where of alternative dispute resolution from the outset.

Highly technical matters may require organizations and neutrals with specialized experience. Drafting attorneys should ask litigation colleagues for provider recommendations and criteria they have used when choosing the right neutral. Prior judicial experience, for example, is very often a preference of parties when selecting a neutral, as is knowledge within a specific field of the law. Those qualifications can be written into the contract to ensure a solid starting point for dispute resolution.

Likewise, geography may inform how parties resolve their disputes. Why travel when a videoconference suffices? Remote dispute resolution is only nominally different from its in-person counterpart, but more convenient for all involved. That preference, too, can be included in a contract’s step clause to shape the format of a future proceeding.

By deciding these details in advance, parties “pave a road they may need but hope to avoid,” explained Hon. Brigid M. McGrath, (Ret.), senior mediator and arbitrator at ADR Systems. “If a dispute does arise, everyone knows how to proceed. Better to work that out early on, when everyone is getting along, so you know where you’re going.”

Timing & Rules

Counsel can also write deadlines into a step clause to manage the duration of any dispute and head off the risk of deadlock. ADR Systems’ step clause, for example, stipulates that the mediation session must occur within 60 days of the initiation of the mediation and that the parties must select the mediator and the date of the mediation session within 14 days of that initiation. If either of these deadlines passes, the parties will be deemed to have waived the mediation step and may proceed to arbitration. This ensures that a reluctant party cannot indefinitely delay matters through tactical refusal to mediate.

“Timetables in a step clause save the dispute from getting out of hand,” said Hon. Lisa R. Curcio, (Ret.), senior mediator and arbitrator at ADR Systems. “That way, businesspeople can talk about their differing perspectives early in the life of the dispute. The sooner that happens, the sooner parties can return to their actual work.”

Counsel can also determine the rules they will follow if parties proceed to arbitration. Often, rules from certain providers are automatically written into contracts. Attorneys should consider what rules would be best for their business or industry. ADR Systems offers commercial arbitration or accelerated commercial arbitration rules, to help parties adjudicate their dispute fairly and efficiently.

Scope & Confidentiality

Depending on the business relationship parties are entering, counsel may want to define the scope of the step clause’s applicability to disputes that may arise. For example, parties can write in conditional statements that stipulate certain items in the contract strictly for arbitration. That way, the step clause is conserved for other matters. Likewise, parties can include provisions into a step clause that prohibits them from writing out any negotiation or mediation sections in the contract, safeguarding the original purpose of the step clause.

“If the language here is too broad and too vague, the parties to the contract would not reap the benefits that a step clause is meant to provide,” said Hon. Margaret A. Brennan, (Ret.), senior mediator and arbitrator at ADR Systems. “The discretion to resolve the dispute as the parties wish is certainly a preeminent benefit here, but it ought to be tapered so that the step clause language focuses on the greatest risks to a business relationship.”

Parties may also want to consider ensuring the confidentiality of an arbitration proceeding as well. Mediation communications are, with few exceptions, protected as confidential in Illinois by statute. This is, in fact, not the case with arbitration; parties are only assured of the privacy of their proceeding. Confidentiality must be agreed upon explicitly.

Counsel have much to consider when drafting a mediation/arbitration step clause for a commercial contract. The insights provided in this article can help counsel make a start at writing step clause language that, if needed, helps them effectively and efficiently resolve disputes that may arise in the future.

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Hon. Margaret A. Brennan, (Ret.) served for 19 years in the Circuit Court of Cook County Chancery and Law Divisions and cultivated expansive knowledge of commercial cases such as employment matters involving discrimination and retaliatory discharge, construction and legal malpractice disputes. Colleagues commend Judge Brennan’s intelligence, persuasiveness, remarkable patience, careful case preparation and boundless energy, which contribute significantly to her success as a senior mediator and arbitrator.

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Hon. Lisa R. Curcio, (Ret.) brings an abundance of real-world experience – real estate, business and banking — to her mediation and arbitration practice. She spent 15 years as a Chancery Judge, presiding over mechanics liens, construction contracts and construction defect cases. Judge Curcio is regarded as an energetic and pragmatic neutral who helps parties construct suitable solutions to their disputes.

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Hon. Brigid M. McGrath, (Ret.) has handled complex commercial and personal injury case types throughout her 35-year legal and judicial career, including professional malpractice, medical malpractice, insurance coverage and product liability matters. As a senior mediator and arbitrator, she is skilled at diffusing conflict and identifying root causes of disputes. Counsel know Judge McGrath will apply her legal knowledge with rigor and exacting detail to each case brought before her.

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ADR Systems, It’s Settled. ®

I think I speak for everyone when I say that we could not have settled this case without the tremendous efforts of Judge Brown. He was so kind to my clients and he really helped them through this difficult process.  His thoughtful approach and his incredible tenacity really made the difference in this case. We were very lucky to have him as our mediator and we look forward to working with Judge Brown again very soon.

Adria East Mossing, PartnerMossing & Navarre, LLC
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