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What Goes into an Effective ADR Clause

Alternative dispute resolution (ADR) is a general name for methods used to settle civil disagreements outside of the courts. In commercial disputes, most companies favor ADR over litigation, which usually involves much higher costs and financial risks. Business contracts and agreements often include clauses by which the parties agree to a use form of ADR. As this agreement can profoundly affect the rights of the contracting parties, ADR clauses should be drafted carefully in recognition of all relevant circumstances.

An ADR clause requires the parties to use a designated out-of-court forum instead of — or as a precondition to — going to court. ADR can take the form of arbitration, mediation, negotiation, neutral evaluation or settlement conferences. An effective ADR clause should contain detailed provisions as to how and when ADR will be implemented. Some essential aspects to be addressed include the following:

  • The form of ADR to be used
  • The kinds of disputes to be resolved and the types of circumstances that call for ADR
  • The procedures for initiating ADR
  • The identity of arbitrators, mediators or other neutral parties or the procedure by which they will be selected
  • The choice of law that will apply to ADR, such as that of a particular state or country
  • The general location (i.e. city, state) where ADR will take place
  • The procedures to be followed in ADR proceedings
  • The availability of appeal or review of an ADR decision
  • The procedures to initiate an appeal or review

Some companies insert standard or “boilerplate” ADR provisions into contracts, which can be a costly mistake. ADR clauses should be tailored to fit the specific industry, business entity and project or transaction. If an ADR clause is not well-crafted to serve the parties’ needs, the ADR process itself may be unmanageable or even raise additional disputes. On the other hand, an ADR clause that is thoughtfully developed and skillfully drafted by a highly experienced ADR attorney will be more apt to achieve the underlying purpose — to make dispute resolution more cost-effective and efficient than litigation.

Quinn & Kronlund LLP of Stockton is a leader in California alternative dispute resolution. Our firm’s attorneys draft ADR agreements for clients in varied industries and professions. We routinely serve as mediators or arbitrators or in other ADR capacities. We also serve as counsel to parties engaged in mediations and arbitrations. We take great pride in resolving disputes quickly and efficiently. Feel free to contact us or call 209-943-3950 for an initial consultation.