Contract Disputes Involving Mandatory ADR: When Mediation or Arbitration is Required

Many commercial contracts include provisions that mandate mediation or arbitration (or both) in the event of a dispute between the parties. These mandatory alternative dispute resolution (ADR) clauses have become ubiquitous, and, in most cases, both parties will prefer to use ADR rather than litigate their dispute in state or federal court. Generally speaking, ADR is more cost-effective than litigation, and an experienced Miami commercial litigation attorney will be able to help facilitate an efficient resolution—while also focusing on preserving the parties’ commercial relationship (if desired).

5 Important Considerations for Commercial Contract Disputes Involving Mandatory ADR

When facing a commercial contract dispute that is (or that may be) subject to mandatory mediation or arbitration, there are several important factors to consider. Here are some key insights from the commercial litigation attorneys at Edelboim Lieberman:

1. Is the Dispute Subject to the Contract’s Mandatory ADR Clause?

Even when commercial contracts contain mandatory ADR clauses, these clauses will often include carveouts or exceptions for certain types of claims. In particular, if a contractual breach presents a risk for immediate and irreversible damage (i.e., in a case involving misuse of confidential information), this is a common scenario in which the non-breaching party will still have the right to go to court and seek immediate injunctive relief.

With this in mind, when facing a dispute under a contract that contains a mandatory ADR clause, a key preliminary question is: Does the mandatory ADR clause apply? If it does, these clauses are generally enforceable in commercial contracts under Florida law, so your company will most likely need to comply with the terms to which it has agreed. But, if the contract’s mandatory ADR clause doesn’t apply, you will need to consult with your company’s Miami commercial litigation attorney regarding the best strategy under the circumstances at hand.

2. Does the Contract Require Mediation, Arbitration, or Both?

If the contract’s mandatory ADR clause applies, then one of the next questions that needs to be answered is: Does the contract require mediation, arbitration, or both? Typically, mandatory ADR clauses in commercial contracts will take one of the following forms:

• They will require good-faith mediation as a precursor to pursuing litigation;
• They will require good-faith mediation as a precursor to pursuing arbitration; or,
• They will require arbitration for all covered disputes.

While mediation and arbitration are both forms of ADR, they are very different. Mediation is essentially a form of guided negotiation, while arbitration results in a binding resolution issued by a neutral third party. Generally speaking, mediation is more likely to result in an amicable resolution that preserves the parties’ commercial relationship, while arbitration more often spells the end of a commercial relationship. With that said, neither outcome is guaranteed in either type of proceeding, and commercial parties can—and should—work with their legal counsel to target the resolution that makes the most sense under the circumstances at hand.

3. Where Is the Mediation or Arbitration to Take Place?

Along with specifying when mediation or arbitration is required, mandatory ADR clauses will also typically specify where mediation or arbitration is to take place. When both parties are located in the same geographic area, this generally won’t be an issue—the parties will simply agree to resolve their dispute locally.

But, when the parties are not located in the same geographic area, choice of jurisdiction and venue may be a point of negotiation during the contracting process. If one party is required to travel, this will add to the costs of pursuing ADR, and this can influence parties’ decisions regarding how to proceed in some cases.

4. Is Settling Without Initiating ADR a Viable Option?

When thinking about implementing a commercial contract’s ADR clause to resolve a dispute, it is also worth thinking about whether it may be possible to settle the dispute without initiating a formal ADR proceeding. While mediation and arbitration can both be cost-effective alternatives to litigation, in many cases, it will be possible to reduce the costs of dispute resolution even further by finding a way to come to terms informally.

An experienced Miami commercial litigation attorney will be able to assist here as well. Oftentimes, even when commercial parties seem to be completely at odds, they will at least share a common interest in finding an efficient path forward that minimizes any disruptions to their business operations. By helping the parties consider potential solutions and take a systematic approach to negotiate in good faith, an experienced attorney will often (though not always) be able to help facilitate an amicable resolution without the need for ADR.

5. What Can You Expect in Mediation or Arbitration?

But, let’s say that ADR is necessary. What can you expect in mediation or arbitration?

As we said above, mediation and arbitration are very different forms of ADR. Mediation does not guarantee a final resolution. The mediator’s role is to facilitate the parties’ negotiations, and this may or may not lead to a mutually agreeable settlement. As a result, mediation can be an effective tool when commercial parties are interested in finding a way to come to terms but are unable to do so on their own. However, if either party is unwilling to consider a reasonable settlement, then the chances of success will generally be low.

Arbitration, in contrast, ends with a binding decision rendered by the arbitrator (or arbitration panel). Arbitration is roughly comparable to a “mini trial,” although there are several key differences between arbitration and litigation. While arbitration decisions are subject to appeal on limited grounds, commercial parties should generally go into the arbitration process with the expectation that they will need to abide by the arbitrator’s (or arbitration panel’s) decision.

Speak with a Miami Commercial Litigation Attorney at Edelboim Lieberman in Confidence

If you need to speak with a Miami commercial litigation attorney about a contract dispute and the potential for mandatory mediation or arbitration, we invite you to get in touch. Please call 305-768-9909 or contact us online to schedule a free consultation at Edelboim Lieberman.