Form Mediation/Arbitration Clause

Over the years, I have found that there are many agreements which should include a mediation/arbitration (“Med/Arb”) clause. My general rule for identifying such agreements is: the longer the term of the agreement and the less the desired outcome is known or can be anticipated, the greater the need for a Med/Arb clause. A joint venture agreement for the development of a product whose features or markets are to be determined by the work of the joint venture participants would be the perfect example. I have included Med/Arb clauses, though, in many other agreements including: conservation easements; leases; purchase and sale agreements; and manufacturing, construction, employment and consulting agreements.

We are fortunate in Maine to have many excellent mediators and arbitrators. Each of us can easily identify a dozen or more capable mediators and arbitrators to whom we have turned to help us resolve a dispute. If we do not know such persons, there are a number of lists of qualified persons readily available to us.

With those thoughts in mind, it has been my goal to draft a form Med/Arb clause that clearly lays out the when, why and how of an efficient and cost effective mediation/arbitration process.

My Med/Arb clause is, as are all agreement clauses we lawyers use, very much a work in progress. Some of the ideas of this clause come from my reading of clauses written by other lawyers. Some come from the wisdom learned from prior clauses I have used that did not accomplish the desired result. Others come from my practice as a mediator and arbitrator. What follows is my current version.

SAMPLE MEDIATION/ARBITRATION CLAUSE

Disputes arising out of or related to this Agreement shall be resolved in accordance with this provision.

In the first instance the parties will attempt to resolve such disputes through open communication and dialogue. To this end, if a party has a concern about an actual or possible dispute, and there is not otherwise a reason to immediately give a Notice of Dispute, the concerned party will informally notify the other party of the nature of the dispute and explore the possibility of reaching an agreeable resolution, prior to initiating a Notice of Dispute.

As a mediator, it is my experience that many disputes begin with a breakdown in communication. This clause commits the parties to talk before they begin any formal dispute resolution process.

If the parties cannot resolve the matter by informal dialogue or there is a reason to give notice immediately, either party may give Notice of Dispute to the other party. The Notice of Dispute shall state the nature of the dispute and the corrective action necessary to remedy the dispute.

This clearly delineates when and how formal dispute resolution begins.

After Notice of Dispute, the parties shall first attempt to resolve any disputes by mediation. The parties shall agree on a single mediator who shall be (example: an attorney licensed to practice law in Maine who has experience in commercial transactions such as this Agreement and is a trained and experienced mediator). Mediation shall be conducted in (example: Portland, Maine). Each party shall pay its own attorneys’ fees and the costs of mediation shall be split equally between the parties.

This clause provides for mediation as the first formal dispute resolution mechanism. It spells out how a mediator is selected and what qualifications the mediator should possess. It provides where mediation will occur and how it will be paid for.

If the dispute has not been resolved by mediation within ____ days after Notice of Dispute, or the parties are unable to agree to a mediator, within (one quarter of the above time period) days after Notice of Dispute, then, the dispute
[Alt1: may, upon agreement of the parties]
[Alt 2: shall] be resolved by binding arbitration in accordance with the Maine Uniform Arbitration Act, and judgment upon the award rendered by the arbitrator may be enforced in any court of competent jurisdiction. The parties shall agree on (one or more) arbitrator(s) who shall be (example: an attorney licensed to practice law in Maine who has experience in commercial transactions such as this Agreement and is an experienced arbitrator). The arbitrator shall be bound by and follow the (example: substantive law of Maine). The arbitrator shall render a decision within _______ days of the arbitration hearing. Arbitration shall be conducted in (example: Portland, Maine).

First, this clause establishes deadlines for the mediation phase in order to keep the dispute resolution process moving.

Next, there are alternatives that provide for either (i) arbitration as the sole final resolution process or (ii) arbitration if the parties then so elect.

The Maine Uniform Arbitration Act referred to above is found in Title 14 MRSA, Chapter 706, §§ 5927 to 5949. Generally, the Act provides that arbitration clauses are valid and enforceable by Maine Superior Courts. The Act gives the court power to appoint an arbitrator if the agreement is silent or the parties fail to do so under the terms of the agreement. It provides for such details as notice of arbitration hearing, evidence, arbitration decision, party representation, witnesses, subpoenas, depositions and awards.

Thus, the remainder of the clause provides the details of how arbitration will occur which are not covered or are subject to election under the Act.

[Use this paragraph only with Alt 1: If the parties do not agree to resolve the dispute by binding arbitration, either party may bring an action at law or in equity in any court of competent jurisdiction to enforce the terms of this Agreement and/or for such remedies as appropriate.]

This clause is used only with Alt 1 above when arbitration is merely an elective remedy and states that if the parties do not elect arbitration, then they may proceed to court.

Anything else in this provision notwithstanding, if either party, at any time, believes that there is the need to maintain the status quo pending resolution by one or more of the methods set forth in this Section __, that party may seek a temporary restraining order, preliminary injunction or other equitable relief from any court of competent jurisdiction.

This clause is designed to provide a method to hold the status quo while the matter is resolved if the parties cannot otherwise agree to do so.

As with any other clause in an agreement this Med/Arb clause will need to be tailored to the unique facts of the matter that is the basis an agreement.