Presentation to Contract Drafting Class Osgoode Hall Law School - March 2011

1. ALTERNATIVE DISPUTE RESOLUTION CLAUSES Osgoode Hall Law School – Legal Drafting March 22, 2011 Colm Brannigan 905-840-9882 1-877-440-9882 colm@mediate.ca www.mediate.ca

2. The dispute resolution clause is not the most popular aspect of a commercial transaction. Nobody wants to raise the issue because “we probably won’t need it anyway”. www.mediate.ca

3. As a result, Alternative Dispute Resolution (ADR) clauses often do not get the drafting attention they deserve. A poorly drafted ADR clause can seriously undermine resolution of a dispute. www.mediate.ca

4. The time to raise the issue is when everyone is happy going into the deal not looking for a way out! www.mediate.ca

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6. What is ADR? Alternative Dispute Resolution (ADR) is a term used to describe a number of procedures outside the traditional litigation process. www.mediate.ca

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8. 6 Role of ADR ADR is about options for resolving disputes as an alternative to traditional litigation Consensus-based approaches to dispute resolution

9. First consideration: do you really want an ADR clause? www.mediate.ca

10. Without an ADR clause in the contract, the default is go to court. 90% + of court cases settle without trial so it is worth looking at ADR as a speedier, less costly way of dealing with disputes. www.mediate.ca

11. An ADR clause can contain any of the following processes as an alternative or precursor to litigation – negotiation, mediation and arbitration. www.mediate.ca

12. Negotiation Negotiation will result in resolution if the parties agree on a settlement. www.mediate.ca

13. Mediation Mediation involves a third party assisting the parties’ negotiations and will only result in resolution if the parties agree on a settlement. www.mediate.ca

14. Arbitration Arbitration involves an adversarial process that results in a third party issuing a binding decision on the dispute. www.mediate.ca

15. Commercial agreements often include ADR clauses with lengthy and complex steps that must be followed before a dispute can be litigated or arbitrated. www.mediate.ca

16. Before you put an ADR clause into a contract, think carefully about whether it is really necessary and, then consider the following drafting tips. www.mediate.ca

17. Short and Simple Drafting tip 1 – keep any multi-tier DR clause short and simple. www.mediate.ca

18. A key issue with multi-tier clauses is the length of time it can take to work through the various steps involved. www.mediate.ca

19. Make sure the various steps are kept to an absolute minimum and that fixed and short time limits are set. The process should be completed in days or weeks, not months or years (litigation!). www.mediate.ca

20. Do not use Vague Words Drafting tip 2 – do not use “reasonable negotiations”, “good faith negotiations” or similar undefined language. www.mediate.ca

21. What does this mean? “In the event of a dispute, the parties shall use all reasonable efforts to amicably resolve the dispute through good faith negotiations. If the dispute is not so resolved then…..” www.mediate.ca

22. What does it require the parties actually do? By what standard is compliance to be measured? www.mediate.ca

23. How long must the negotiations go on for? Is it enforceable? www.mediate.ca

24. ADR clauses often contain such provisions which often add nothing to the process and can cause serious problems such as being used to delay resolution. www.mediate.ca

25. Rather than including vague and uncertain language, give the parties something concrete to do. www.mediate.ca

26. Mediation Drafting tip 3 - Get the mediation clause right. www.mediate.ca

27. A mediation clause must be sufficiently certain. It must address the mediation process and in particular, how the mediator is to be appointed. www.mediate.ca

28. The clause should deal with what happens if the parties cannot agree on a mediator. www.mediate.ca

29. You can cover this by specifying that the mediator is to be appointed by a named institution, such as the ADR Institute of Ontario, Inc (ADRIO). www.mediate.ca

30. Arbitration Drafting tip 4 – Keep the arbitration clause short and simple and be sure to address the “basics”. www.mediate.ca

31. An arbitration clause must address: that the dispute is to be referred to arbitration. the number of arbitrators – one or three. www.mediate.ca

32. A process for appointing the arbitrator, including what happens if the parties fail cannot agree on the arbitrator. The Arbitration Act 1991 provides is that the Superior Court of Justice can appoint the arbitrator. www.mediate.ca

33. It will be quicker and cheaper than a court application to have an institution, such as ADRIO act as the default appointing authority. www.mediate.ca

34. Incorporate the arbitration rules by reference. Specify the place of arbitration. This is crucial in an international transaction. www.mediate.ca

35. Practical tip – If an international transaction, make sure to specify the language of the arbitration because otherwise who pays to translate documents? www.mediate.ca

36. Arbitration Clause An arbitration clause similar to this is really all you need for most situations: www.mediate.ca

37. Any dispute, difference or claim arising out of or in connection with this agreement, or the subject matter of this agreement, will be referred to and finally resolved by arbitration in accordance with the Rules of the ADR Institute of Canada, Inc. (“Rules”). www.mediate.ca

38. The tribunal will consist of [one or three arbitrators] appointed in accordance with the Rules. The place of arbitration will be Toronto. The language of the arbitration will be English. www.mediate.ca

39. Arbitration Act, 1991 If arbitration takes place in Ontario the parties should also consider contracting out of or into various optional provisions contained in the Act, for example, appeals on points of law, use of med-arb etc. www.mediate.ca

40. Dispute resolution in international transactions is a complex area and you should get expert advice on drafting ADR clauses for such transactions. www.mediate.ca

41. Example of Multi Step Clause This is an example of a “simple” multistep dispute resolution clause, which includes negotiation, mediation and arbitration. www.mediate.ca

42. http://www.oba.org/En/InfoTech/newsletter_en/PrintHTML.aspx?DocId=34849#Article_1 www.mediate.ca

43. Use the previous clause at your own risk! www.mediate.ca

44. Conclusion Consider the issues raised in this presentation and adapt it as needed to meet your specific dispute resolution goals. www.mediate.ca

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46. QUESTIONS? www.mediate.ca

47. References National Mediation Rules with Model Clause and Agreement: http://www.adrcanada.ca/rules/mediation.cfm www.mediate.ca

48. National Arbitration Rules with Model Dispute Resolution Clause: http://www.adrcanada.ca/rules/arbitration.cfm www.mediate.ca

49. Resolving IT Disputes through ADR Part IV – Drafting ADR Clauses by Colm Brannigan and Michael Erdle, 2008 http://www.oba.org/En/InfoTech/newsletter_en/PrintHTML.aspx?DocId=34849 www.mediate.ca

50. Pathological Arbitration Clauses & Humpty Dumpty: Can “neither more nor less” Mean So Many Different Things? by Babak Barin, Canadian Arbitration and Mediation Journal, Fall 2007 http://www.adrcanada.ca/resources/documents/CAMJournalfall2007.pdf www.mediate.ca