Mediation and Arbitration

Peter Welsh Corporate Law

Almost all Shareholders’ Agreements and Partnership Agreements include some form of dispute resolution by way of mediation or arbitration as an alternative to litigation.

In a recent matter, a Partnership Agreement had a relatively modest mediation provision. Essentially, the partners are to attempt to resolve the matter in dispute between themselves and thereafter mutually select a mediator and if that does not work out then to move toward arbitration before litigation. This is rather standard: attempt resolution and then a process.

Business Input

Unfortunately, partnership disputes almost immediately interfere with the operation of the business. Yet, most mediation and arbitration clauses have relatively lengthy time periods for matters to be resolved, often 30, 60 or even 90 days during which the business may well be imperiled.

In addition, most mediation/arbitration provisions provide for the parties to agree on who is to be the mediator or arbitrator. If the parties cannot agree on their own dispute, they are highly unlikely to agree on who is to be the mediator/arbitrator; so the entire process may fall just on the procedure.

While we promote mediation and arbitration as alternatives to litigation, we are becoming more attuned to the necessity of an expeditious method for mediation to unfold with a focus on only a matter of days and, at the same time with extreme attention to the costs.

What to do?

We think mediation/arbitration clauses should be significantly tightened to address the realities of the business, the customers, the suppliers and the employees, all of whom may be caught in the middle of a dispute of a personal nature between the partners (or shareholders). You should consider how your mediation clause will actually work should there be a dispute.

Of course, that begs the question of the eventual viability of the business when one or the other of the partners pulls out the Partnership Agreement in the first place. Usually, when reliance upon the written agreement is made, the relationship is already in serious difficulties. A delay in its resolution will undoubtedly affect negatively the business and hence our recommendation for these matters to be handled quickly, deftly and with the capability of being enforced rather than utilized as a further tool in the dispute.

If you would like to consult with us before the matters turn confrontational or even if they already have, please don’t hesitate to contact us.

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