Practical tips for drafting a clause containing ADR mechanisms

Negotiation

Depending on national law, an agreement to negotiate in good faith is in general not enforceable but may be enforceable in the context of a dispute resolution clause as long as the clause is sufficiently certain. The parties may agree on one or more rounds of negotiations. It is most important that the clause includes time limits for the negotiations to avoid protracted negotiations that delay the resolution of the dispute through arbitration and increase costs.

Mediation

A mediation clause must include certain elements in order for it to be enforceable. The clause must provide for the appointment of the mediator, whether by agreement of the parties or by a third party if such agreement cannot be reached, and for the mediator’s remuneration, which is usually shared by the parties. It must also provide for the process of the mediation or refer to mediation rules that set out the process. Finally, the clause should specify whether it is operating as a condition precedent before the parties move to the next stage, such as arbitration (or litigation), or whether it will serve as an option process if both parties agree. In either circumstance, the clause should specify the duration of time that will be allowed for mediation to take place (rather than an open-ended time period).

Expert determination

The first matter to consider in drafting an expert determination clause is the scope of the issues for expert determination. Those issues might be defined by their nature (such as certain technical or construction issues) or by their value (such as issues below a certain amount). Clear and mandatory language should be used to ensure that there is no doubt or uncertainty as to what is to be referred to expert determination according to the parties’ intention.

The clause must then specify the process for the appointment of the expert and stipulate how the process is to be conducted. For example, the clause could state that the expert is to act as an expert and not an arbitrator, that each party is to provide submissions and evidence to the expert and the other side, and that the expert has a general discretion to determine the process as appropriate.

Care should be taken to ensure the clause specifies that the expert is to issue a written decision within a certain time frame and whether or not that decision is binding or non-binding.