A well-constructed dispute resolution clause is the foundation of a cost-effective and efficient dispute resolution process. Yet courts regularly are faced with arbitration clauses that are problematic in some respect.
Common Flaw #3: Vague Conditions Precedent
Lack of defined conditions prior to commencing arbitration (conditions precedent) can delay the proceeding or send parties to court to determine enforceability of the clause. For example, it is increasingly common for dispute resolution to be a multi-tiered process, with attempted negotiation and/or mediation a prerequisite to commencing arbitration. When it is unclear exactly how negotiation or mediation should be commenced, conducted, or deemed concluded, disagreements can erupt as to whether the condition has or has not been met.
Conditions include:
- Who must participate in negotiation?
- How shall a mediator be selected?
- How long must the parties participate in negotiation or mediation to constitute “good faith?”
- Is the right to arbitrate or to recover attorneys’ fees null and void if all the steps in a vaguely worded, multi-tiered dispute resolution process have not been completed?
The clause must be clear if a step is simply desired or is an actual prerequisite of proceeding to arbitration, exactly what is required, and the time frame to satisfy the conditions. In addition, the arbitrator must be granted the authority following appointment to resolve disputes as to whether a condition precedent has been met.
Practice Tip to Avoid This Mistake
The clause must be clear if a step is simply desired or is an actual prerequisite of proceeding to arbitration, exactly what is required, and the time frame to satisfy the conditions. In addition, the arbitrator must be granted the authority following appointment to resolve disputes as to whether a condition precedent has been met.
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