Typically, we enter into business agreements with the expectation that things will run smoothly. Whether it is a shareholders’ agreement, an employment agreement, or an agreement for supply of services. An agreement covers all the details that a handshake cannot cover. For instance, what happens when a dispute arises between the parties? How will the dispute be resolved? A well-drafted business agreement not only lays out the terms of a business deal, but it anticipates the possibility that disputes will arise within the business.
When parties are in dispute, they generally have three options to resolve the disagreement at hand. They could choose to mediate, arbitrate, or litigate.
- Mediation: a non-binding dispute resolution process that is conducted by a mediator, not a judge, who facilitates discussions between the disputing parties to come up with a resolution to their dispute.
- Arbitration: typically, a binding dispute resolution process that is conducted by a single arbitrator or panel of arbitrators who take an active role in resolving the dispute based on evidence presented to them, just like judges in court do.
- Litigation: the dispute resolution process most people are familiar with, which takes place in a courtroom and is presided over by a judge.
Agreements that provide for alternative dispute resolution will often require a graduated process, starting with mediation. If mediation fails, then the parties will try to resolve the dispute through arbitration.
When Mediation and Arbitration Can be Avoided
Typically, all parties to an agreement are bound by its terms, provided the terms are legal. This means that if an agreement provides for mediation and arbitration as the dispute resolution mechanism, then the parties must abide by that. However, there are circumstances under which the parties can avoid alternative dispute resolution processes and seek help from the courts.
- When the dispute resolution provisions exclude particular disputes from mediation or arbitration.
- When the dispute involves a third party.
- When the arbitration agreement was obtained by fraud or undue influence by one of the parties.
- When you need remedies that an arbitration cannot provide, such as equitable relief in the form of an injunction or specific performance.
Governing Law, Venue, and Attorneys’ Fees
When drafting dispute resolution provisions, it is of utmost importance to make sure you have the appropriate governing law apply, the location for dispute resolution (venue), and including a provision that the prevailing party shall be entitled to recover reasonable attorneys’ fees.
- Governing Law. you typically want the state where your business located as the applicable governing law.
- Venue. You can determine the location of any arbitration or litigation and have both parties consent to such location as the exclusive venue for the dispute resolution.
- Attorneys’ Fees. Unless you contractually provide for this, the cost of enforcing your rights in a contract dispute can be a deterrence unless you have a provision that clearly states the prevailing party in an arbitration or litigation can recover its’ reasonable attorneys’ fees. Please be aware, however, that this provision goes both ways, and if you are on the losing side of the dispute, you will be the party paying the other side’s attorneys fees.
Need Help Drafting Professional Business Agreement? Speak to an Experienced Business Attorney in Los Angeles Today
Hakim Law Group represents an array of entrepreneurs, operating companies, venture capital firms, and financiers in the education, fashion, finance, health care, internet and social media, technology, real estate, and television industries. Whatever business issue you need addressed, the professional business attorneys at Hakim Law Group are here to help. For further information or to schedule an appointment please contact HLG at 310.993.2203 or visit www.HakimLawGroup.com to learn more.