Beware the midnight clause: Hold the champagne?

Is it time to celebrate? –

It’s midnight. The champagne is on ice. It was a tough negotiation but your attorney got all the key terms you wanted. With a few finishing touches on the contract, the deal will be done and the celebration can begin.

But then, as an afterthought, someone raises the possible need for an arbitration clause. To expedite the closing of the deal, boilerplate language from another unrelated contract is lifted and inserted in the deal contract. Just like that, a hastily added alternative dispute resolution (ADR) provision has been added to what is an otherwise meticulously drafted document.

Originally published in InsideCounsel.com on February 18, 2016.

Please see full article below for more information.

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Why have a dispute resolution
provision at all?
Anyone who has been involved in litigation
knows the answer. Litigation is expensive,
time consuming and unpredictable. It’s also
risky: trade secrets or other confidential
information can become public in litigation.
In addition, litigation can harm business
relationships.
But all of these headaches can disappear
with a well-drafted ADR provision calling for
arbitration.
Even better, a so-called “multi-step dis-
pute resolution clause” can be included in a
contract. Multi-step clauses require parties
This article originally published in InsideCounsel.com
and is reprinted with their permission.
1.800.352.JAMS | www.jamsadr.com
to first negotiate and/or mediate in a quick
and cost-effective manner before proceeding
to arbitration. Properly drafted, these claus-
es can resolve disputes quickly, saving time,
money and preserving business relationships.
But these clauses must be drafted with care.
Why draft an ADR clause now
when there is no deal at hand?
When your focus is on the substantive
elements of a business transaction, it is not
practical to divert attention towards a dispute
resolution clause. This is why it is so easy to
give into the temptation of simply using boil-
erplate language. By drafting an ADR provision
now, before it is necessary, you can ensure it
contains the features you want. Far too often,
when a dispute arises, everyone rushes to the
contract only to learn to their dismay it does
not contain the provisions they want.
What terms are important?
All of them! When an ADR clause is added
simply as a midnight or champagne clause,
key features can be absent.
The ADR clause should contain language clear-
ly stating the process that will be followed.
For example, does it call for a multi-step pro-
cess: mediation first, then arbitration? Does
it designate the location where the mediation
or arbitration will be conducted? Does it
designate a particular ADR provider to ensure
an orderly, fair and economical process? It is
crucial to ensure that a well-qualified neutral
be the one to decide your dispute. You do not
want to leave this to chance, so care should be
taken in mapping out the process.
How do I create an ADR clause
that works for my company?
The good news is your legal team no doubt
has access to sample clauses. These clauses
should serve as the model upon which to build
an alternative dispute process that works best
for your company. Most major dispute reso-
lution providers, such as JAMS or AAA, also
provide sample clauses on their websites for
your consideration. But the most important
thing is that the ADR clause be tailored to the
needs of your company.
Time to celebrate.
Once your legal team has crafted a clear, com-
prehensive dispute resolution clause, ensur-
ing that any disputes will be decided fairly,
economically and expeditiously, you can keep
it “on ice.” Then, the next time you are closing
a deal at midnight, you can crack open your
new ADR clause, along with the champagne! •
Hon. Nancy Holtz (Ret.) is a JAMS neutral, based
in Boston. She can be reached at [email protected]
com.
This article originally published in InsideCounsel.com
and is reprinted with their permission.
1.800.352.JAMS | www.jamsadr.com

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