Know your rights: When faced with legal disputes in the US, a costly, public trial should be the last resort. Try mediation and arbitration first - Final Thoughts

IS THE UNITED STATES the land of opportunity? Ask any Latin American businessman who has had the misfortune of litigating a commercial dispute in a US court. It can take weeks, or even months, to fully investigate allegations of fraud or unscrupulous business practices; all the while your attorneys keep sending you exorbitant bills. Cases in the US can linger for years because judges often lack the technical expertise needed to resolve complex matters. And more often than not, the end result is a legal compromise that may not fully compensate companies for lost business (often a byproduct of unwanted media coverage of court proceedings) or their litigation costs.

CEOs already understand that all potential business relationships carry a certain level of risk. It is their first and foremost responsibility to ensure that their company is protected against the risk of litigation. So before the Champagne corks start flying, add a provision to the contract that establishes a forum to settle any disputes that may arise.

All contracts should have these so-called "default clauses." Such provisions typically require companies to notify their partners (in writing, of course) if there is any suspicion or evidence of a breach of contract. It affords the partners the opportunity and time (as established in the contract) to rectify the situation. If the situation cannot be corrected to the satisfaction of all the business partners, then the default clause should contain additional guidelines establishing a neutral location for any talks, the applicable laws that will be used to decide the dispute, and provisions for attorneys' fees.

The default clause should outline two options to address disputes outside of the court system--and the media spotlight. One alternative is mediation; the other is arbitration.

Mediation is a non-adversarial meeting conducted in front of a "referee"--typically a former judge or experienced lawyer not affiliated with the companies--who listens to all sides and helps executives reach a compromise. The meetings are informal and confidential. The mediator, however, has no legal authority to force a monetary settlement. If the business partners cannot agree upon a settlement, an impasse is declared, the mediation process ends--and legal proceedings begin.

Arbitration is a form of legal action, also conducted outside the court system. Unlike mediation, arbitration can be adversarial, and may feel like a courtroom hearing, but there are key differences. Most matters are settled within a few months, as opposed to years. And the companies involved in the disputed business deal decide beforehand who will play the roles of judge and jury.

Unlike the public courts, a well-drafted arbitration statement dictates both the number and professional caliber of individuals who will preside over a dispute; they comprise the arbitration panel. The companies can decide for themselves whether they want one or several arbitrators to hear the complaint. Moreover, they define the academic and professional credentials arbitrators must have to serve on the panel. And the companies can decide for themselves what type of evidence--and how much of it--can be introduced during the proceedings.

All default clauses must contain the following provisions: a specific timetable for the entire arbitration process and limits on monetary awards and penalties for breaching the terms of the contract. The clause should also set time limits for the gathering, examination and discussion of evidence, as well as establish a date for when a final decision by the panel must be issued. The arbitrators are bound by these terms.

Unlike mediation, the final decision issued after an arbitration proceeding can be enforced by local authorities--including the local or national court systems. The United Nations' New York Convention of 1958 established a protocol for arbitration proceedings and settlements in the US and foreign countries, and the American Arbitration Association in New York has issued its own list of international arbitration rules.

Companies who draft default clauses into their business contracts have the ability to truly minimize their risks for litigation, lengthy trials, outrageous legal fees and unwanted media exposure. As we say in the States: "It's better to be safe than sorry." Now what CEO can argue with that?

Jeffrey D. Feldman, managing partner of Miami law firm Feldman Gale & Weber, specializes in the arbitration of US and international commercial disputes.

COPYRIGHT 2000 Americas Publishing Group
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