I SPECIALIZE IN INFORMATION TECHNOLOGY TRANSACTIONS.
I HAVE OTHER CORPORATE LAW EXPERTISE TOO.
Your Contracts: The Dispute Resolution Provisions
Chances are your company's contracts are too long, tedious to read, hard to understand, full of legal jargon, and just plain boring. But they don't have to be that way. When we apply the principles of Plain English (or as some say, "Plain Language"), a stuffy old contract can be reborn as an effective business tool that cogently states the parties' respective rights and obligations. A contract can also be the reference point for determining how each party must exercise its rights or perform its responsibilities over the life of the agreement. And it should contain the mechanism to resolve any dispute between the parties in the most prompt and efficient manner possible.
Dispute resolution procedures are vital contractual provisions often overlooked by the parties until there is a problem with a party's performance or non-performance that is not quickly resolved on a business level. The fact that these provisions are usually placed at the end of contracts doesn't help either. But if you are a manager, director, supervisor, or officer of your company, you should have a basic familiarity with these provisions, if for no other reason than to avoid updating your resume because you didn't know about them. So, here are the basic dispute resolution provisions to be wary of:
Governing Law. If you are a Michigan company contracting with a California company, what State's law should govern the contract? Your contract better say "Michigan." This isn't rocket science.
Jurisdiction and Venue. If a dispute develops that results in legal action, where will the legal action occur? Again, if you are a Michigan company, you'll want the action to occur not only in Michigan, but also in the Michigan county where you have your headquarters.
Mediation as the First Step. A mediation provision is a common first step to try to resolve a dispute before litigation or arbitration. A neutral third party with business and legal expertise informally listens each side and then tries to work out a solution to end the dispute.The parties don't have to accept the mediator's solution.
Litigation or Arbitration. Each of these dispute resolution mechanisms has advantages and disadvantages. But if you want the dispute quickly resolved in private, a customized mandatory arbitration provision is usually the best solution.
Loser Pays the Winner's Legal Fees and Court (or Arbitration) Costs. This provision can discourage litigating or arbitrating a dispute from the outset. But it cuts both ways, so it should only be included with caution.
Shortened Statute of Limitations.There may be a provision requiring that any litigation or arbitration between the parties be commenced within "x" years after the dispute arose or the party raising the claim will be barred from commencing the case. The period is less than the typical State's statutory limitations period, which may be 10 years for contractual actions.
If you are responsible for your firm's contracts, consider making a matrix of these provisions for easy reference. And if you don't understand or agree with them, don't just hope that they will never apply. Instead, work with a lawyer who (i) is skilled in plain-language principles; and (ii) has practical experience with these provisions to change them.
Dispute resolution provisions are not "sleeping dogs" that can safely be left alone!
DO YOU HAVE A CONTRACTS DATABASE?
If your company has 20 - or 200 - contracts in force, consider making a database that includes the following essential summary of each agreement that you can share with your team (and your legal counsel):
Legal name of the other party and their business and legal contact information.
Commencement and expiration dates of the contract.
Description of renewal provisions, if any.
Fees, invoicing, and payment terms.
Description of the insurance provisions and whether your company received (or sent) a certificate of insurance.
Description of the common contractual risk-shifting provisions: indemnification, damages disclaimers, and damages caps.
Whether the contract contains a confidentiality provision; if not, is there a separate confidentiality agreement that predates the contract?
Describe the dispute resolution provisions stated above.
Be sure to update the database as new contracts are signed and note expired or otherwise terminated contracts. Contracts no longer in force should be retained according to your corporate records retention policy!
Nothing in this newsletter can be construed to be legal advice or create an attorney-client relationship with the reader. If you would like to find out more about me or my services, please email me or call me at 616-951-3947.