Unfortunately, there may come a time where a business dispute will arise. This can be a dispute with a customer or supplier, including contractual disputes through to problems with business associates, banks or even local councils.
If a dispute cannot be resolved between the parties in an amicable manner, then rather than immediately going to court and paying costly legal fees, mediation and arbitration may be the answer.
What is mediation?
Mediation is an alternative procedure for the resolution of disputes. It is often the most effective means of resolving disputes in a wide range of commercial, industrial and governmental areas with the assistance of a skilled independent third party, the mediator.
According to the Institute of Arbitrators & Mediators Australia mediation is quicker and more cost-effective than the more formal arbitration or litigation processes. It should be considered as early as possible after a dispute has arisen.
Mediator’s fees are a matter of negotiation between the parties and the mediator. Fees vary from $150 an hour to $400 an hour depending on the mediator and the nature and duration of the proceedings.
Even if parties do not completely settle their dispute during the mediation process, they are able to clarify and narrow the issues at a mediation hearing. This reduces the time and expense of later proceedings and often leads to a subsequent resolution.
What is arbitration?
This is the formal dispute resolution process where parties refer their dispute to an independent third person (the arbitrator) for determination.
According to the Institute of Arbitrators & Mediators Australia (IAMA), arbitration should be selected as the preferred process for dispute resolution when parties require procedures similar to that available in a court but without the delays, public access or formality.
Commercial arbitration in Australia has become the preferred procedure for parties seeking a binding determination of their dispute and an alternative to court-based litigation.
The arbitrator’s fees vary depending on the arbitrator’s grading, experience and the nature of the dispute.
What wording should be in your contracts?
While many businesses realise the benefit of mediation and arbitration, few take it one step further and ensure that disputes go to arbitration by including standard clauses in all of their contracts.
These clauses ensure that in the event of a dispute, both parties are agreeing to go to mediation and arbitration to resolve the matter rather than going through the court system.
The Institute of Arbitrators & Mediators Australia recommends that the following clauses be inserted into contracts, depending on your individual needs and have been used with permission of the IAMA.
Arbitration Clause
The standard clause which is recommended for insertion in agreements where arbitration is the desired method of resolving a dispute is:
“Any dispute or difference whatsoever arising out of or in connection with this contract shall be submitted to arbitration in accordance with, and subject to, The Institute of Arbitrators & Mediators Australia Rules for the Conduct of Commercial Arbitrations.”
Unless the parties agree upon an arbitrator, either party may request a nomination from either the President or the Chapter Chairman of the Chapter where the dispute arises.
Expedited Arbitration
Expedited arbitration is used in small disputes and/or where quantum is limited or restricted
To limit the potential cost of small disputes an additional phrase may be added to the arbitration clause which restricts the right of a formal hearing to when the quantum in dispute is above a certain, agreed amount. For example:
“Any dispute or difference whatsoever arising out of or in connection with this contract shall be submitted to arbitration in accordance with, and subject to, The Institute of Arbitrators & Mediators Australia Expedited Commercial Arbitration Rules. For disputes in which the quantum is less than $ (include amount here – usually $50,000 or under) arbitration shall take place using the submission of documents alone unless both parties agree otherwise.”
Mediation – Arbitration
Where mediation is the desired method of resolving a dispute and where, if the dispute is not settled by mediation and you require this further option, the dispute is referred to arbitration is:
“Any dispute or difference whatsoever arising out of or in connection with this contract shall be submitted to mediation in accordance with, and subject to, The Institute of Arbitrators & Mediators Australia Rules for the Mediation of Commercial Disputes.”
Add the following if you require the matter to go onto arbitration if not settled.
“If the dispute or difference is not settled within 30 days of the submission to mediation (unless such period is extended by agreement of the parties), it shall be and is hereby submitted to arbitration in accordance with, and subject to, The Institute of Arbitrators & Mediators Australia Rules for the Conduct of Commercial Arbitrations. Notwithstanding the existence of a dispute or difference each party shall continue to perform the Contract.”
Industry & Consumer Contracts
This clause can be modified as appropriate to the particular scheme.
“Any dispute under, or arising out of, this contract shall be referred to the Institute of Arbitrators & Mediators Australia, for resolution under the Rules of the (Trade Body or Association) Consumer/Industry Dispute Resolution Scheme. Each case will first be referred to a Conciliator appointed by the Institute unless either party wishes to proceed directly to arbitration. If the conciliation is not satisfactorily concluded within six weeks or if the parties want to proceed directly to arbitration, the Institute will appoint an Arbitrator who will make a final and binding award.”
For more information about mediation and arbitration, go to the IAMA’s Web site at www.iama.org.au.
