Every few months, I talk to a local business networking group about the law. I get my topic by asking members to submit a question to me in advance. I call it “Ask the Attorney.” This month, the topic concerned an arbitration that involved real estate agent’s client. I explained that the arbitration must have arisen out of an agreement to arbitrate. Members of the group seemed surprised to learn that no law compelled them to enter into an agreement to mediate or arbitrate a dispute. My presentation showed how law was frequently made by one of our 3 branches of government (legislative, executive or judicial). But even more “law” was made by mutual agreement between individuals or business entities. We call these agreements contracts. In effect, a contract makes law between the parties to the agreement. That law is enforceable in court just as any statute passed by the legislature or any rule properly made by an administrative agency. But it can be enforced only by or against the parties to contract, or by designated beneficiaries of the agreement. Therefore, the procedure and outcome of the real estate arbitration in question depended on the terms of the agreement to arbitrate.
Near the end of my presentation, one of the group members asked whether I recommended that all of their business agreements contain an aribtration or mediation clause. Again, I think my answer surprised them. I told them that I did not recommend inserting an arbitration or mediation clause into every business contract without considering the costs of those proceedings, the nature and goals of their business, and the types of disputes likely to arise. I also explained that such clauses do not have to be agreed to before any dispute arises. Arbitration and mediation agreements can, and frequently are, entered into after a dispute arises. Of course, even if you do have a mediation or arbitration agreement in your contract, you can waive the right to enforce it by mutual consent or conduct inconsistent with enforcement.
The beauty of any agreement to arbitrate or mediate is that you are being proactive in addressing your dispute. Too many people leave dispute resolution to their attorneys or the courts, leaving the details to lawyers. Mediation and arbitration are much more hands on for the real parties. By tailoring the procedure to your dispute, you increase your chances of an acceptable, timely and economical resolution. There may be times when you want to set a public precedent or change existing law, which requires litigation in court and maybe an appeal. In other situations, you may be more concerned about confidentiality or putting the dispute behind you as soon as possible. Whatever your goal may be, it is always better to have options and to think about them before making a choice.
It is important to remember that, when entering into any kind of contract, you are making law. That is an awesome responsibility. Exercise it wisely.