Page 9 - ADR

NYLJ.COM |
Alternative Dispute Resolution | MONDAY, AUGUST 7, 2017 | S9
are dangers for the unwary, particularly if the clause requires arbitration, where noncom- pliance may result in forfeiting the ability to compel arbitration of the dispute at all.
All of this certainly warrants caution in deciding whether to include such require- ments in a contract, and if so, in drafting the provision properly.
Enforceability
Once you decide to include a multi-tiered dispute clause in an agreement, increase its enforceability by including definite and objective standards against which compli- ance can be judged. If the clause is too vague about what is required, it can be challenged as an unenforceable “agreement to agree.” To enhance success in enforcement, the clause should be explicit about who must be involved in the discussions, how to ini- tiate the process, any required in-person meeting(s), how long the process must con- tinue and whether any information must be exchanged prior to or during the process. Although not a requirement, courts have favorably observed the specific use of the phrase “condition precedent” in determining enforceability.
Establishing that the preliminary step(s) are a condition precedent to being able to bring suit or file for arbitration is important because it dictates whether compliance is judged by a court or an arbitrator. As one court observed, “[t]he ‘threshold determi- nation of whether a condition precedent to arbitration exists and whether it has been
complied with, is for the court to determine.’ By contrast, ‘[q]uestions concerning compli- ance with a contractual step-by-step griev- ance process have been recognized as mat- ters of procedural arbitrability to be resolved by the arbitrators, particularly in the absence of a very narrow arbitration clause or a provi- sion expressly making compliance with the time limitations a condition precedent to arbitration.’” Matter of Incorporated Vil. of Floral Park v. Floral Park Police Benevolent
arbitrators depends on its substance and the function it is properly perceived as playing—whether it is in essence a prerequisite to entry into the arbi- tration process or a procedural pre- scription for the management of that process. Under the first heading will come provisions which in point of time are intended to be preliminary to the institution of any arbitration proceed- ing and in a precise sense are unrelated
creature of contract, the parties by explicit provision of their agreement have the ability to place any particu- lar requirement in one category or the other, to make it a condition precedent to arbitration or to make it a condition in arbitration. (County of Rockland v. Primiano Construction Co.)
A party found not to have complied with the requirements of a condition precedent may lose its ability to compel arbitration under an otherwise valid arbitration clause. See Darrah v. Friendly Ice Cream. Moreover, where the condition precedent is contained in a dispute clause that does not require arbitration, failure to comply with the clause may lead to dismissal of the action. See MCC Develop. v. Perla. Of course, if a party fails to raise the adverse party’s noncompliance for an extended time and actively participates in the proceedings, courts have found waiver using the ordinary waiver analysis.
In the end, trying to settle a dispute early is certainly worthwhile and should be encour- aged where appropriate, but you should thoughtfully consider whether to contrac- tually require the process as a condition precedent to bringing a claim rather than making the decision after a dispute arises. If a party can and must be forced to negoti- ate, what are the chances of success? Given the potential pitfalls and disadvantages, it is prudent to carefully weigh during contract drafting whether including such requirements makes sense and is worth the risks. As always, a frank discussion with your client is the most practical course.
In the end, trying to settle a dispute early is certainly worthwhile and should be encouraged where appropriate, but you should thought- fully consider whether to contractually require the process as a condi- tion precedent to bringing a claim rather than making the decision after a dispute arises.
Assn. The New York Court of Appeals made the following pronouncement:
It is recognized that both conditions precedent to access to the arbitral forum (falling within the judicial ambit) and procedural regulations or conditions in the arbitration proceed- ings (falling to the arbitrator) may be verbally referred to indiscriminately as “conditions precedent” to arbitra- tion. Such loose description, however, obscures analysis and clarity. Whether the particular requirement falls within the jurisdiction of the courts or of the
to it, e.g., a requirement that before any demand for arbitration can be made the dispute between the parties be referred to the architect or to the part- nership—“conditions precedent” in the literal meaning of that term. Under the second heading will come provisions relating to the conduct of the arbitra- tion proceeding itself, i.e., requirements or conditions in arbitration, e.g., that the demand be made within a specified time, or be served in a specified manner or on specified persons. Beyond that it is to be remembered that inasmuch as the entire arbitration process is a
2017-0807-SS-ADR.indd 9
8/4/17 3:01 PM