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It Takes Energy to Circumvent an Alternative Dispute Resolution Agreement

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  • Posted on: Jun 27 2016

Is it a breach of contract to bypass an agreed-upon, independent alternative dispute resolution (“ADR”) process and commence an arbitration proceeding elsewhere?

When two companies enter into a contract, it’s common to include language wherein both parties consent to having any disputes related to the contract decided by an agreed-upon, neutral third party, rather than by a judge in a lengthy, formal court proceeding. The process of ADR– which may be by arbitration or mediation– is generally a faster, less formal, and less expensive way to resolve a contractual dispute than commencing a lawsuit for breach of contract.

In mediation, an independent facilitator merely assists the parties in an attempt to resolve their dispute without the need for a formal arbitration or court proceeding. A mediator does not render a decision and the parties are free to resolve their dispute as they choose. Conversely, an arbitrator hears both sides of the dispute, reviews evidence, and renders a decision–much like a judge. The parties may or may not be bound by the arbitrator’s decision, depending on the terms of the ADR language in the agreement.

But what happens when one of the parties bypasses the agreed-upon independent firm chosen for dispute resolution and commences an arbitration proceeding elsewhere?

This issue is at the heart of a dispute between American industrial giant General Electric Co. (“GE”) and Alstom, a French rail transport company, regarding a contract under which Alstom purchased GE’s rail-switching system. The rail-switching system transaction occurred simultaneously with GE’s acquisition of Alstom’s energy business.

Rather than submitting the $800 million purchase price adjustment dispute to the agreed-upon independent Deloitte accounting firm, GE instead filed an arbitration proceeding with the International Chamber of Commerce business group. In response and claiming unspecified damages, Alstom filed suit in U.S. District Court in Manhattan in May, 2016 to have the proceeding dismissed and the matter remanded to Deloitte for review and a decision.

The case is titled Alstom et al. v. General Electric Co., U.S. District Court, Southern District of New York, No. 16-03568.

There are many factors to consider in determining whether alternative dispute resolution is beneficial in a business contract, and if so, whether mediation or arbitration is the better option for your business’ needs and goals. Consulting a business law and litigation attorney with ADR experience is advisable for all your business transactions.

Freiberger Haber LLP in New York City is experienced in business law and litigation and handles all aspects of business transactions, including contract negotiations and preparation, asset purchase agreements, mergers, and acquisitions. In addition, the practice handles dispute resolution through ADR as well as complex business litigation. Contact the firm today at (212) 209-1005 or online here.

 

 

 

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