A three step dispute resolution mechanism which moved from informal negotiation to mediation to binding arbitration, was questioned as being prohibitively expensive for a county when compared to the resources of the counterparty corporation.

The article considers the Lake DeSmet operating agreement between Johnson County and Sasol Synfuels International, Inc., co-owners of the lake’s water storage rights. According to the operation and maintenance contract proposed by Sasol, any breach between the commissioners and Sasol takes three steps to resolve.

The first step is an informal negotiation between the lawyers. If that doesn’t work, the dispute moves into a non-binding mediation where the two parties appoint an agreed-upon mediator to resolve the dispute. If that fails, the parties must submit to binding arbitration. The county commissioners expressed concern at the cost of the arbitrators, and the length of time required to resolve disputes under the proposed mechanism. A decision was made to renegotiate the terms of the dispute resolution mechanism.

Read the article here.

Takeaway:

• When designing dispute resolution mechanisms, parties should consider the likely cost of implementing these mechanisms.