When entering into a contract, you may come across a clause that mentions arbitration. Arbitration is an alternate dispute resolution method where the parties agree to have their dispute resolved by a third-party decision-maker. Let’s explore the benefits and considerations of arbitration clauses in contracts, so you can make informed decisions.
Benefits
Tailored Dispute Resolution
Arbitration allows you to choose the right neutral party who possesses the necessary expertise and can deliver a fair decision. You have more control over the selection process, ensuring that your dispute is handled by professionals familiar with the subject matter.
Time and Cost Efficiency
Arbitration proceedings typically require less time and money compared to litigation. The relaxed rules of evidence and procedure make it easier to present your case. Additionally, arbitration can be scheduled and concluded more quickly and conveniently than court trials, saving you valuable resources.
Confidentiality
Arbitration proceedings are often private and conducted without public scrutiny. Sworn testimonies and other confidential information remain undisclosed unless both parties agree otherwise. This confidentiality helps protect sensitive business information and maintains privacy.
Considerations
While arbitration offers numerous benefits, there are also certain considerations to keep in mind before including arbitration clauses in contracts.
Limited Recourse
Once an arbitration decision is made, there is generally no right to appeal or vacate the award, even if a gross mistake has occurred. Therefore, it is crucial to carefully consider the potential implications of binding arbitration before committing to it.
Arbitrator’s Discretion
Arbitrators, like judges and juries, have the power to make arbitrary decisions. Their subjective interpretations can influence the outcome of your dispute. Lack of accountability and limited grounds for overturning an arbitrator’s decision may present challenges.
Discovery Challenges
Obtaining relevant information and evidence can be more difficult when you have arbitration clauses in contracts compared to the court system, especially if the opposing party is uncooperative. Tailoring clear rules for discovery in the arbitration agreement is essential but may not completely eliminate potential challenges.
Procedural Safeguards
Arbitration proceedings lack some procedural safeguards found in the civil court system. Without the structure and oversight of the court, it can be challenging to control unethical behavior or improper conduct by the opposing party.
Learn More
Arbitration can provide numerous benefits. However, it is essential to consider the possible consequences of arbitration clauses in contracts. Carefully evaluate these factors with the guidance of Craig, Terrill, Hamm, Grossman & Erwin, LLP. We will help you determine whether arbitration is the right choice for your contracts.
