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Consider an Alternative

March 9, 2009

It is becoming very common for contracts to contain a clause stating that “Any and all disputes arising under this contract will be settled by arbitration.” Arbitration is simply an agreement between parties that their disputes will be settled through arbitration rather than in court. Arbitration is favored by federal and state courts as a form of “Alternative Dispute Resolution” (ADR) and is one of the fastest growing means of settling disputes. The dispute is submitted to a private, non-judicial person who often has practical knowledge of the matter in dispute.

Arbitration has many similarities to a court case, but there are also some significant differences. For instance, unless granted by court order, there is no pre-trial discovery before arbitration. In addition, Arbitrators are prohibited from awarding punitive damages. Other important considerations are that arbitrators do not have to follow the rules of evidence and an arbitrator’s misinterpretation of the facts does not provide a basis to overturn the verdict. In fact, Courts are given a very narrow power to review an arbitrator’s award. An award will not be disturbed by the court except under certain limited circumstances, such as where the court finds fraud, unfair bias, irrationality, or where the court finds that the arbitrator exceeded her authority.

To determine whether it is appropriate to use an arbitration clause, it is best to consult with an attorney. Arbitration may, in some circumstances, provide an efficient means of resolving a dispute, such as where the parties desire a prompt, binding resolution. However, the facts and circumstances of each case are different and it may be more appropriate to use the formal litigation process where multiple parties are involved, where the issues are highly contested, or where the parties want to preserve their rights to appeal.

Seeking practical advice from an experienced attorney before submitting to arbitration will ensure that your interests are well protected.