To Arbitrate or Not to Arbitrate?

Arbitration clauses are often included in contracts without full understanding or based on assumptions that may not be true.

In fact, it can take as long or longer to get to arbitration as it can to get to trial. It can cost as much or more to arbitrate than to try a case. Arbitrators are not required to follow the evidence code or the substantive law, they tend to grant dispositive motions even less often than judges, and arbitration awards are generally not appealable.

Still, there may be good reasons to arbitrate. Arbitrators will generally enforce the parties’ agreement on procedural issues. Arbitration proceedings and awards are generally not public, and generally don’t create negative precedent. While there is the risk of an “incorrect” award being final, there is the benefit of the dispute coming to an end. A party may consider arbitration if it is concerned about a risk of jury bias. And for international business transactions, arbitration provisions can provide a known and neutral forum for dispute resolution.

If arbitration is the choice, parties and counsel should consider explicitly addressing a number of issues in the arbitration agreement. These include enforceability; the arbitration service provider to be used; which rules will apply; how many arbitrators there will be; who will select them and what qualifications they should have; and whether the award will be appealable – and, if so, on what grounds and to what body.