In the event of unsuccessful challenges to the arbitration award or failure to comply with
the award, the prevailing party is ordinarily entitled to costs, including a reasonable
attorneys’ fee for having to compel arbitration or defend or enforce the award.
In the event a dispute shall arise between the parties to this contract, it is hereby agreed
that the dispute shall be referred to the American Arbitration Association for arbitration
in accordance with American Arbitration Association Rules of Arbitrations. The
arbitrator’s decision shall be final and binding and judgment shall be entered thereon.
WHEN IS ARBITRATION USED? Arbitration is used in many different
fields, and its use continues to
increase. Some contexts in which
parties commonly use arbitration
Consumer disputes, to resolve
disputes between consumers
and companies. Commercial contexts, to
resolve disputes between
companies. Employment and labor
disputes, to resolve disputes
between workers, or between
employers and employees.
Professional sports leagues, to
THE ABCS OF
Arbitration is a form of dispute resolution in which an arbitrator hears a dispute in a
private, court-like setting and then makes a final decision that binds the parties. The
parties select the arbitrator, who is often an
expert in the subject areas of the dispute. The
emphasis is on the equity of the situation and
not on the technicalities of the law. For these,
and many other reasons, arbitration can be a useful tool for resolving disputes. However, it
can also pose traps for the unwary.
First, it is important to understand the
difference between arbitration and other types
of alternative dispute resolution such as simple
negotiations and mediation. In negotiations, the
parties are in control of the process as well as the
outcome. In mediation, the mediator controls
the process, but the parties control the outcome.
Arbitration is a more formal process. The parties can set the parameters of the arbitration
before the hearing, but in the hearing it is the
arbitrator-not the parties-who controls both
the process and the outcome. Unlike negotiation
and mediation, in which the parties agree on a
solution in their mutual interest (or are free not
to reach agreement), an arbitrator’s decision is
valid regardless of whether or not it satisfies the parties. As a result, arbitration may be a
more adversarial process than mediation or
Disputes can end up in arbitration through a number of routes, some voluntary and some
required by a court order or previous agreement.
Arbitration is voluntary when two willing parties
agree to the process as a means of resolving their
dispute. This sometimes happens if the parties
have already tried negotiation and! or mediation
without success but are still looking for an
alternative to litigation. If you are thinking about
voluntarily going to arbitration, it can be helpful
to consider whether the dispute is primarily
about interests or about rights. If parties can
resolve their dispute by reaching a compromise
relating to their interests, then negotiation or
mediation probably is a more desirable option
than arbitration. However, if the parties believe
their legal rights are at stake in the dispute, then
arbitration is probably preferable.
Sometimes, a court may order parties to
participate in nonbinding arbitration prior to trial. This means that the parties are not legally bound to comply with the arbitrator’s
decision and may continue with litigation if they wish. Judges sometimes order parties
to arbitration because it will give each side a sense of the strength of its case.
Some disputes are required to go to arbitration based on an arbitration clause. These clauses, which are found in contracts, state that disputes over the contracted
matters must be resolved through arbitration. An arbitration clause might look
something like this:
Arbitrations arising under an arbitration agreement are usually binding, unless
otherwise provided in the arbitration clause. This means that the parties are legally
obliged to comply with the arbitrator’s decision and have very limited rights to appeal
the decision to a court.
If you have agreed to the terms of a credit
card, insurance policy, or bank loan, it is likely
that you have agreed to an arbitration clause.
Often the arbitration clause is included in the
fine print of an agreement. However, arbitration
clauses do not have to be part of your initial
agreement with a company. For example, credit
card companies may include in your monthly
statement an arbitration clause providing that
continued used of the credit card constitutes
agreement to the arbitration provisions.
Arbitration clauses can even be retroactive,
applying to disputes that arose before you
agreed to the arbitration clause.
Although you are generally bound by any
arbitration clause to which you agree, there
may be some ways to negotiate such an agreement. For example, you may be able to argue
that your case is not the type of dispute covered
by the arbitration clause. Or, you may be able to
argue that, because an arbitration clause gives one side a large advantage over the other, it is
so unfair (usually referred to as “unconscionable” in legal terms) as to be invalid. If
you think this is the case with an arbitration agreement you have entered into, talk
to your lawyer, who will be able to help you understand the agreement and your
options going forward.