Mandatory arbitration arises from a state law or by agreement by the parties to resolve all disputes in arbitration, without knowing in advance, specifically, what disputes will occur.
Binding arbitration means that the award by the arbitrator is complete and final; the parties are bound by the determination of the arbitrator(s).
Non-binding arbitration occurs procedurally the same as a standard binding arbitration, except that the arbitrator’s determination of liability and award is not final, and each party retains its rights to file claims before another arbitration tribunal or the courts. The award is an independent evaluation of the strengths and weaknesses of each party’s claims and defenses, and is intended to facilitate a settlement out of court.
In certain circumstances, however, state law may convert a non-binding arbitration award into a binding decision, for instance, where, the non-binding arbitration is ordered by a court, and neither party requests a new trial. Non-binding arbitration may appear, on initial impression, similar to another ADR process, mediation. However, mediation is distinguishable from arbitration because a mediator will actively assist the parties in facilitating a binding settlement agreement, whereas, the (non-binding) arbitrator is separate from the resolution process and functions only to determine liability and damages.
What are the Advantages
of Arbitration?
There are a number of reasons parties to a contract may wish to choose arbitration as a method of dispute resolution in lieu of trial.
1. If the subject matter of a contract is highly complex, a patent, or a technical matter, you can choose an arbitrator who has technical or otherwise special knowledge. Most judges hear any matter that comes before their courts, and may not have technical knowledge or specific familiarity with the subject matter of your dispute.
2. Arbitration can be a less expensive way of resolving disputes than using the court system.
3. Arbitration is typically a faster process than litigation. The average time from filing to decision is much shorter using arbitration as compared to the court system which frequently can take 18 months to 3 years for judicial resolution, not including rights of appeal.
4. Arbitration is a more flexible procedure. Often it can be scheduled around the needs of the parties, as opposed to the schedule of a judge. It can even be scheduled evenings and weekends in some cases.
5. Arbitration has simplified rules of evidence and procedure; consequently, a private decision maker is more likely to make a decision based on what is fair rather than a technical legal procedural issue.
6. Finally, arbitration can be less hostile than litigation. The parties are encouraged to participate and this often leads to a more peaceful resolution.
|
|
What are the Disadvantages
of Arbitration?
Despite the many potential advantages of the arbitration process for commercial dispute resolution; certain aspects of arbitration can be perceived as disadvantageous depending on your goals and circumstances. Let’s take a look at some below.
1. Although the simplified rules of evidence and procedure in arbitration can speed up the resolution process, there is no automatic right to discovery (the judicial process by which a party must disclose information to the other party in litigation). Certain procedural motions are unavailable in arbitration. For example, there is no summary judgment—a case cannot be thrown out on procedural grounds or a lack of merit.
2. The initial arbitration filing fees generally exceed the cost to commence litigation.
3. The arbitration decisions themselves are less transparent. The decisions are not publicly accessible, which could result in a biased or otherwise unfair decision, and are rarely reviewed by the courts.
4. Many national arbitration associations actively market to companies that issue credit cards or sell consumers goods, creating a potential conflict of interest or an arbitration process biased against the individual or small company.
5. Perhaps the most significant disadvantage of arbitration is the inability to appeal an arbitrator’s decision. There is frequently no recourse in arbitration to reverse an unfair or inequitable decision. In contrast, many judicial decisions are overturned on appeal.
Should You Choose Arbitration?
Whether arbitration is right for you and should be a standard clause in your commercial agreements depends on the specific needs of your business, the likelihood of claims against you, your access to legal counsel and other concerns as discussed in this article.
Arbitration provisions can be negotiated. You can tailor arbitration clauses to allow discovery and to attempt to have the arbitrator follow certain procedural rules.
Certain perceived disadvantages of arbitration may in fact be advantageous in your circumstance. For example, the non-appealability of an arbitration award provides a certainty to the decision and prevents the parties from engaging in protracted litigation which may be a benefit to your business by limiting the resources expended to resolve disputes.
Finally, you should always consult a qualified attorney to evaluate whether arbitration clauses should be included in your business agreements, when negotiating and tailoring those provisions to meet your needs and for legal representation in arbitration proceedings. You only have one chance to win at arbitration, and a knowledgeable attorney will increase your odds of prevailing.
|
| Commercial contracts should contain certain provisions in almost all instances. Some of the most common clauses are explained below.
Severability: Even if one or more of the clauses in a contract are deemed unenforceable by a court (such as an overly broad non-compete clause in an employment agreement), the court could “sever” that clause from the rest of the contract, and find the remainder of the contract still valid and enforceable instead of voiding the entire agreement.
Choice of Law and Forum: What state laws will be used to interpret the contract or govern any dispute arising from the agreement, and just as importantly, where is any dispute to be heard? If you are forming a contract with another party who resides out of state you must consider the cost and time to litigate outside of your local jurisdiction; and negotiate this provision accordingly.
Damages: The parties can agree in advance that a certain sum of money will be the “liquidated damages” in the event of a breach of contract. A liquidated damages clause eliminates the non-breaching party’s obligation to prove actual damages and can greatly simplify the dispute resolution process. However, a liquidated damages clause must satisfy certain legal criteria to be enforceable; (1) the harm caused by the breach must be either “uncertain” or “difficult to quantify”; (2) the damages are reasonable in consideration of the injury caused; and (3) the damages are not a penalty.
Time is of the Essence: Any delay in performing the terms of the contract would be a material breach.
Attorneys’ Fees: The losing party in a dispute pays both sides’ attorneys’ fees.
Indemnification: One party agrees to hold another party harmless in the event of future legal claims.
7 Common Mistakes in Business Contracts You Don’t Want to Make!
Business contracts often contain detailed and specific language and legal terms unfamiliar to many business owners or other key employees signing agreements. It is easy to make mistakes which may lead to unnecessary litigation or arbitration.
|
|
There have been numerous court cases arising from unclear written agreements containing an improper conjunction, using “and” instead of “or.” The words selected in a contract can have dramatic impact upon the meaning and enforceability of the agreement.
Below are seven critical considerations for you to evaluate your existing and future business contracts:
1. Your contracts should be consistent in wording. Terms used repeatedly should be carefully defined within the contract. Your contract should use plain English, as much as possible, instead of confusing legalese.
2. The terms of your contracts should be specific and not ambiguous, preventing the need for interpretation by the other party, or by a court or arbitrator.
3. Your contracts should be drafted carefully and must identify the parties, the date that the contract is both effective and the date the contract terminates.
4. Your contracts may name the amount of damages to be assigned should either party fail to complete the terms of the contract.
5. Your contracts should state an agreed upon method for resolving disputes. You should evaluate whether you prefer binding or non-binding arbitration or prefer the courts to have jurisdiction over any disputes.
6. All reasonably foreseeable contingencies must be addressed within your contracts. Any potential event that remains unaddressed could create uncertainty in the event the contract must be enforced. Your contract should be specific in all of its material terms.
7. Your contracts should be kept up to date and consistent with changes in existing law, and the needs of your growing or changing business. It is short-sided to not have a qualified attorney review or draft your business contracts. The cost of professional advice and legal counsel can save you much more by preventing expensive litigation down the road.
Matthew L. Kabak has been providing contract drafting, arbitration and business litigation counsel to Bay Area companies and entrepreneurs for over a decade, serving San Francisco, San Jose, Oakland and the Peninsula.
|
As the winter holidays approach, I want to extend a thank-you.
