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What are arbitration clauses?

On Behalf of | Jan 11, 2023 | Business Litigation

If you have read or skimmed through a business contract these days, the odds are that you have read a clause involving the term “arbitration.” Many people do not know what these mean and why they are in business contracts. Arbitration clauses serve a useful purpose in business, and they are becoming increasingly common.

What is arbitration?

Arbitration is one form of alternative dispute resolution. It is an alternative to litigation and a process in which the parties agree to solve their disputes outside of court and use an arbitrator of their choice.

What are some benefits of arbitration?

  • Arbitration is private. If your business goes to court, many of the documents that you or your attorneys will have to submit will become public. In many instances, this can threaten a company’s proprietary information.
  • Arbitration is cost-effective and much less expensive than litigation. It is faster, which means the dispute is resolved in less time, resulting in fewer fees and resources from the parties and their companies.
  • Arbitration is an effective way of preserving the relationship between the parties. Disagreements are expected and bound to happen. However, the parties do not have to take an adversarial stance against the other party. Keep in mind that maintaining business relationships can be beneficial and profitable.

Is arbitration suitable for all cases?

No. Sometimes litigation is the proper route to take. This is something you can decide with a legal professional based on your case and circumstances.

What is the process of arbitration like?

The parties come together before an arbitrator and state their claims. They also submit their evidence and testimony. The arbitrator reviews everything, and if the arbitrator is not an expert in a particular subject matter, they bring in an expert to assist.

After the arbitrator has evaluated both claims and understood the matter, they render an award to one of the parties. Arbitration is typically binding, meaning the losing party has no right to appeal the decision or go to court if they disagree absent exceptional circumstances.

There are many ways of solving conflict and arbitration is one of them. It is always a good idea to explore your options and understand how each method works, so you can choose the one that is best for you.