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Should Your Agreements Contain an Arbitration Provision?

April 8, 2016

Arbitration Provisions

Arbitration is a method of resolving disputes privately, outside of court. Businesses often include an arbitration clause in their agreements, thinking it is the preferred method to resolve a dispute; however, that may not be the case.

An arbitration provision requires the parties to submit contract disputes to arbitration instead of filing a lawsuit.

In some cases, arbitration can be quicker and less expensive than litigation.  In other cases, arbitration can take just as long as litigation, and cost the same if not more due to the high filing fees and fees associated with paying the arbitrator his/her hourly rate, along with having to pay your own lawyer.

For some, it is a way to have your disputes resolved by an individual that specializes in a particular field.  On the other hand, parties in lawsuits cannot pick their judge, while parties in arbitration proceedings typically have input in selecting the arbitrator who will decide the disputed question. When an agreement concerns a highly technical subject, arbitration gives parties a chance to select an arbitrator who has relevant expertise. Judges in civil actions, on the other hand, usually have no special knowledge of technical matters, and for example, they may have substantial experience in unrelated areas of law, such as criminal or family law.

Given some of these advantages, arbitration may be the preferred method of resolving contract disputes when the matter can be quickly heard in a proceeding. For agreements made in Florida, an arbitration clause will typically state that all claims and disputes “arising under or relating to” the agreement must be settled by binding arbitration pursuant to Florida law.

Should your agreements contain an arbitration provision? There is no blanket answer to that question and the answer depends on many factors, including the nature of your business and the relief you may need to seek if a dispute arises.  For instance, a business that may need immediate injunctive relief, may want to exclude the remedy from arbitration, or simply avoid including an arbitration clause altogether.  Every clause in every business agreement must be analyzed in terms of the costs and benefits that result from its inclusion in the contract. Arbitration clauses are no different. Your business lawyer might recommend that you include an arbitration clause in some agreements but not in others.
 

Arbitration Or Litigation?

An arbitration clause may be essential if you are making an agreement with a business in another country. Rarely will an American business want to have contract disputes decided in the courts of another nation. Arbitration clauses assure that disputes are resolved by applying clear and familiar rules in a forum that both parties have agreed upon.

If you want to keep your dispute from being scrutinized in public, arbitration offers more assurances of privacy and confidentiality than litigation. If privacy would be a more important concern to the other party, you might not want an arbitration clause, because the threat of public litigation might improve your ability to settle a dispute on favorable terms.

Final and binding arbitration decisions are not easily challenged or appealed, so arbitration offers the benefits of finality and certainty.  Although most arbitrations can be appealed, due to language that may be in the arbitration clause, arbitration decisions are usually final barring some egregious unfairness in the process.  That can be helpful if you are worried about becoming embroiled in a lawsuit that never seems to end. In some cases, however, you might want the option of appealing an adverse decision. In those cases, you would want to opt for litigation rather than arbitration.
 

Consider All The Facts

You will need to give some thought to whether arbitration or a court is the best forum for resolving disputes that might arise concerning the agreement. For example, if you are concerned that the other party might fail to perform the agreement and that the breach of performance will expose you to significant losses, you might want to retain the ability to sue the other party in court. A litigation environment might improve your ability to negotiate a larger settlement or seek a greater recovery.

Whether your agreements should contain an arbitration provision depends upon the nature of the agreement, the scope and type of your business, the kind of disputes that may need to be resolved, your goal in making the agreement, your relationship with the other party, and many other factors. You should discuss all of those facts with your business attorney before deciding whether any particular agreement should include an arbitration provision.

The business attorneys at Marshall Socarras Grant, P.L. commonly handle both complex litigation cases, as well as arbitration as a dispute resolution. To speak with one of our experienced attorneys, please contact info@msglaw.com or 561-361-1000.

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