Pros and Cons of Arbitration Clauses in Contracts

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Pros and Cons of Arbitration Clauses in Contracts

Long before any potential dispute arises, whether that dispute will be litigated or arbitrated is usually already decided in the language of a business contract. The inclusion of arbitration agreements or clauses is commonplace today; however, when drafting a contract, careful consideration should be given to both the pros and cons of arbitration.

Pros of arbitration

Arbitrator selection process. When disputes are litigated, neither party has a voice in choosing the judge to preside over the case. When it comes to arbitration, both parties can participate in the selection of an arbitrator or panel of arbitrators with the benefit of background information on candidates provided in advance. From a strategic standpoint, it can be advantageous to be able to discern an arbitrator’s approach to the process beforehand — a benefit that is not available with traditional litigation.

Faster process. The rules of civil procedure inside a courtroom are vastly different than those in arbitration, so that arbitration is often more expedient. The discovery process in litigation can be very time consuming; discovery in arbitration may be limited by the arbitrator, arbitration rules, or even by the parties themselves if spelled out beforehand in the arbitration agreement. The arbitrator may also impose limitations on motion practice, further compressing the timeline.

Less costly. Less time spent on discovery and motions usually equates to significantly lower legal costs for both parties in an arbitrated dispute.

Private. Arbitration hearings are held in private with only the parties to the arbitration agreement in attendance. If a confidentiality provision is included in the arbitration agreement, the results of the arbitration can also remain private.

Cons of arbitration

Process limitations. When discovery is limited –as it usually is in arbitration — it can prevent attorneys from either side from obtaining what may be helpful evidence supporting their case.

No appeals process. Once the arbitrator renders a decision, there are very limited grounds on which to appeal that decision. A court may vacate an arbitration award only if (1) the award was procured by corruption, fraud, or other undue means; (2) the arbitrator was partial, corrupt, or engaged in conduct that prejudiced the rights of one party; (3) the arbitration hearing was conducted contrary to Arizona Revised Statutes section 12-3015 so as to prejudice the rights of a party to the arbitration proceeding; (4) an arbitrator exceeded his or her powers; (5) there was no agreement to arbitrate; or (6) the arbitration was conducted without proper notice.

Not bound by law. Unlike litigation, a party to arbitration may not appeal an award based on errors of law by the arbitrator. Therefore, recourse is limited if one party believes the arbitrator deviated from the language of the contract.

Williams Mestaz, L.L.P., has the experience and reputation that you want when you are dealing with a business-related lawsuit. We are here to obtain the best possible outcome for your situation. Do not hesitate to contact Williams Mestaz, L.L.P., at (602) 256-9400, and see how we can help you resolve your legal matter.

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