Many contracts have arbitration clauses in them. It is important to understand what these clauses are and what they mean for you if you need to seek legal action related to the contract.
What is an arbitration clause?
It is a clause in a contract that requires the parties to the contract to resolve disputes through arbitration. These clauses are quite common in contracts as a result of the judicial system’s increased emphasis on alternative dispute resolution. Many clauses specify the state or national law that will be used during arbitration and the location where the arbitration will be conducted.
How does arbitration work?
Arbitration begins when one party makes a demand for arbitration under the contract. Arbitration may be conducted using a group like the American Arbitration Association (AAA), but many arbitration agreements allow the parties to pick independent arbitrators. Arbitration may be conducted in front of a single arbitrator or a panel of arbitrators.
A panel is usually made up of three arbitrators. The arbitrator or panel will schedule an initial session in which the guidelines and procedures are discussed among the arbitrators and the parties. Matters discussed may include whether and how many live witnesses will be called to testify and the scope of any document exchange necessary to allow each party to tell its side of the story. Once the schedule is established, the parties may conduct discovery in order to uncover the facts of the case. During discovery, the parties will exchange information and each side will determine what evidence is will present at the final hearing.
At the final hearing, which can last a single day or go on for more than a week, both sides present testimony and evidence so that the arbitrator or panel can make its decision. This is usually the only formal hearing in the process, unless the case is very complex. After the hearing, both parties may have the right to submit more information, if allowed or requested by the panel or arbitrator. After receiving all the information and hearing the testimony, the arbitrator will issue a decision, which may include an award of monetary damages, if applicable.
Arbitration vs mediation
Mediation differs from arbitration, in that mediation generally is a voluntary process that involves a third party mediator whose job is to attempt to bring the parties together in some form of settlement. While a settlement reached at mediation is binding on the parties, the mediator does not make any decisions or “rulings,” and the mediator cannot force the parties to settle. The mediator simply facilitates an open dialogue between the parties and helps them to recognize the strengths and weaknesses of each side of the case. Mediation is completely confidential. If the parties do not come to an agreement at mediation, nothing said during the mediation can be used if the case later goes to trial or arbitration..
Arbitration is very different. The arbitrator or panel hands down decisions, much like a judge. The arbitrator hears both sides of the dispute and comes to a decision based on the evidence presented. Their decision is final and binding on the parties. There is a very limited ability to appeal the decisions handed down in arbitration. Usually, in order to appeal, a party must show that an arbitrator was improperly influenced by the opposing party, or had some connection with the opposing party that was not disclosed..
What are the cost factors involved with arbitration?
The arbitrator will likely charge an hourly rate for his or her services. There is time spent on pre-hearing meetings, document review, the hearing itself, and any time spent writing up the final decision. There may be additional costs for the arbitration venue and the expenses of bringing forward expert witnesses.
The parties need to have competent legal counsel representing them throughout the arbitration process. Although arbitration is generally more efficient than going to court, depending upon the terms of the arbitration agreement, it also can get rather expensive. For instance, depending upon the terms of the arbitration agreement, the parties may have to travel to attend the arbitration. That may also increase the cost of bringing witnesses to the venue as well, or require that the parties take video depositions of witnesses so that their testimony can be presented at the final hearing.
Should I consult a lawyer about an arbitration agreement or arbitration clause contained within a contract?
If you have questions about an arbitration clause or need representation in an arbitration, contact the Amarillo law firm of Stockard, Johnston, Brown, Netardus & Doyle, P.C.. Our business law attorneys can help guide you through the process.