The Four Keys of Small Business Contract Arbitration
.
4. Arbitration Clauses Need to be Drafted with Care
Arbitration provisions need to be drafted with care.
For instance, arbitration provisions that fail to provide that a state arbitration statute applies will result in the application of the Federal Arbitration Act, which could lead to different results.
Likewise, if an arbitration provision does not explicitly provide that the arbitrator has the authority to determine its own jurisdiction, claims challenging the enforceability of an arbitration clause can end up involving court proceedings to determine the scope of the arbitrator’s authority to determine that issue.
Arbitration clauses have also been found that fail to include the substantive law to be applied as well as the identity of the arbitration forum charged with adjudicating the dispute. Such drafting failures can spawn a level of wasteful litigation that can make arbitrations inefficient as well as extremely expensive.
The Take Away.
- Parties to an agreement should consider how disputes between or among them should be resolved;
- Arbitration is a very common alternative to court room litigation, but, like with everything, it has positive and negative attributes;
- When acceding to an arbitration clause, the parties should consider carefully how the provision is drafted to avoid unnecessary controversy over its application and the arbitrator’s scope of authority.
Related articles:
Contracts Part V: 7 Unique Features of Distribution Contracts
Supplier Contracts- What Small Business Owners Need to Know
Contracts Part III: The Role of Legalese in Contract Drafting
