“We have an arbitration agreement, so what are we doing in court?”
Arbitrations offer alternatives to traditional litigation. A five-year study of federal court litigation in 10 states found that lawsuits lasted a year or more than arbitration proceedings. The survey found the associated litigation delays caused direct business losses exceeding $10 billion.
IntroductionArbitrations offer alternatives to traditional litigation. A five-year study of federal court litigation in 10 states found that lawsuits lasted a year or more than arbitration proceedings. The survey found the associated litigation delays caused direct business losses exceeding $10 billion.
Delay in dispute resolution is bad for business. It also is frustrating when parties who contracted to resolve their disputes by arbitration experience delays resulting from judicial intervention in the arbitral process. While no arbitration agreement can prevent the filing of unmeritorious litigation clients should avoid using boilerplate arbitration provisions that can cause lengthy litigation.
Failing to clearly define the scope of the arbitration agreement.The arbitration agreement should clarify whether its scope is narrow or whether it broadly applies to all disputes or controversies arising out of or related to the relationship between the parties. It should provide that objections to the validity of the arbitration agreement or the underlying contract will be resolved by arbitration.
Failing to define the extent of the arbitrator's authority.The arbitration agreement should give the arbitrator the express and sole authority to determine "arbitrability" issues involving preconditions to arbitration, and enforceability of the underlying arbitration agreement. It also should make clear the arbitrator has broad authority to award damages, injunctive relief, and other equitable remedies, and assess fees, costs, and sanctions.
Drafting a unilateral or unfair agreement.One of the quickest ways to transform arbitration into a lawsuit is to draft a procedurally or substantively unconscionable agreement. The agreement should be clearly worded and fairly drafted so that it is commercially reasonable and not one-sided.
Allowing inconsistencies between the provisions of the arbitration agreement and other contract docuLitigation often arises because boilerplate arbitration agreements are used without realizing that their provisions are inconsistent with the terms of the underlying agreement. Clients must beware of conflicting provisions.
Ideally, a well-drafted arbitration agreement will allow clients to more efficiently and cost-effectively manage the resolution of their disputes. Such agreements may limit discovery and contain other guidelines for a fair but expeditious process tailored to a particular transactional client's needs. Most importantly, arbitration agreements should avoid rather than result in litigation.