LinkedIn Series Chapter 8: Arbitration

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January 21, 2014
Jack Walsh
SmithAmundsen

Authors

Ask anyone, even a litigator - they will tell you litigation is bad. In reaction to the litigation is bad mantra, many drafters of contracts will insert arbitration clauses. Arbitration can cure many of the ills of litigation. Arbitration can be less expensive; arbitration can be quicker; and arbitration can lead to a better result through the use of a knowledgeable decision maker. Arbitration can also be a nightmare which makes even the most expensive, slowest litigation before the least knowledgeable judge or jury seem like a pleasant alternative.

In arbitration, an arbitrator decides how the facts and the law work together to cause one side to win or lose. The arbitrator can be anyone selected by the parties. In arbitration, any rules to which the parties both agree can apply. What makes arbitration a very good thing is the ability of parties to an arbitration agreement to craft a solution which fits the particular dispute perfectly. Litigation is designed to be inherently flexible so that it will give a good result in the largest number of cases. The aspects of litigation that people find offensive are sometimes the result of the fact that one size does not fit all.

In a Standard Terms and Conditions world, the winner of the acceptance contest gets their version of the arbitration clause. Different arbitration clauses can lead to very different arbitrations. What’s scarier, is that if both parties have conflicting arbitration clauses and the offer/acceptance war is a draw (as it often is), instead of dropping the clause out of the courts may order arbitration without guidance as to the rules to be followed. This is the same result as if the parties used a simple arbitration clause without giving any guidance to the arbitrator. Left without any agreed to rules, arbitration becomes an unguided missile which sometimes helps one side, sometimes helps the other, and sometimes helps no one at all. In a negotiated contract, this clause should but often isn’t given significant thought.