Arbitration Clauses
When I prepare commercial agreements, I draw from precedents – either from legal software, a colleague or my own repository, developed over 26 years of practice.
Well drafted Agreements address dispute resolution – what happens when the parties have their differences? In the absence of a dispute resolution clause, the parties will negotiate their differences against the backdrop of court.
Court is uncertain, expensive and, in some instances, unhelpful. The judge hearing the matter may lack specialized knowledge and may have practiced, prior to judicial appointment, in another area of law.
The parties can contract out of court and insert an arbitration clause in their Agreements. Arbitration contemplates the appointment of a neutral third party to adjudicate the dispute. The Agreement can identify a specific individual, an individual from a certain firm or governing body or an individual with certain expertise. It can contemplate the appointment of a panel, consisting of three arbitrators, although in my experience the additional cost and complexity is rarely warranted. It can provide for a party to commence a court application for a judge to appoint an arbitrator failing agreement between or among the parties as to who that person should be.
Arbitration is typically quicker than court, has the benefit of industry-specific expertise and, in most circumstances, is less costly.
Typically, the clause will provide for the finality of arbitral awards, with no right of appeal. Contrast this with court, where there could be multiple rounds of appeal.
Arbitration also affords privacy, whereas, absent a sealing order, court proceedings are a matter of public record, thereby exposing a business’ trade secrets, pricing and other confidential information to potential competitors.
Not every Agreement needs an arbitration clause, but, for the reasons set out above, many do.
I have drafted and reviewed many over the years and would be happy to advise as to when one might be warranted and what considerations should be kept in mind in preparing it.
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Disclaimer: This article is for informational purposes only and does not provide legal advice, nor does it create a solicitor-client relationship with you or any other reader.
