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In the event of unsuccessful challenges to the arbitration award or failure to comply with the award, the prevailing party is ordinarily entitled to costs, including a reasonable attorneys’ fee for having to compel arbitration or defend or enforce the award.
In the event a dispute shall arise between the parties to this contract, it is hereby agreed that the dispute shall be referred to the American Arbitration Association for arbitration in accordance with American Arbitration Association Rules of Arbitrations. The arbitrator’s decision shall be final and binding and judgment shall be entered thereon.
WHEN IS ARBITRATION USED? Arbitration is used in many different fields, and its use continues to increase. Some contexts in which parties commonly use arbitration include:
Consumer disputes, to resolve disputes between consumers and companies. Commercial contexts, to resolve disputes between companies. Employment and labor disputes, to resolve disputes between workers, or between employers and employees.
Professional sports leagues, to resolve disputes.
THE ABCS OF ARBITRATION
Arbitration is a form of dispute resolution in which an arbitrator hears a dispute in a private, court-like setting and then makes a final decision that binds the parties. The parties select the arbitrator, who is often an expert in the subject areas of the dispute. The emphasis is on the equity of the situation and not on the technicalities of the law. For these, and many other reasons, arbitration can be a useful tool for resolving disputes. However, it can also pose traps for the unwary.
First, it is important to understand the difference between arbitration and other types of alternative dispute resolution such as simple negotiations and mediation. In negotiations, the parties are in control of the process as well as the outcome. In mediation, the mediator controls the process, but the parties control the outcome. Arbitration is a more formal process. The parties can set the parameters of the arbitration before the hearing, but in the hearing it is the arbitrator-not the parties-who controls both the process and the outcome. Unlike negotiation and mediation, in which the parties agree on a solution in their mutual interest (or are free not to reach agreement), an arbitrator’s decision is valid regardless of whether or not it satisfies the parties. As a result, arbitration may be a more adversarial process than mediation or negotiation.
Disputes can end up in arbitration through a number of routes, some voluntary and some required by a court order or previous agreement. Arbitration is voluntary when two willing parties agree to the process as a means of resolving their dispute. This sometimes happens if the parties have already tried negotiation and! or mediation without success but are still looking for an alternative to litigation. If you are thinking about voluntarily going to arbitration, it can be helpful to consider whether the dispute is primarily about interests or about rights. If parties can resolve their dispute by reaching a compromise relating to their interests, then negotiation or mediation probably is a more desirable option than arbitration. However, if the parties believe their legal rights are at stake in the dispute, then arbitration is probably preferable.
Sometimes, a court may order parties to participate in nonbinding arbitration prior to trial. This means that the parties are not legally bound to comply with the arbitrator’s decision and may continue with litigation if they wish. Judges sometimes order parties to arbitration because it will give each side a sense of the strength of its case.
Some disputes are required to go to arbitration based on an arbitration clause. These clauses, which are found in contracts, state that disputes over the contracted matters must be resolved through arbitration. An arbitration clause might look something like this:
Arbitrations arising under an arbitration agreement are usually binding, unless otherwise provided in the arbitration clause. This means that the parties are legally obliged to comply with the arbitrator’s decision and have very limited rights to appeal the decision to a court.
If you have agreed to the terms of a credit card, insurance policy, or bank loan, it is likely that you have agreed to an arbitration clause. Often the arbitration clause is included in the fine print of an agreement. However, arbitration clauses do not have to be part of your initial agreement with a company. For example, credit card companies may include in your monthly statement an arbitration clause providing that continued used of the credit card constitutes agreement to the arbitration provisions. Arbitration clauses can even be retroactive, applying to disputes that arose before you agreed to the arbitration clause.
Although you are generally bound by any arbitration clause to which you agree, there may be some ways to negotiate such an agreement. For example, you may be able to argue that your case is not the type of dispute covered by the arbitration clause. Or, you may be able to argue that, because an arbitration clause gives one side a large advantage over the other, it is so unfair (usually referred to as “unconscionable” in legal terms) as to be invalid. If you think this is the case with an arbitration agreement you have entered into, talk to your lawyer, who will be able to help you understand the agreement and your options going forward.