Parties to a contract may prefer to include an arbitration clause in their agreement or decide to draft an arbitration agreement as an addendum to their contract. Arbitration is an alternative to litigating in court and is used primarily to resolve business disputes. For example, employers are trending towards using arbitration provisions in employment agreements to resolve employment disputes more efficiently.
Advantages of Arbitrating a Contract Dispute
Depending on the nature of your dispute and your position in the dispute, arbitration may or may not be more efficient than litigation. Sometimes parties will prefer to litigate, particularly in multiparty disputes where a party may want to create binding precedent if they fear future disputes of similar nature, but resolving your contract disputes through arbitration can present a more predictable approach to the risks of contracting.
Here are some typical advantages to resolving your dispute through arbitration instead of litigation. Consult your attorney for the advantages and disadvantages as they apply to your case.
Neutral forum. Arbitration can be particularly attractive if the parties are from different jurisdictions since generally one party enjoys “home field advantage” in litigation. Arbitration allows the parties to pick the venue and make the forum equally accessible.
Neutral decision maker. The “judge” in arbitration can be one arbitrator or a panel of arbitrators that the parties agree upon. A neutral forum and neutral decision-maker go hand in hand and therefore arbitration ensures an additional layer of neutrality. Moreover, arbitration can negate the risk of having a judge unfamiliar with your industry decide important matters in your case. If your business is highly technical, arbitration gives the parties the ability to select an arbitrator with relevant expertise who will be adept at deciding the matter.
Rule selection. The parties can negotiate in their governing contract what substantive and procedural rules apply thereby circumventing the inflexible rules of civil procedure in court proceedings. Selecting applicable rules can be particularly helpful in mitigating an extensive and costly discovery process because evidentiary rules can be agreed upon in advance.
Confidentiality and publicity concerns. Litigation can negatively affect business reputation. Anyone with a computer will be able to observe coverage of your dispute. Arbitration secludes your matter away from the public eye. Litigation pleadings are generally available to the public whereas in arbitration all document exchange can be restricted to the parties and one or more arbitrators. Consult with your attorney on how confidentiality clauses can be drafted within your arbitration proceedings.
Limited appeals. A court judgment can be appealed at various levels and the appeals process can drag on for years while an arbitrator’s decision can be agreed upon by the parties to be final and not subject to appeal.
Issues to Discuss with Your Attorney When You Anticipate Arbitrating a Contract Dispute
If you anticipate arbitrating a contract dispute, you should consult with your attorney about the following issues:
Is the dispute ripe to commence arbitration? Preliminary arguments about whether performance or nonperformance under the contract constitutes a breach are often premature grounds for commencing arbitration. The contract may also have been drafted to include mandatory negotiations at the executive level before arbitration occurs. Threatening litigation or receiving a breach notice however likely does trigger the need to address arbitration terms within the contract.
Has the time expired to commence arbitration proceedings? Statutory time limits apply to arbitration as they do to litigation proceedings. Time limits may be altered within the contract so a claim may be barred if arbitration is not commenced within a certain timeframe (e.g. six months after the claim arose).
What is the process for commencing arbitration? The action necessary to initiate arbitration proceedings can vary depending on the terms of the contract, but generally the moving party formally notifies the opposing party in writing in accordance with the notice provision in the contract and identifies the nominated arbitrator. If the arbitration provision is not followed, the opposing party may raise jurisdictional issues or challenge the validity of the notice. Subsequently, the moving party may be prejudiced by allowing the opposing party additional time to prepare and disrupt the arbitrator’s schedule.
Will the arbitrator’s decision be final? You will need to determine if the judgment is binding and subject to appeal.
Enforcing an Arbitration Agreement
If one party attempts to circumvent the arbitration by filing a claim in court, the other party can file a motion to stay or dismiss the litigation. That opposing party may also ask the court to mandate arbitration in accordance with the contract. Conversely, if a party initiates arbitration proceedings and there is no arbitration clause, the opposing party can ask the arbitrator to decline jurisdiction.
When You Are in the Contract Drafting Stage
When you and your attorney are working within the arbitration process, it’s critical to be aware of the legislative framework in which you are operating. The applicable law and the arbitration organization are topics you should work out within the contract if you are on the front end of the negotiating process. If you find yourself in arbitration without a comprehensive arbitration clause, you will be subject to the rules of the state and arbitration organization.
You should review with your attorney any arbitration language that is being proposed in your commercial contracts to avoid pitfalls in boilerplate language. For example, if your transaction pertains to real estate, specific language is required to ensure your provision is enforceable. A recent New Jersey case warns that arbitration clauses in real estate contracts are enforceable only if they specifically state the parties waive their right to sue in court and that the arbitration is the sole remedy for the dispute. Dispenziere v. Kusher Cos. (101 A.3d 1126 (N.J. Sup. Ct. App. Div.). The Supreme Court of New jersey also held for an arbitration provision to be enforceable in a services contract with an individual consumer it must clearly and unambiguously notify the consumer he is waiving the right to seek relief in a judicial forum. See also Barr v. Bishop-Rosen & Co., Inc., NJ App. Div. Docket No. A-2502-14T2 (Oct. 26, 2015) for a court opinion on explicit required language in arbitration clauses.
If you need help with a business dispute, call the commercial lawyers at Snellings Law LLC at 973.265.6100. Our legal team handles all types of contract disputes including real estate contracts, commercial leases, employment contracts, and sales agreements.