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Understanding arbitration clauses

On Behalf of | Feb 7, 2022 | Business Litigation |

In a previous blog, we discussed clickwrap agreements and the features that these documents provided to businesses and business owners. One of the many provisions frequently found in these agreements are clauses that require disputes among the parties to be handled in arbitration.

But what exactly does it mean when a matter is headed to arbitration? Arbitration is an alternative dispute resolution method that   keeps people out of the courtroom. The rules of the arbitration are often drafted in a favorable manner for the business or business owner, so it is important that you and your company understand the critical nature of these provisions.

The difference between arbitration and litigation

In an ordinary breach-of-contract case where there is no arbitration provision, the parties generally will be looking at taking the case to court. The parties may try to resolve their agreements before filing a lawsuit, but there can still be claims that find their way inside the courtroom.

When a matter is litigated, there is extreme uncertainty over several factors that can have a significant impact on a case. When a company is selling goods nationwide, a lawsuit can potentially be brought in any location where the goods are purchased. This can be in consumer-friendly forums, which could put pressure on a company to resolve a matter before a lawsuit becomes necessary.

Additionally, it is possible that a lawsuit may be filed and additional parties may join in the suit. A company can find itself forced to defend a class action lawsuit which can be very expensive and time-consuming, both which will have an effect upon the financial future of a company.

You never know which way a judge or jury will decide a matter being heard. Even if all the facts and law are on your side, you still must convince the ultimate fact-finder that you did nothing wrong, and sometimes this can be very challenging.

In arbitration, many of these uncertainties can be removed, or at least controlled, to an extent. You can specify the forum where a dispute will be heard. You can potentially limit the amount of compensation you may have to pay if the decision goes against you, and you can control the costs more easily that you can in litigation.

One major difference between arbitration and civil litigation is a party can appeal a trial verdict.  There is no appeal from an arbitration award unless there is fraud affecting the proceeding or other wrongdoing.