Beware of the Contractual Arbitration Clause

Many contracts include mandatory or optional arbitration clauses which either bind the parties of the contract to an arbitration process or give the parties the option of attending an arbitration in the event of a dispute. However, not all arbitration clauses are created equally and all should be carefully reviewed and screened. Easily overlooked provisions such as whether the arbitration is binding or non-binding, a required venue or location in which the arbitration is to take place, the number of arbitrators, and what rules will govern the arbitration proceeding, will all dramatically effect the cost of an arbitration. For instance, a requirement that the arbitration take place at or under the rules of the American Arbitration Association or at some other professional arbitration company may subject the participants to the management and facility fees of the companies. In addition, even though the California Code of Civil Procedure provides for its own rules of procedure in an arbitration proceeding, such rules will be preempted by any rules agreed to in the arbitration clause. Arbitration clauses must also be carefully reviewed to determine what penalties there may be if you fail to abide by the terms of the arbitration clause. So whether you are in the process of drafting a contract, negotiating a contract, or are involved in a contractual dispute which contains an arbitration clause, the details of the arbitration clause should be carefully reviewed by an attorney to fully protect your present and future interests.

Article Submitted By: Attorney Jennifer Lumsdaine