What Is Arbitration Clause?

An out-of-court proceeding in which a neutral third party called an arbitrator hears evidence and makes a binding decision. ADR (alternative dispute resolution) most often involves arbitration, and arbitration clauses can be found in almost any contract. 

Parties who use alternative dispute resolution (ADR) can customize the process to suit their own needs. Contracts can be customized by the parties to include the standard arbitration or mediation clause and provide time and cost control options.

How Can Disputes Be Arbitrated?

The parties can choose to arbitrate either voluntarily (if they agree to) or mandatorily (if there are legal requirements). Most contract arbitrations are triggered by an arbitration clause requiring the parties to arbitrate any disputes “arising under or related to” the contract. When a provision like this isn’t in the contract, the parties are still able to arbitrate if they both agree to it (although it can be difficult to agree to arbitrate once a dispute has arisen).

Advantages of the Arbitration Clause

As a general rule, arbitration is faster, simpler, more efficient, and more flexible in terms of scheduling than litigation. Also, it avoids some of the hostility of courtroom disputes, possibly because it is a private proceeding as opposed to a public trial. If the dispute is a technical-for example, relating to patent-the parties can select an arbitrator who is an expert in that field instead of a judge who may not have knowledge of the issues.

When it Comes to Arbitration, Is it Necessary to Hire a Lawyer?

If you have a substantial amount of money or property in dispute, you should consider hiring a lawyer to represent you during the arbitration. A binding arbitrator’s decision gives you one chance to win. If you need help interpreting an arbitration clause, you can consult with CRC’s knowledgeable and experienced contract lawyer.

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