Arbitration clause

Arbitration Clause

An arbitration clause is a provision in a contract that mandates the parties to resolve their disputes through an arbitration process. Although such clauses are common in international contracts, they are also found in a variety of domestic contracts within the United States and other jurisdictions.

Overview

The arbitration clause is often viewed as a method of avoiding litigation and the complexities associated with the court system. Parties may prefer arbitration due to its perceived advantages over litigation, such as speed, cost, privacy, and the ability to choose a decision-maker with expertise in the subject matter of the dispute.

Legal Framework

In the United States, the enforceability of an arbitration clause is governed by the Federal Arbitration Act (FAA). The FAA provides that arbitration clauses are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."

Internationally, the New York Convention provides a framework for the enforcement of arbitration clauses and arbitration awards. More than 160 countries are party to the Convention.

Types of Arbitration Clauses

There are two main types of arbitration clauses: ad hoc arbitration clauses and institutional arbitration clauses. An ad hoc arbitration clause provides that the parties will arbitrate according to a set of rules that they establish themselves. An institutional arbitration clause provides that the parties will arbitrate according to the rules of an established arbitration institution, such as the International Chamber of Commerce (ICC) or the American Arbitration Association (AAA).

Criticisms

Critics of arbitration clauses argue that they may be unfair to one party, particularly in situations where there is a significant imbalance of power between the parties, such as in consumer contracts or employment contracts. Critics also argue that arbitration denies parties the right to a jury trial and limits discovery rights.

See Also

• Alternative dispute resolution
• Mediation
• Conciliation