Search Site
Menu

Arbitration Provisions – Do I Want One?

This is a question posed to me quite frequently by clients.  Typically it starts with, “What does that provision really mean?” and is quickly followed by “Well, do I want that or not?”  Like so many questions in the legal profession, the answer is “It depends.”

Arbitration is an out-of-court process for settling a dispute in which each group presents its argument to a neutral third party called an arbitrator who then makes a binding decision.  By default, you will find an arbitration clause in the fine print of a large majority of contract forms unless it gets deleted during negotiation.

Arbitration can be binding or non-binding, but binding arbitration (where the courts would enforce the decision) is the most common.  Arbitration can be voluntary or mandatory.  Most parties who participate in arbitration do so because of a contract provision requiring that disputes be resolved through the arbitration process.

Now to the most important part, do you want to arbitrate?  Arbitrations are often much faster than traditional litigation, are more cost effective and typically have less of the hostile feel that can come with a public courtroom litigation.  In addition, if the topic of dispute is very technical or specific, then the parties can agree in advance on a particular arbitrator with specific knowledge in that area.  However, arbitration can have significant negatives as well.  Binding arbitration cannot be appealed or set aside unless a party can show a clear bias or violation of public policy.  In addition, there is no automatic right to obtain information from the other party as there is in traditional litigation.  Finally, the upfront costs of arbitration are significant and although we typically think of arbitration being less expensive overall, that is not true.

To illustrate regarding fees, the filing fees to arbitrate a $250,000 dispute with the American Arbitration Association (which is a commonly designated association in arbitration provisions) is $4,650.  Then add attorney’s fees and arbitrator fees in order to estimate what the overall costs would be.  By contrast, the fee to file an action in a court of law, regardless of the dispute amount, is about $350 depending on the court.  Obviously there will be attorney’s fees in addition to that as well and usually in a trial the attorney’s fees will get higher simply by virtue of the length of the trial.  Keep in mind that both an arbitrator’s final award or a final court order may assign the burden of paying attorney’s fees, the amount of the judgment, and/or other costs to the appropriate party.

Sitting down with an attorney and discussing the contract specifics and potential for disputes is the best way to make an informed decision about whether to include a mandatory arbitration provision in your contracts and more importantly how that provision should be drafted.

Leave a Reply

Your email address will not be published. Required fields are marked *

Contact a Dedicated Texas Business Lawyer To Schedule a Consultation
Call 281-367-1222 or contact us online to schedule a meeting.

Strong In Action

  • Spring 2021

    The Strong Firm prevails in dispositive motion regarding Texas economic loss rule resulting in dismissal of claims again party.

    Read More
  • Spring 2019

    The Strong Firm successfully forecloses first priority lien against multi-million dollar commercial asset.

    Read More
  • Spring 2021

    The Strong Firm secures writ of reentry after unlawful lockout of commercial tenant.

    Read More
  • Spring 2021

    The Strong Firm prevails in writ of mandamus proceeding involving denial of temporary restraining order to stop foreclosure sale.

    Read More
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  • Peer Rated 2022 Award
  • Clio Client-Centered Certification

Recent Blog Posts

Navigating Employment Law Concerns: A Guide To The Biggest Risks for Texas Employers

Navigating Employment Law Concerns: A Guide To The Biggest Risks for Texas Employers As trusted legal advisors, we understand the complexities and challenges that employers face when navigating the landscape of employment law. With the ever-evolving regulatory environment, it's crucial for employers to stay informed and proactive in addressing legal concerns. One
Read More
Navigating Employment Law Concerns: A Guide To The Biggest Risks for Texas Employers

Asset Flow in Estate Planning

Planning for the distribution of your assets upon your passing can seem a daunting task regardless of the size of your estate.  However, planning for how those assets will be distributed, and ensuring your estate plan accounts for your desired distribution, is essential. In this article, we will discuss the
Read More
Asset Flow in Estate Planning

Kelly Sullivan Joins The Strong Firm P.C. As Senior Counsel

The Strong Firm P.C. is excited to announce the addition of Kelly Sullivan to its team of experienced attorneys. Kelly adds exceptional strength to the firm’s established practice areas based on her wealth of experience in the areas of Litigation, Labor and Employment Law, Business Law and Governmental Law, Zoning
Read More
Kelly Sullivan Joins The Strong Firm P.C. As Senior Counsel

The Future of Non-Compete Agreements: Executive Order on Promoting Competition in the American Agreement

In July 2021, President Biden signed an Executive Order aiming to limit the use of restrictive covenants in employment relationships. Opening with the premise that “a fair, open, and competitive marketplace has long been a cornerstone of the American economy, while excessive market concentration threatens basic economic liberties, democratic accountability,
Read More
The Future of Non-Compete Agreements: Executive Order on Promoting Competition in the American Agreement
  • Video Vault


    Watch videos done by our legal team to gain a better understanding of your legal needs. Our lawyers give video insight into areas such as Real Estate, Business Law, Mergers & Acquisitions and much more.
Contact us

Quick Contact Form