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 2019

    The Strong Firm represents borrower in $42.3 million HUD construction loan for multifamily real estate development in Walton County, Florida.

    Read More
  • Spring 2019

    The Strong Firm acts as legal counsel for borrower in $32.1 million HUD construction loan for multifamily real estate development in Conroe, Texas.

    Read More
  • Spring 2019

    The Strong Firm aids borrower in $31.7 million HUD construction loan for multifamily real estate development in Nueces County, Texas.

    Read More
  • Spring 2019

    The Strong Firm represents borrower in the refinancing of a $3.57 million commercial mortgage-backed security for a commercial office facility in Montgomery County, Texas.

    Read More
  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  • Peer Rated 2019 Award

Recent Blog Posts

2019 Legislative Update – Texas POA Laws

In odd numbered years, Texas property owners associations (POAs) must consider any new laws affecting POAs that became effective following the Texas legislative session earlier that year. For 2019, a few such laws recently went into effect specific to residential POAs (but excluding condominium associations). HOUSE BILL 234 – Protection of
Read More
2019 Legislative Update – Texas POA Laws

Wrapping Up a Decade: Meaningful New Year’s Resolutions

As 2019 comes to a close, it’s a good opportunity to reflect on what we’ve accomplished and make resolutions for what we hope to do in 2020. I have never been a fan of New Year’s resolutions as they often seem like short-term, immeasurable goals. Things like “I am going
Read More
Wrapping Up a Decade: Meaningful New Year’s Resolutions

Not Worth the Paper It’s Written On

We have all heard the saying that something is “not worth the paper it is written on.”  This is usually said about a contract that is unenforceable or even if enforceable, it may have no value because the party has no ability to pay or perform under the contract.  Many
Read More
Not Worth the Paper It’s Written On

“So…What Happens to My Bitcoin When I Die?” Modern Estate Planning for Digital Assets and Cryptocurrencies

Millennials have complicated everything. Socializing in person wasn’t enough, so they created Facebook. Dollars weren’t enough, so they created Bitcoin. Every new app, technology or cryptocurrency brings with it more uncertainty legal uncertainty around these digital assets. Are they currency? Are they property? Can they be gifted? Can they be
Read More
“So…What Happens to My Bitcoin When I Die?” Modern Estate Planning for Digital Assets and Cryptocurrencies
  • 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.

Pay Retainer Online

Use our easy-to-use and secure online payment feature.
We accept all major credit cards.

Pay Your Retainer

Contact us

Quick Contact Form