Wednesday, May 4, 2011

Abitration Clauses

Arbitration is often offered as an alternate form of dispute resolution in commercial leases. By agreeing to use the services of an arbitrator, the parties agree to waive their rights to litigate disputes in civil court. There are a few matters, however, such as eviction, fraud and criminal activity where use of the public court system is mandatory.

Before agreeing to arbitration, there are a few things to consider. First, the process for preparing to appear in arbitration can be identical to preparing for an appearance in civil court. That is to say attorneys can be retained, depositions can be taken and evidence can be requested and exchanged. Therefore, the preparation costs can be the same as for a traditional court case. Also, the final decision of the arbitrator is binding and cannot be appealed, regardless of the legal standing for the decision. In other words, the arbitrator’s decision can be totally arbitrary and without legal precedent or standing. In addition, the cost/fees for the arbitrator can be higher than court fees and costs depending on the length of the arbitration. Finally, there is no assurance that an arbitrator’s decision will be any better or worse than that of a judge. That being said certain ADR companies such as JAMS employ retired judges almost exclusively. This is not to say that binding arbitration is without merit, it is potentially faster than the civil courts and some argue have more predictable outcomes than a jury trial. Also, if privacy is an issue, ADR can be much more discreet than the civil court system. In addition, in the event that there are technical elements to a case, many attorneys prefer to argue in front of an arbitrator with some level of technical expertise as opposed to a jury of laypeople.

A few precautions can be taken prior to agreeing to an arbitration clause. First, make vetting the arbitrator a part of the agreement. Selecting an arbitrator with an extensive real estate background would be wise. Also, the parties may want to consider setting financial limits. For example, the parties could exclude any disputed amounts that qualify for small claims court and/or placing a cap on the amount subject to the arbitration.

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