Language You Need for an Enforceable Arbitration Clause
This is Part 2 in a 20-part series of articles dealing with issues of arbitration in the construction industry.
Arbitration is voluntary
Absent a statute to the contrary, arbitration is a voluntary, contractual process. A court will not require parties to arbitrate complex construction disputes without an enforceable arbitration clause in their contract. If you do not have an enforceable arbitration clause, you will not be able to compel your adversary to arbitrate, nor can your adversary force you to arbitrate unless you jointly negotiate a separate post-contract arbitration agreement.
So how do you get to an enforceable arbitration clause? You need to include specific buzzwords in your contract.
Arbitration must be mandatory
To compel parties to arbitrate, arbitration must be mandatory. Words such as “may arbitrate” or “might arbitrate” will not create that mandatory status. Typically, the language “shall arbitrate” must be in the agreement in some form.
Define what claims are presented to arbitration
The contract clause needs to outline what claims are subject to the arbitration agreement. Most arbitration clauses include all claims arising out of the contract.
The Award must be final & binding
The arbitration clause must also contain language that the decision of the arbitrator is final and binding on the parties. Without that language, the arbitration Award is merely advisory and not enforceable.
The Award must be enforceable in a court of competent jurisdiction
The arbitration clause must contain language that the arbitration award is enforceable in a court of competent jurisdiction. Otherwise, a court does not have the obligation to enforce it.
Without these four fundamental items, under the laws of most states, the parties will not be able to compel arbitration.
There are many other issues which should also be dealt with in an arbitration clause, not the least of which include:
- The selection of the arbitrator(s)
- The number of arbitrators
- The arbitrator’s experience level
- Whether the arbitrator must be an attorney
- Use of discovery
- Which rules apply
- Location of the proceeding
- Whether third parties may be joined
- Whether mediation is a condition of arbitration
The absence of these items will not defeat arbitration as a dispute resolution process.
In general, whenever I review arbitration clauses, I insist that they cover all disputes in any way arising out of the contract, and that the arbitration is mandatory, final, binding, and enforceable in a court of competent jurisdiction. I also attempt to deal in some way with the non-compulsory issues.
Attorney Stephen Hilger is engaged in complex commercial litigation with an emphasis on construction law, has tried many cases in multiple state courts, and has appeared in several state courts of appeal, the Michigan Supreme Court, United States District Courts, United States District Courts of Appeal, the United States Supreme Court on cert, and multiple arbitration tribunals across the country.
If found this article to be informative, you may also be interested in Part 1 “Construction Disputes: Arbitration or Litigation”