The truth about arbitration agreements

Not going to court may be the best plan, but contract provisions must be specific

Brad Andersen
Guest Columnist

Courts are extremely busy. It can take years for a case to go to trial, not to mention the additional time spent on appeals. Jury trials can also result in unanticipated and disastrous results leaving both sides frustrated. Court litigation is cost prohibitive. A person who has suffered damages may forgo their claim because they cannot afford to sue, which can undermine justice.

Recognizing this reality, many companies and individuals have turned to private arbitration to resolve their disputes. Some builders now include provisions in their contracts to require all disputes be resolved through binding arbitration. Since the courts, in general, prefer to see disputes resolved through arbitration, they have enthusiastically enforced these agreements, even if the process may be viewed to favor one of the parties.
One must carefully review and understand arbitration provisions or risk waiving some fundamental rights.

Arbitration and its advantages
Private arbitration provides a substitute for traditional trial before a judge or jury. Disputes are decided by a panel or a single arbitrator, selected by the parties, who renders a final and binding determination. Usually arbitrations are accomplished in much less time than civil lawsuits, and the costs are much less.

The American Arbitration Association (AAA) found the average civil lawsuit lasts two years or more, which does not include the appeals. In contrast to lawsuits, the AAA reports that arbitration only takes nine months and, under most arbitration agreements, the decision is final without rights of appeal.

Arbitration fees are generally more up front than court filing fees. The parties don’t need to pay a judge, while they do have to split the costs of the arbitrator. Arbitrators usually charge by the hour and at about the same rate as attorneys. However, these costs can be quickly overshadowed by the fact that the rules of arbitration are less strict when it comes to presenting evidence, which can cut down on trial preparation and expenses. And, there are no costs associated with defending (or pursuing) an appeal, since the decision is final.

Parties can choose who they wish to serve as arbitrators. Using an experienced and knowledgeable arbitrator avoids the expense and delay of providing the background evidence typically needed to give the judge or jury a thorough understanding of the disputed issues.

In addition, arbitrations generally have more relaxed rules of evidence, procedure and discovery standards than do courts. Also, the parties have more direct access to the arbitrator than they would with a judge and therefore pre-trial issues are more efficiently resolved.

Potential provision pitfalls
Arbitration provisions will determine the scope of the matters that can be submitted to arbitration. Although most provisions can be drafted to include all claims, disputes not specifically listed may not be subject to binding arbitration. It is important to use care in drafting the disputes resolution clause. For example, a recent Washington court said a personal injury claim related to mold – allegedly caused by faulty construction – was outside the scope of the arbitration clause. This could result in the terrible situation where the parties have multiple but related issues pending in arbitration and in court.

Likewise, only the original parties to the contract are bound by the arbitration clause. Unless specific steps are taken by the parties to incorporate these provisions in subsequent contracts, subcontractors may not be bound to arbitration, which could then lead to multiple cases in arbitration and in court over the same issues.

Venue, choice of law
Arbitration agreements should also describe the number and how the arbitrator(s) will be selected. Some agreements may reference an arbitration association’s rules. The arbitration provisions should also describe the location of the arbitration, the rules of discovery, rules of procedure, shared costs and what laws the arbitrator will apply to the dispute. For example, a Vancouver business may wish for the arbitration to be conducted in Vancouver and that Washington law will govern.

Brad Andersen is an attorney with the Vancouver and Stevenson offices of Schwabe, Williamson & Wyatt, specializing in land use, real estate and litigation. He can be reached at bandersen@schwabe.com.

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