Many contracts contain a provision requiring the parties to arbitrate any disputes that may arise between them relative to the performance of the contract.
Often, arbitration provisions are inserted in a contract as part of the boilerplate provisions in a form used by the drafter, with little thought given to whether arbitration makes sense in the context of disputes that could arise under the contract. What follows are some (but certainly not all) of the considerations relevant to a determination of whether it may make sense to include an arbitration provision in a contract (or otherwise agree to arbitrate a dispute) as opposed to the traditional process of resolution of disputes in court.
Selection of the Decision-Maker/Factfinder
Parties to an arbitration agreement have, in effect, waived their right to have a jury decide the matter and/or to have a judge preside over the dispute. That said, in an arbitration proceeding, the parties typically have some input into the selection of the arbitrator or arbitrators. The arbitration forum (e.g., FINRA) may have a procedure for selection of the arbitrators, the arbitration agreement may specify how the arbitrator is selected, or the parties may agree upon an arbitrator or arbitrators. Further, parties in arbitration may be able to hand pick their arbitrator based not only on qualifications and expertise, but also on other factors such as a reputation for fairness and the arbitrator’s temperament.
In contrast, court cases judges are typically randomly assigned and, sometimes, reassigned during the course of a case. And, with arbitration the selection of arbitrators may not be limited to a particular locale – the parties often can select an arbitrator from anywhere, whereas jurisdiction and venue rules will dictate which court (and that court’s judges) will be involved. Jury selection typically results in jurors that know little or nothing about the subject matter of a case. In contrast, arbitrators are often selected based on their experience and background in the factual or legal area in dispute. Read more.