A simple dispute resolution clause is a section of a contract that defines how settlements and disputes will be handled in the event the contract goes south. One way in which parties can handle a dispute is to go through arbitration. Arbitration is an informal process where all parties will agree in writing to submit their disputes to impartial persons that have been authorized to try to resolve the particulars of the dispute, resulting in a final and binding agreement.

Arbitration can be used for a number of contract disputes in areas including:

  • Construction
  • Securities transactions
  • Computers
  • Real estate
  • Insurance claims
  • Labor union grievances

Major Features of Arbitration

There are many factors that go into an act of arbitration including:

  • A written agreement — This agreement states that you will allow the dispute to be resolved through the use of impartial arbitration. This written statement is often included in a section for resolution of the dispute of a contract.
  • Informal procedures — The rules and procedures for arbitration are fairly simple and are not subject to strict rules of evidence. There are no legal procedures, such as formal discovery, or transcript requirements. Even though there are no strict evidence rules, the arbitrator may ask parties to produce all relevant documents.
  • Knowledgeable and impartial neutrals — A neutral arbitrator will be chosen due to their knowledge of the related subject matter so they have the experience to render a fair award.
  • Final and binding awards — Once determined by the arbitrator, the awards are binding and enforceable in a court of law. Court intervention or court review after an arbitration is very limited.

What's in a Standard Arbitration Agreement?

To create a binding arbitration agreement, it is important to have language more specific than saying both parties agree to arbitration to settle a dispute. Issues need to be addressed in the agreement such as:

  • When, where, and how arbitration will occur
  • Who will arbitrate the dispute

There are time-tested rules of the AAA which consistently receive judicial support. By including these clauses, you can reach the requirements to have an arbitration clause. Standard parts of an arbitration agreement should include:

  • A statement saying that all types of disputes are able to be arbitrated.
  • A self-enforcing statement that an arbitration can continue on without an objection from one of the parties. A stay can only occur if both parties agree or a court orders it.
  • The set of rules for arbitration.
  • Requirements of the appointment of a neutral and impartial arbitrator selected by both parties from a pool of available experts.
  • A statement that the disputes will be settled over the locale that is proceeding. If parties disagree the AAA will act as the administrator which will eliminate the need for courts.
  • The allowance for administrative conferences where the representatives of both parties and the AAA staff members can expedite arbitration proceedings.
  • A statement allowing for preliminary hearings. Preliminary hearings can be used for complex or larger cases to help clarify both the original claims and any counterclaims.
  • A clause that states mediation is available where mediation conferences can be used to facilitate a settlement without incurring additional costs of administration to both parties.
  • A section indicating time limits to ensure a prompt resolution to any disputes. You can also set forth expedited procedures that can be put into effect for smaller claims.
  • A statement about insulating the arbitrator from the parties. To protect the integrity of the arbitration, the AAA will facilitate and channel communication between the arbitrator and the involved parties.
  • A designated procedure for serving notices. While subject to the rules that are used in that particular type of case, most often notices will be served to parties by regular members to the last known address.
  • A section giving power over to the arbitrator to equitably decide the matter so that appropriate relief has been achieved.
  • The allowing for ex parte hearings which take place when a party was given due notice but did not show up at the agreed upon time and place.

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