Frequently Asked Questions

What is the definition of an arbitration clause and where is it commonly found?

An arbitration clause is a written provision found in many contracts, stating that any disputes between the parties involved must be resolved through arbitration, rather than court proceedings. This clause is commonly found in business contracts, commercial contracts, and contracts between individuals. The arbitration process involves a neutral third party, known as an arbitrator, who hears evidence from both parties and makes a final decision. This decision can be either binding, where all parties are legally required to follow it, or non-binding, where a party can choose to reject the decision and take the disagreement to court. Arbitration clauses are popular because they allow disputes to be resolved quickly and quietly, avoiding time-consuming and expensive legal proceedings. They also allow businesses to select a neutral decision maker who is specialized in the field of arbitration. Arbitration can occur voluntarily, where all parties agree to the process, or mandatorily, where all parties are legally required to participate. If a contract does not include an arbitration clause, arbitration can still occur if all parties agree to participate. However, this is rare when parties are already in dispute.