Analyze Your Arbitration Provision Before Entering the Contract

ANALYZE YOUR ARBITRATION PROVISION BEFORE ENTERING THE CONTRACT

By: Larry Leiby, Esq. and Robert S. Tanner, Esq.

About the Authors: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at leiby@mkpalaw.com.

Robert S. Tanner, Esq., has worked with Mr. Leiby in construction matters since 2006, occasionally covers Mr. Leiby's classes at FIU law school, and has been litigating commercial cases for more than 10 years. He can be reached at rob@mkpalaw.com. For more information, please visit www.mkpalaw.com.

Arbitration can be a much faster and less expensive way to resolve a dispute than litigation. Accordingly, a party that is likely to win its case will often prefer arbitration over the public court system. A losing party may see the faster results and reduced expenses of arbitration as a means of limiting its losses, but often would prefer to use the court system's opportunities to delay, run up the other side's costs, and sway non-expert decision makers.

Unfortunately, when analyzing whether to include an arbitration provision in your contract, it is likely difficult to predict what, if any, disputes will arise and on which side of them one will be. It may be more helpful to analyze the advantages and disadvantages of arbitration versus litigation in terms of your financial strength relative to the other party to the contract. Other interests, such as the desire to keep the dispute private, may drive the decision to have any future disputes resolved by arbitration.

Consideration should also be given to who may be a party to any arbitration under the contract. Sometimes persons who are not even parties to the contract may assert arbitration rights if they are third party beneficiaries under it. Arbitration provisions can be tailored to include or preclude parties and claims.

Even an entire hour dedicated to these issues with counsel, which in all but the largest cases would be considered extensive, can save thousands in later legal fees incurred in dealing with the more pedestrian procedural questions, such as who has the right to compel or be compelled to arbitration.