Binding Arbitration Clause

One of the methods of Alternative Dispute Resolution (ADR) is Arbitration, which is an out-of-court proceeding in which a neutral third party called an arbitrator hears evidence and then makes a binding decision. The most commonly used method of ADR is Arbitration, also we can find an arbitration clause in the fine print of all kinds of contracts these days.

An Arbitration clause can be either binding or non-binding. A binding clause means that the arbitrator’s decision on a specific dispute will be final. The courts will enforce that decision. In other words, neither party can appeal or fail to act according to the decision, that means the participants must follow the arbitrator’s decision nor courts will enforce it.

Binding Arbitration is most common clause of Arbitration and simple. It drops off the need of further proceeding to litigation to solve the dispute. The grounds for appealing or setting aside the arbitration decision are very limited and many times may not be available at all. If a person signs a contract that has a mandatory, binding arbitration agreement, he or she gives up the right to go to court.

A simple example for binding arbitration is, “All claims and disputes arising under or relating to this Agreement are to be settled by binding arbitration in the state of [insert state in which parties agree to arbitrate] or another location mutually agreeable to the parties. The arbitration shall be conducted on a confidential basis pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Any decision or award as a result of any such arbitration proceeding shall be in writing and shall provide an explanation for all conclusions of law and fact and shall include the assessment of costs, expenses, and reasonable attorneys' fees. Any such arbitration shall be conducted by an arbitrator experienced in [insert industry or legal experience required for arbitrator] and shall include a written record of the arbitration hearing. The parties reserve the right to object to any individual who shall be employed by or affiliated with a competing organization or entity. An award of arbitration may be confirmed in a court of competent jurisdiction.”

Pros and Cons of the Binding Arbitration:-

Pros, Promoted as a way to resolve disputes efficiently, proponents of arbitration commonly point to a number of advantages it offers over litigation, court hearings, and trials.
    1. Avoid Hostility: Unlike in Litigation, Arbitration avoids the hostility because the part in arbitration are usually encouraged to participate fully and sometimes even to help structure the resolution, they are often more likely to work together peaceably rather than escalate their hostility towards one another.
    2. Specified Award: The Award determined by the arbitrator is fixed and cannot be changed afterwards with any party. The Binding Arbitration fixes the award to resolve the dispute and no one can approach court after the award because now-a-days it is already mentioned in the agreement to follow the binding arbitration.
    3. Faster than litigation: The Arbitration takes maximum period of 18 months to 3 years to resolve any dispute whereas to resolve the dispute by approaching court can take years.
    4. Flexible: Unlike trials, which must be worked into overcrowded court calendars, arbitration hearings can usually be scheduled around the needs and availabilities of those involved, including weekends and evenings.

Cons, being aware of the possible drawbacks of arbitration will help you make an informed decision about whether to enter or remain in a consumer transaction that mandates it or whether to choose it as a resolution technique if a dispute arises.
    1. Limited recourse: A final decision is hard to shake. If the arbitrator's award is unfair or illogical, a consumer may well be stuck with it and barred forever from airing the underlying claim in court.
    2. Questionable objectivity: Another concern is that the process of choosing an arbitrator is not an objective one, particularly when the decision-maker is picked by an agency from a pool list, where those who become favorites may get assigned cases more often.
    3. Lack of transparency: As mentioned, the fact that arbitration hearings are generally held in private rather than in an open courtroom, and decisions are usually not publicly accessible, is considered a benefit by some people in some situations.

Conclusion

The some civil matters needs to be resolved quicker to avoid the shutting down of companies, industries or to avoid any other consequences. To avoid such things one can approach Arbitration to resolve the case without the interference of the Court. While approaching this alternative parties need the award of their dispute to be subtle, so they add the binding clause in the agreement while approaching the Arbitration method. Binding Arbitration clause fixes the award given by the arbitrator and no party can approach the Court after the award, even though they are not satisfied. The Binding clause is more flexible, easy and is free from any further confusion or negative consequences.