ConstructionPro Week, Volume: 5 - Issue: 2 - 01/15/2016

Should Unilateral Arbitration Clauses Be Enforced?

By Bruce Jervis

 

The essence of an arbitration agreement is the mutual consent of two parties to submit any claim or dispute arising under their contract to a neutral arbitrator for a binding, final decision. It is a matter of contractual consent between the two parties, so the courts afford great deference to the arbitration process and its resulting awards.

 

A North Carolina court was recently confronted with an arbitration clause in a subcontract that made binding arbitration “at the option of the Contractor.” The subcontractor, despite signing the subcontract, challenged the enforceability of this unilateral arbitration clause. The court was able to duck the question, however. Even assuming the clause was enforceable, the contractor failed to demand arbitration within the 30-day period stipulated in the clause and therefore forfeited its arbitration rights.

 

Given the mutual consent that is the essence of an agreement to arbitrate, it seems inconsistent to make binding arbitration optional and at the election of only one party. Of course, both parties signed the contract that established this arrangement. It can be argued, however, that unilateral arbitration clauses are almost always imposed by the party with superior economic leverage. What is your opinion? Should unilateral arbitration clauses be enforceable? Your comments are welcomed.

 

COMMENTS

In my experience, arbitration tends to be less predictable, as costly and burdensome as litigation for more complex cases, and small businesses often lack the experience to know when litigation is (or should be) the preferred alternative. That said, if the Subcontract shows reasonable indications of arms-length negotiation and is not an adhesion contract (take it - or leave it) then the agreement to allow this be in the sole judgment of one party should be enforceable.
Posted by: Michael Duffy - Friday, January 15, 2016 10:27 AM


 









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