In recent years, arbitration clauses have been meeting with an increasingly friendly reception from the courts. In California in particular, the such clauses, and the resulting awards of the arbitrators, are being routinely enforced in all but the most unusual circumstances. The severe limits to the grounds upon which such the award of an arbitrator may be attacked in court constitute both one of the greatest advantages and one of the greatest dangers of arbitration clauses. On the one hand, an arbitrator's award will almost always be final, and the expense and uncertainty of possible appeals are usually avoided. On the other hand, even an award that is arbitrary, manifestly contrary to law, and completely unsupported by the evidence cannot usually be challenged successfully, even if it causes the financial ruin of one of the parties.
Arbitration clauses can specify the outcome of a wide variety of issues that arise in a dispute.
For example, they can specify what kinds of disputes will be arbitrated, whether the arbitrators must have any special professional or technical qualifications, where the arbitration will be held, how much discovery will be allowed, where the arbitration will be held, who must advance the costs of the arbitrator, and what time limits will apply to the resolution of any disputes. Perhaps most importantly, arbitration clauses can attempt to set some limits both to liability and to the otherwise virtually unlimited powers of the arbitrator by, for example, depriving him of the authority to award punitive damages, consequential damages, injunctive relief, or relief in excess of a specified dollar amount. If they wish, parties can even specify a procedure for appeal of the award. The problem with most arbitration clauses is that the people who put them in contracts don't think about any of these issues in advance. The people who draft and sign these clauses often don't even know what the rules that they are selecting say on any of the important issues that will be determined by them.