It is intended as a reference for legal counsel. Attorneys may find it to be a useful aid in counseling clients and in drafting an arbitration clause. This is not intended to be exhaustive, and counsel should consider the requirements of applicable law and consult other appropriate authority in advising their clients and drafting arbitration clauses. Nonlawyers should obtain competent counsel before agreeing to an arbitration clause. There are several good reasons for including arbitration clauses in commercial agreements.
Arbitration can be a prompt, and therefore inexpensive, way of resolving business disputes.
Also, arbitration can assure that the dispute is decided by a person who is familiar with the commercial context in which the dispute arose. The next time you draft a contract which relates to a particularly complicated matter, consider whether you would rather have a dispute arising under that agreement decided by a member of the judiciary, who may be elected or appointed, and whose experience may be in government, criminal prosecution or criminal defense, or by a businessman or professional well-familiar with the nature of the industry. Arbitration may also operate so as to reduce the risk of punitive or exemplary damages. If the arbitration agreement authorizes the award of compensatory damages only, it is unlikely that any party to that agreement will be assessed punitive damages. Since the plaintiff will be required to arbitrate his claim, a punitive damage lawsuit will not usually be instituted until after the arbitration is concluded.