Don't dismiss the details when writing an arbitration agreement.

• Author: Allen, David
• Position: LAW JOURNAL 2013

For years, both the business community and the legal profession have been urged to use alternative forms of dispute resolution to avoid the cost and unpredictability of litigation. Many clients believe that arbitration agreements are a panacea that will free them from costly, time-consuming litigation, and produce equal or better outcomes from informed neutrals while avoiding the randomness often associated with jury pools.

Certainly no one can question that court-ordered mediation in North Carolina has been useful in reducing the number of cases tried to a very small percentage of cases filed. Arbitration has also proven to be a faster, cheaper and more flexible alternative to traditional litigation. However, relying on arbitration to resolve disputes may have unintended consequences when the parties do not first carefully consider the implications of arbitration and their agreement to arbitrate. Accordingly, it is important to know when arbitration agreements should be used and how to draft them in a way that best protects your interests and the outcome of your case.

Using arbitration agreements

Arbitration is a creature of contract, and private agreements to arbitrate are generally enforced according to their terms. An arbitration agreement may be a clause tucked within a broader contract or a separate agreement. It can specify in advance the rules and process for an arbitration proceeding. However, there are pitfalls in an improperly drafted arbitration agreement not tailored to the parties' needs.

Parties frequently overlook the existence of a standard arbitration clause in a proposed contract that could affect their rights down the road. An example of this can be seen in a recent ruling from the N.C. Business Court. It said that an arbitration agreement can be binding even if it is not in writing. In that case--Morton v. Ivey, McClellan, Gatton & Talcott LLP--the parties circulated drafts of a written partnership agreement, but the agreement was never executed. The draft agreements contained an arbitration provision. Even though no written agreement was ever signed, the parties acted pursuant to the terms of the partnership agreement for several months. The parties eventually terminated the partnership and began litigation. The defendant then moved to enforce the arbitration provision contained in the unexecuted draft documents.

The court concluded that under the Revised Uniform Arbitration Act an enforceable arbitration provision...