Tuesday, July 24, 2012

Arbitration – Are the results of arbitration final and binding?

Arbitration is a process that may be enacted by laws as a way to reduce the number of cases or it may be something that is agreed by the parties in their agreement as a manner by which the parties want to resolve disputes. Simply agreeing to arbitration does not make the results of that arbitration final and binding, the language in the agreement needs to show the intent of the parties that it be final and binding.

For a court to honor or enforce a final and binding arbitration decision, the court would need to find:
(1) An agreement that contained an obligation to submit to arbitration is valid, enforceable, and irrevocable.
(2) The subject matter in dispute is subject to an agreement to arbitrate.
(3) All conditions precedent to the arbitration has been fulfilled.

A court may also consider things like whether the parties mutually and freely agreed upon the arbitration, who the arbitrator or arbitration panel would be and whether the parties the location of the arbitration. These would be considered to determine whether the commitment was fairly agreed. A court may also overturn an arbitration ruling if the arbitrator was in error. Typical errors are: the arbitrator not considering all the issues; the arbitrator considering issues outside of the agreement; or the arbitrtator providing a remedy that isn’t applicable to the issue being arbitrated. If the three conditions have been met and the court finds that it was freely agreed and there were no errors by the arbitrator, then the award would be final and binding.

That doesn’t mean that the parties are free from potential future litigation on the matter. While you have the arbitrator’s award, you may need to go to court to have the award be enforced. It is at that point where the laws of the individual jurisdiction regarding arbitration can have an impact especially in international contracts. It’s also at that point where a court could further review it in conjunction with local law or policy. It’s that local policy that you need to be worried about in an arbitration as local policy may tend to favor local companies and local governments at the expense of foreign companies.

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