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Arbitration Agreements

  • By: Alan E. Sohn
  • Published: October 15, 2012

Many business agreements include a provision calling for the resolution of disputes through arbitration rather than resort to the available court systems. These clauses are often recommended by reason of the delays and costs involved in court-centered litigation.

However, considering the additional costs that may be incurred through arbitration, one should not blindly agree to an arbitration clause without considering the following factors:

First: Unlike court-entered judgments there is usually no appeal from the decision of the arbitrators on the merits.

Second: Arbitrations can cost more than litigation in the courts. One of the additional costs involved in arbitration is the hourly fees that are charged by the arbitrator or arbitrators. Such fees are usually allocated between the litigants, but sometimes can be charged to the non-prevailing party, depending upon the provisions of the arbitration clause. Experienced arbitrators, particularly those who are members of the larger law firms, can charge upwards of $500 to $1,000 per hour and more. Remember, once a court filing fee is paid, the judge is free. In a complex arbitration, which may take days or weeks, these costs can add up very quickly and make arbitration entirely uneconomic. One may also be required to travel to another city, depending upon the choice of forum provision contained in the arbitration agreement.

Third: Another issue which should be considered is whether the statute of limitations of the jurisdiction selected by the parties will automatically apply to the dispute in issue. In some jurisdictions, the statute of limitations does not apply and in others it will. Illinois does not have a definitive rule on this issue. In order to be certain that the statute of limitations will or will not apply in a particular jurisdiction, the parties should be careful to include a specific jurisdiction determinative.

Fourth: Mandatory arbitration clauses usually favor the party with the deepest pockets. Although litigation is also subject to such an imbalance, where the parties are not of equal economic stature, compulsory arbitration is clearly more favorable to the wealthier litigant by reason of the additional costs involved.

Alan E. Sohn

Alan E. Sohn received his Juris Doctorate from the College of Law of the
University of Illinois. Mr. Sohn has been a partner in both large and
smaller law firms and for the past 21 years has been in private practice.