The ABC’s of Arbitration-Part A (Agreement to Arbitrate)

The settlement of disputes through use of neutral third parties is usually accomplished by one of three procedures: mediation, arbitration or court litigation. This and the next two Briefs will consider the three stages of arbitration as one of those alternative methods of dispute resolution.

The arbitration here considered is the process which would result in an award binding on the parties and legally enforceable through the court process. We now deal with the means of initiating the arbitration and the following Brief will consider the arbitration proceedings themselves. The third arbitration Brief will consider the enforcement of arbitration awards.

Arbitration is a voluntary procedure which can only be utilized when the parties to the dispute have agreed to arbitrate their differences. This agreement may be found among other terms in the contractual arrangements between the parties, such as those commonly found in the construction document forms of the American Institute of Architects. Otherwise, parties to existing disputes may agree to submit their differences to arbitration by entering into agreements to arbitrate. A legally enforceable agreement to arbitrate must contain the following:

– a specific agreement by the parties to submit their disputes to arbitration,

– a clear identification of the dispute to be resolved, either with reference to the existing dispute or by generalization, i.e. to all disputes which may arise between the parties to a particular contract, or limited to certain types of disputes which may arise between the parties (for example, all disputes involving interpretation of the requirements of plans and specifications),

– a method of selection of the arbitrator or arbitrators,

Update Note: A number of court systems across the country have recently established mandatory arbitration requirements for selected cases involving relatively smaller dollar amounts in controversy. However, most of these arrangements provide for formal trial proceedings after the arbitration if requested by either party.

– specific arrangements relative to the conduct of the arbitration hearings such as place, time, time limitations for rendition of the arbitration award, etc. (in stead, the parties may agree to utilize available rules for the conduct of arbitration such as the American Arbitration Association Construction Industry Arbitration Rules or its Commercial Arbitration Rules); an agreement that the arbitration award is to be final, binding and conclusive upon the parties; and that it may be enforced by either party in any court having jurisdiction or a particular court selected by the parties,

– if provision is made for the arbitration of future disputes, a time limitation should be fixed either by reference to applicable state statutes of limitations or by establishing a certain deadline within which arbitration proceedings may be initiated.

A general form of agreement to arbitrate may look something like this:

“The parties to this contract agree that any and all disputes which may arise between them relating to or in any manner connected with this agreement or the required performance of the obligations of the parties shall be resolved by arbitration to be administered by and in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association unless both parties agree otherwise.

This agreement to arbitrate shall be specifically enforceable by any court having jurisdiction and the determination of the arbitrator or arbitrators selected shall be final, conclusive and binding upon these parties and may be enforced in any court having jurisdiction.

Such arbitration may be initiated by either party upon making a written demand upon the other with a copy to the American Arbitration Association regional office having jurisdiction over the place where this contract is to be performed and the payment of fees as required by that Association.

No such arbitration shall be commenced after the expiration of the time allowed for commencement of legal actions upon similar claims under the applicable statutes of limitations of the State of Colorado.”

Naturally, the parties are free to adopt whatever other rules or regulations they wish to govern their arbitration proceedings so long as they adhere to the requirements listed above.

The chief concern is that their arrangements be clear; that the parties agree that the arbitration result will finally resolve their dispute and that the award will be enforceable through court procedures which would include garnishment, attachment of assets and other methods of the enforcement available for other court judgments and decrees.

Copies of the various rules for American Arbitration Association administered arbitration proceedings as well as information concerning that Association’s facilities for the administration of private arbitrations are available through any of its regional offices or its national headquarters. The address of its Denver regional office is: American Arbitration Association 1775 Sherman Street, Suite 1717 Denver, Colorado 80203-4318

and its national headquarters is: American Arbitration Association 140 West 51st Street New York, New York 10020.

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