Arbitration of Disputes
Increasingly more commercial disputes are being resolved through arbitration. It is more expeditious and less expensive than litigation and is favored by public policy. Arbitration is adjudicatory, not advisory, because the arbitrator renders a decision at the end of an arbitration hearing that is final and binding, subject only to a very limited court review.
Parties are turning with increasing frequency to arbitration for resolution of disputes because of its efficiencies. Arbitration allows parties to custom design the arbitration rules and procedures to maximize control over the process. Parties often select arbitrators on the basis of the arbitrator's substantive expertise.
The resolution of disputes by arbitration is grounded in the agreement of disputing parties. Absent an agreement to arbitrate, arbitration may not be imposed upon an unwilling party, unless mandated by statute. An agreement to arbitrate must be express, direct and unequivocal as to issues or disputes to be submitted to arbitration, but, once there is agreement or submission to arbitration, scope of the potential jurisdiction of an arbitrator is nearly unlimited.
Under New York law the effect of arbitration agreement is significant. Controlling statutory law provides:
A written agreement to submit any controversy thereafter arising or any existing controversy to arbitration is enforceable without regard to the justiciable character of the controversy and confers jurisdiction on the courts of the state to enforce it and to enter judgment on an award. In determining any matter arising under this article, the court shall not consider whether the claim with respect to which arbitration is sought is tenable, or otherwise pass upon the merits of the dispute.
NY Civil Practice Laws and Rules § 7501.
If called upon, courts will interpret the parties' intent to determine whether they intended to arbitrate a dispute. In interpreting arbitration clauses in contracts, courts perform initial screening process designed to determine in general terms whether parties have agreed that the subject matter under dispute should be submitted to arbitration and, once it appears that there is or is not a reasonable relationship between subject matter of dispute and general subject matter of underlying contract, court's inquiry is ended. As the statute makes clear, a court will not "consider whether the claim with respect to which arbitration is sought is tenable, or otherwise pass upon the merits of the dispute."
If you have a commercial matter that may be headed to litigation and have a question about how arbitration may be a useful alternative, please contact me or by mail or telephone and I'll be happy to answer your questions.
This memorandum was accurate when written. However, statutory and regulatory provisions, and how they are interpreted, change over time. The matters discussed in this memorandum should not be considered legal advice and readers should seek advice of counsel for any questions involving personal or business decisions relating to the issues raised herein.
