It is a provision in a contract that requires the parties to resolve any disputes through arbitration rather than through the courts. Arbitration is a private process where a neutral third party, known as an arbitrator, hears the evidence presented by both parties and renders a decision that is usually binding on the parties.
A well-drafted Arbitration clause typically contains the following key elements:
- Scope of Disputes: The clause should specify the types of disputes that will be subject to arbitration. This can include all disputes arising from the contract or only certain types of disputes.
- Number of Arbitrators: The clause should specify the number of arbitrators that will hear the dispute. This can be a single arbitrator or a panel of arbitrators.
- Selection of Arbitrators: The clause should outline the process for selecting the arbitrator. This can include appointing a specific individual or using a third-party organization to appoint the arbitrator.
- Venue and Rules: The clause should specify the venue for the arbitration and the rules that will govern the arbitration proceedings.
- Award and Enforcement: The clause should specify how the arbitration award will be made and how it will be enforced.
Examples of Arbitration Clauses in Commercial Contracts
The arbitration clause in a construction contract might include provisions such as:
- Any disputes arising out of or relating to this contract shall be resolved by binding arbitration in accordance with the rules of the American Arbitration Association.
- The arbitration shall take place in the city where the project is located, and the arbitrator's decision shall be final and binding.
Software License Agreement:
The arbitration clause in a software license agreement might include provisions such as:
- Any disputes arising out of or relating to this agreement shall be resolved by binding arbitration in accordance with the rules of the International Institute for Conflict Prevention and Resolution.
- The arbitration shall take place in New York City, and the arbitrator's decision shall be final and binding.
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