What is the Pre-dispute Arbitration Clause?

What is the Pre-dispute Arbitration Clause?

Arbitration is a form of alternative dispute resolution that is highly recommended for remedying conflicts, especially in business. The parties appoint a neutral third party to listen to testimony and review evidence, arriving at a decision called an arbitral award. This process is much more expedient and cost-effective compared to litigation involving a court proceeding, while still carrying the force of law to enforce decisions.

In order to ensure that any disputes avoid the complications of litigation, many parties will insist on a pre-dispute arbitration clause being included in their agreements and contracts. As discussed below, this clause allows the parties to determine the terms and processes for arbitration before an issue arises.

What is a pre-dispute arbitration clause?

As the name suggests, a pre-dispute arbitration clause is an arbitration clause set in place before a dispute occurs. Typically, it is one part of an agreement or contract, as it anticipates the possibility of problems within a transaction or arrangement. Since arbitration is voluntary, and both parties need to agree to do so before the process can begin, the pre-dispute arbitration clause can automatically set the path to arbitration services.

Does your agreement need a pre-dispute arbitration clause?

While you would prefer to think that all will go well in every agreement you enter into, that is not always the case. You should consider having a pre-dispute arbitration clause as preventative measure.

The main advantages of pre-dispute arbitration include:

• Pre-arranged: Contrary to how it may look, a pre-dispute arbitration clause does not necessarily assume that there will be an issue. It allows involved parties to have peace of mind that there is an established procedure to which everyone has agreed.
• Affordable: Arbitration services are usually much more inexpensive than court proceedings as you do not have to consider court and filing fees as well as extensive legal fees for court representation.
• Expedient: Litigation relies on court schedules, which can cause delays in proceedings, along with motions and other actions that could stretch conflicts to months or even years. With arbitration, scheduling is much more flexible and does not have to defer to an outside authority. The parties involved can set the schedule to their convenience.
• Flexible: In addition to the freedom in scheduling, arbitration does not tie people to set locations, such as a courthouse. Parties can choose a dispute resolution center or arrange for secured remote access to allow video conferencing for different geographic locations.
• Informal and confidential: Procedure and evidence rules that can be quite restrictive in court do not apply in arbitration, and, unlike court proceedings, arbitrations are private. Any evidence or testimony given is confidential, allowing for more disclosure.
• Neutral and specialized: Because the parties appoint their arbitrator(s) in advance, no one gets the upper hand in selecting an adjudicator during a conflict. Furthermore, while most courts do not offer judges who are experts in other fields, here you can select arbitrators who understand the industry or specialty in question.

The main disadvantages of pre-dispute arbitration include:

• Costs: While arbitration is generally more affordable than litigation, if a party is not well informed and agrees to terms that provide more benefits to the other party, they may find themselves accruing greater costs.
• Good faith: As arbitration is not policed, so to speak, as a court proceeding is, all involved parties must demonstrate and act on good faith to avoid obstructing or derailing the arbitrator’s efforts.
• Unappealable: In most cases, an arbitral award is binding, and there are very few conditions under which an aggrieved party can appeal the decision.
• Informality: Because court procedure rules do not apply, arbitration can lead to uncommon or atypical testimony or evidence that may not normally be allowed. Depending on how one views this, it can be an advantage or disadvantage.

Get expert help for your pre-dispute arbitration clause at THAC

If you are contemplating arbitration in Thailand, you should consult Thailand Arbitration Center. Our experts can help draft your pre-dispute arbitration clause to ensure your best interests are represented. While there are standard templates for these clauses, there are certain factors that deserve your added attention:

• Which arbitral institution or rules will you be following? This could also include the governing law for the arbitration, which may or may not be the same as the governing law of the underlying contract.
• What language will the arbitration be in? This is not something that should be assumed, as translation and interpretation can vary depending on the fluency of the parties involved.
• Confidentiality. While arbitrations are private matters, it is best to explicitly agree to confidentiality and disclosure parameters to ensure data security and privacy for all.
• Arbitrator appointment. If you decide to appoint more than one arbitrator, then normally an odd number should be named to avoid a tie. Most established arbitral rules outline the appointment method for arbitrators, but the parties can choose to set their own methods and procedures.

As you consider these particulars, you should also try to avoid being too detailed. A pre-dispute arbitration clause cannot anticipate every eventuality, so if you are too specific, you may write yourself into unreasonable deadlines and unachievable submission and evidence requirements.

About THAC

The Thailand Arbitration Center (THAC) is a leading alternative dispute resolution (ADR) center, offering state-of-the-art facilities to accommodate a range of ADR solutions, including online dispute resolution (ODR). We offer access to experienced neutral third-party arbitrators and mediations, who are well-versed in ADR and expert in various industries and sectors for specialized knowledge. Located in central Bangkok near major roads and highways as well as the Phrom Phong BTS Skytrain station, THAC is ideally located for local and cross-border disputes and provides international-level ADR services, affordable administration fees, and well-equipped facilities for in-person and remote hearings. For more information on how THAC can help you mitigate or arbitrate your business or personal disputes, please contact THAC at [email protected] or +66 (0)2018 1615.