Is the only way to resolve contract disputes through court?

Myth #3: “When there is a contractual disagreement, the only way to resolve the dispute is to take the matter to Court”

You think you are entitled to triple time for working on a public holiday, but your employer says you are only entitled to double time. Or maybe the vendor is refusing to close on the purchase of your new home.  On your way to meeting with your attorney, you envision spending months in court trying to obtain relief and you start to worry about the associated costs.  Is suing in civil court and waiting for a Judge’s decision your only option?  

Increasingly parties are including arbitration clauses in contracts ranging from employment contracts to commercial contracts. 

In fact, arbitration clauses are standard in construction contracts, insurance contracts and real property sales and purchase agreements. 

So what is arbitration and what are the benefits over court litigation?

What is arbitration?

Arbitration is a private dispute resolution procedure.  

Parties agree to submit their dispute to one or more persons who act as arbitrator(s) and the decision is binding on the parties. Typically, matters are referred to arbitration when the parties have agreed to include an arbitration clause in their contract.  

Such a clause provides that the parties agree to submit to arbitration if there is a dispute in relation to the contract and thereby waive their right to file proceedings in court.  

What are the potential benefits of agreeing to arbitration? 

Consensual process: The parties can agree how the proceedings will be run and can adapt the process to adopt their specific requirements. 

The parties choose the arbitrators: The parties can appoint arbitrator(s) with specialised expertise in the subject matter of the dispute allowing the parties to be confident that the decision maker has relevant knowledge and background to assist them in resolving the issue.  

Confidential: Arbitration proceedings are private and confidential and the award and any disclosures made during the arbitration are generally not available to the public. 

Less formal: Many of the court procedures involve formal applications with scheduling delays and repetitive materials. In arbitration, many of these procedures can be handled on short notice and quickly, often in writing and by telephone.  

Faster and less expensive: While arbitrators charge fees for sitting as arbitrators and there may be a cost for hiring the arbitration venue, these costs are usually a small portion of the overall cost. If the arbitration is run properly and efficiently, it should be faster and less expensive than court litigation. 

Costs: Parties can agree that each side pay their own costs as opposed to court litigation where the Court will generally order the unsuccessful party to pay the successful party’s costs. If the parties have agreed to pay their own costs this will give them an added incentive to ensure that the proceedings are run efficiently and quickly.

The decision of the arbitrator(s) is final and easy to enforce: There are limited rights of appeal of an arbitration award which limits the duration of the dispute and any associated liability. 

Awards are also generally easier to enforce, although a party seeking to enforce an award will have to resort to the court process to confirm the award. 

If you are considering an arbitration clause, you should discuss your objectives clearly with your attorney before agreeing to arbitration as you cannot unilaterally withdraw from the process. As a starting point, your attorney should ensure that the arbitration agreements are well drafted and clear. 

By turning your mind to the appropriate dispute resolution process before entering into a contract, you can better manage and resolve any future disputes without resorting to the often expensive and protracted court proceedings. 

Katie Tornari is a Director in the Litigation & Advice group at Marshall Diel & Myers Limited. Katie has extensive experience in handling both domestic and international arbitrations in Bermuda and arbitrations in London.

A copy of this article can be found at the firm’s website at www.law.bm.  This column is for general guidance only. It should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.