3 Historically restricted in common law jurisdictions but generally accepted elsewhere; availability varies between contemporary common law jurisdictions
In contract law, an arbitration clause is a clause in a contract that requires the parties to resolve their disputes through an arbitration process. Although such a clause may or may not specify that arbitration occur within a specific jurisdiction, it always binds the parties to a type of resolution outside the courts, and is therefore considered a kind of forum selection clause.
Arbitration clauses are frequently paired with class action waivers, which prevent contracting parties to file class action lawsuits against each other. In the United States, arbitration clauses also often include a provision which requires parties to waive their rights to a jury trial. All three provisions have attained significant amounts of support and controversy, with proponents arguing that arbitration is as fair as courts and a more informal, speedier way to resolve disputes, while opponents of arbitration condemning the clauses for limited appeal options and allowing large corporations to effectively silence claims through "private justice".[1]
Use and enforceability by country
Brazil
Brazil has been very slow to adopt arbitration as its courts often refuse to enforce agreements to arbitrate, especially prior to the passage of Brazilian law number 9.307 (amended by Law No. 13.129 in 2017), the Brazilian Arbitration Act, which was passed in 1996, today considered to be the fundamental law for arbitration within Brazil. Since its passage, though, Brazilian courts have been more willing to enforce agreements to arbitrate, though precedent only stipulates that courts can compel arbitration in disputes involving what the law refers to as "arbitrable patrimonial rights", presumed to relate only to tangible and intangible property disputes. Brazil also requires all arbitrators to refer non-arbitrable disputes to the competent court. Brazil further restricts all arbitration proceedings to be decided by an odd number of arbitrators.[2][3]
Canada
All provinces except for Quebec have adopted an arbitration code similar to the United Nations Commission on International Trade Law's Model Law. Quebec has opted instead to require that arbitrations would be subject to the province's own Civil Code, including Quebec's Code of Civil Procedure. Arbitration in Canada is primarily administered by the ADR Institute of Canada and the British Columbia International Commercial Arbitration Centre.[4]
Class action waivers lack a uniform policy across Canada, as the Supreme Court of Canada has found that provincial legislation governed disputes, though in Seidel v. TELUS Communications, the court found that because a class action waiver was attached to an invalid arbitration agreement, the class action waiver was void. The province of Ontario, per the Consumer Protection Act of 2002, has banned class action waivers. A court of appeals in British Columbia also found that class action waivers were unenforceable and unconscionable in Pearce v. 4 Pillars Consulting Group due to the contract in question being a standard form contract written by 4 Pillars and giving little bargaining power to Pearce.[5]
Mainland China
China allows arbitration clauses to exist, though the Supreme People's Court has found that an arbitration clause that does not specify an "arbitral commission" is invalid and unenforceable. An agreement to arbitrate in China, in addition to specifying a commission, must contain a declared intent to arbitrate as well as name the disputes to be arbitrated in order to be enforceable. In the event that one party questions the validity of an arbitration agreement and requests that a PRC court to determine the validity of the agreement, the court shall determine the validity of the agreement.[6][7]
France
French law generally supports arbitration, though declares that capacity, marriage and divorce cannot be arbitrated.[8][9]
Germany
German law excludes disputes over the rental of living space from any form of arbitration,[10] while arbitration agreements with consumers are only considered valid if they are signed,[11] and if the signed document does not bear any other content than the arbitration agreement.[12]
England and Wales
In England and Wales it is not possible for parties to a contract to prevent courts from exercising their jurisdiction over contact disputes,[citation needed] but through what is known as a Scott v. Avery clause they may require that a dispute be adjudicated by an arbitrator before submitting the matter to a court.[13]
United Arab Emirates
The United Arab Emirates generally supports arbitration clauses. The federation of kingdoms, however, poses limitations on their enforceability depending on the actions of the parties, and the UAE's courts have ruled that parties which engage in court proceedings waive their right to compel arbitration.[14]
The federal government has explicitly allowed arbitration clauses. The relevant law is found in the Federal Arbitration Act, which permits compulsory and binding arbitration, under which parties give up the right to appeal an arbitrator's decision to a court.[15] Historically, arbitration in the United States in the employment context was primarily used for disputes between unions and employers. Starting in 1991 with the Gilmer decision this changed dramatically, expanding from 2.1 percent of the employers subject to mandatory arbitration clauses in 1992[16] to 53.9% in 2017.[17]
In 2022, the U.S. Congress passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFASASHA), which excludes these types of complaints from arbitration clauses, including retroactively. Congress also included a ban on class action waivers for claims covered under the act.[18]
Fairness
The use of arbitration clauses has been criticized for its unfairness. In the US in 2020, workers who challenged their employers through forced arbitration won their cases just 1.6 percent of the time.[19] This prompted members of the United States' Democratic Party to present bills limiting the scope of arbitration clauses, most notably the Forced Arbitration Injustice Repeal Act (which has yet to pass) and the EFASASHA, which was signed into law in 2022 by president Joe Biden.[20]
Contractual language
A number of international arbitration bodies provide sample arbitration clauses for parties to use. Examples of these are:
Any dispute or difference arising out of or in connection with this contract shall be determined by the appointment of a single arbitrator to be agreed between the parties, or failing agreement within fourteen days, after either party has given to the other a written request to concur in the appointment of an arbitrator, by an arbitrator to be appointed by the President or a Vice President of the Chartered Institute of Arbitrators.
Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause.
The number of arbitrators shall be [one/three].
The seat, or legal place, of arbitration shall be [insert city or country].
The language to be used in the arbitral proceedings shall be [insert language].
The governing law of the contract shall be the substantive law of [insert governing law].
All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.
Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial [or other] Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.
In keeping with the informality of the arbitration process, the law in England and Wales is generally keen to uphold the validity of arbitration clauses even when they lack the normal formal language associated with legal contracts. Clauses which have been upheld include:
"arbitration in London – English law to apply"[24]
Courts in England and Wales have also upheld clauses which specify resolution of disputes other than in accordance with a specific legal system. These include provision indicating:
that the arbitrators "must not necessarily judge according to the strict law but as a general rule ought chiefly to consider the principles of practical business"[27]
"internationally accepted principles of law governing contractual relations"[28]
↑ Sternlight, Jean R. (1996). "Panacea or Corporate Tool—Debunking the Supreme Court's Preference for Binding Arbitration". Washington University Law Quarterly. 74: 637.
Arbitration, in the context of the law of the United States, is a form of alternative dispute resolution. Specifically, arbitration is an alternative to litigation through which the parties to a dispute agree to submit their respective evidence and legal arguments to a neutral third party for resolution. In practice arbitration is generally used as a substitute for litigation, particularly when the judicial process is perceived as too slow, expensive or biased. In some contexts, an arbitrator may be described as an umpire.
In contract law, a forum selection clause in a contract with a conflict of laws element allows the parties to agree that any disputes relating to that contract will be resolved in a specific forum. They usually operate in conjunction with a choice of law clause which determines the proper law of the relevant contract.
The United States Arbitration Act, more commonly referred to as the Federal Arbitration Act or FAA, is an act of Congress that provides for non-judicial facilitation of private dispute resolution through arbitration. It applies in both state courts and federal courts, as was held in Southland Corp. v. Keating. It applies in all contracts, excluding contracts of seamen, railroad employees, or any other class of workers involved in foreign or interstate commerce, and it is predicated on an exercise of the Commerce Clause powers granted to Congress in the U.S. Constitution.
Arbitration is a form of alternative dispute resolution (ADR) that resolves disputes outside the judiciary courts. The dispute will be decided by one or more persons, which renders the 'arbitration award'. An arbitration decision or award is legally binding on both sides and enforceable in the courts, unless all parties stipulate that the arbitration process and decision are non-binding.
An arbitral tribunal or arbitration tribunal, also arbitration commission, arbitration committee or arbitration council is a panel of unbiased adjudicators which is convened and sits to resolve a dispute by way of arbitration. The tribunal may consist of a sole arbitrator, or there may be two or more arbitrators, which might include a chairperson or an umpire. Members selected to serve on an arbitration panel are typically professionals with expertise in both law and in friendly dispute resolution (mediation). Some scholars have suggested that the ideal composition of an arbitration commission should include at least also one professional in the field of the disputed situation, in cases that involve questions of asset or damages valuation for instance an economist.
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), is a United States Supreme Court case concerning contract law and arbitration. The case arose from a class action filed in Florida against a payday lender alleging the loan agreements the plaintiffs had signed were unenforceable because they essentially charged a higher interest rate than that permitted under Florida law.
A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more mutually agreeing parties. A contract typically involves the transfer of goods, services, money, or a promise to transfer any of those at a future date, and the activities and intentions of the parties entering into a contract may be referred to as contracting. In the event of a breach of contract, the injured party may seek judicial remedies such as damages or rescission. A binding agreement between actors in international law is known as a treaty.
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), is a United States Supreme Court decision that established what has become known as the "separability principle" in contracts with arbitration clauses. Following an appellate court ruling a decade earlier, it reads the 1925 Federal Arbitration Act (FAA) to require that any challenges to the enforceability of such a contract first be heard by an arbitrator, not a court, unless the claim is that the clause itself is unenforceable.
The Arbitration Act 1996 is an Act of Parliament which regulates arbitration proceedings within the jurisdiction of England and Wales and Northern Ireland.
Southland Corp. v. Keating, 465 U.S. 1 (1984), is a United States Supreme Court decision concerning arbitration. It was originally brought by 7-Eleven franchisees in California state courts, alleging breach of contract by the chain's then parent corporation. Southland pointed to the arbitration clauses in their franchise agreements and said it required disputes to be resolved that way; the franchisees cited state franchising law voiding any clause in an agreement that required franchisees to waive their rights under that law. A 7-2 majority held that the Federal Arbitration Act (FAA) applied to contracts executed under state law.
Arbitration in the United States is governed by the Federal Arbitration Act of 1925, which requires courts to compel parties who agree to arbitration to participate in binding arbitration, the decision from which is binding upon the parties. Since the passage of the FAA, both state and federal courts have examined arbitration clauses, as well as other statutes involving arbitration clauses, for validity and enforceability.
Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602 is an English contract law case concerning the Contracts Act 1999.
Shearson/American Express Inc. v. McMahon, 482 U.S. 220 (1987), is a United States Supreme Court decision concerning arbitration of private securities fraud claims arising under the Securities Exchange Act of 1934. By a 5–4 margin the Court held that its holding in a 1953 case, Wilko v. Swan, that the nonwaiver provisions of the Securities Act of 1933 prevented the mandatory arbitration of such claims, did not apply to claims under the 1934 Act due to differences in the corresponding language of the two statutes, reversing a decision of the Second Circuit Court of Appeals that had affirmed what had been considered settled law, despite the lack of a precedent. It likewise held that claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) were arbitrable, affirming an order from the district court that the Second Circuit had also upheld.
14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009), is a United States labor law case decided by the United States Supreme Court on the rights of unionized workers to sue their employer for age discrimination. In this 2009 decision, the Court decided that whenever a union contract "clearly and unmistakably" requires that all age discrimination claims under the Age Discrimination in Employment Act of 1967 be decided through arbitration, then employees subject to that contract cannot have those claims heard in court.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), is a United States Supreme Court decision concerning arbitration of antitrust claims. The Court heard the case on appeal from the United States Court of Appeals for the First Circuit, which had ruled that the arbitration clause in a Puerto Rican car dealer's franchise agreement was broad enough to reach its antitrust claim. By a 5–3 margin it upheld the lower court, requiring that the dealer arbitrate its claim before a panel in Tokyo, as stipulated in the contract.
Wilko v. Swan, 346 U.S. 427 (1953), is a United States Supreme Court decision on the arbitration of securities fraud claims. It had originally been brought by an investor who claimed his broker at Hayden Stone had sold stock to him without disclosing that he and the firm were the primary sellers. By a 7–2 margin the Court held that the provisions of the Securities Act of 1933 barring any waiver of rights under that statute took precedence over the Federal Arbitration Act's (FAA) requirement that arbitration clauses in contracts be given full effect by federal courts. It reversed a decision to the contrary by a divided panel of the Second Circuit Court of Appeals.
Disputes between consumers and businesses that are arbitrated are resolved by an independent neutral arbitrator rather than in court. Although parties can agree to arbitrate a particular dispute after it arises or may agree that the award is non-binding, most consumer arbitrations occur pursuant to a pre-dispute arbitration clause where the arbitrator's award is binding.
Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. ___ (2019), was a case decided by the Supreme Court of the United States on January 8, 2019. The case decided the question of whether a court may disregard a valid delegation of arbitrability—a contract provision stating that an arbitrator should decide whether a dispute is subject to arbitration—when the argument in favor of arbitration is "wholly groundless." In a unanimous (9-0) opinion written by Justice Brett Kavanaugh, the court sided with petitioner Henry Schein, Inc., holding that the "wholly groundless" exception to arbitrability violates the Federal Arbitration Act, and therefore a valid delegation of arbitrability should be honored even if a court believes the argument for arbitration to be "wholly groundless." It was Justice Kavanaugh's first Supreme Court opinion.
Am. Express Co. v. Italian Colors Rest., 570 U.S. 228 (2013), is a United States Supreme Court case decided in 2013.
A class action waiver is a provision found in some contracts which prohibits a party from filing a class action legal proceeding against the other party, or both parties waiving the right to file class actions against each other. These clauses are most often found, and most often upheld, in the United States and agreements with American citizens.
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