I’ll see you in court…or will I? Impact of arbitration provisions in contracts.
Sometimes tucked away at the end of a commercial contract is a boilerplate provision regarding arbitration. In Indiana, a written agreement to arbitrate is generally enforceable. In fact, Indiana has a strong public policy favoring arbitration. Therefore, assuming the parties’ current dispute falls within the scope of the arbitration agreement, it is likely the parties will need to resolve their dispute in accordance with the terms of the arbitration provision and not necessarily in court.
However, there are some reasons why a court may nevertheless refuse to enforce an arbitration provision, such as, the provision was procured by reasons such as fraud, duress, lack of capacity, or unconscionability. In those instances, a court may find that the arbitration provision to be invalid. Likewise, a party may waive its right to arbitrate notwithstanding an arbitration provision, and despite the fact that the dispute would have been otherwise covered. Generally, a court will look at several factors in determining whether a party has acted in such a way that they have waived their right to insist upon arbitration.
In conclusion, while arbitration provisions can be beneficial in certain circumstances, there are some instances where an arbitration provision might not make sense. Therefore, it is always important to read the boilerplate provisions in any contract and understand exactly what such provisions mean. It is also important to understand the scope of any arbitration provision and to not take any actions inconsistent with such provision if wishing to arbitrate.