Arbitration Agreement in Contract

In today`s business world, contracts are a must-have to protect the interests of both parties involved in any agreement. One of the most crucial clauses in any contract is the arbitration agreement. It is an alternative dispute resolution method designed to resolve disputes outside the courtroom. This article explores the essential facts that you need to know about the arbitration agreement in a contract.

What is an arbitration agreement?

An arbitration agreement is a legally binding clause in a contract that requires both parties to resolve disputes through arbitration instead of litigation. It specifies that any disagreement or dispute arising out of the contract should be resolved through arbitration rather than through a court proceeding.

Why include an arbitration agreement in a contract?

The primary reason for including an arbitration agreement in a contract is to avoid the time and cost associated with a court proceeding. The arbitration process is often quicker, less formal, and less expensive than a court case. Additionally, the arbitration process is confidential, whereas court proceedings are public.

Another reason to consider including an arbitration agreement in a contract is that the parties can choose an arbitrator that possesses expertise in the relevant industry. This is important as it ensures that the arbitrator has a better understanding of the dispute and can make an informed decision.

How does the arbitration process work?

The arbitration process is initiated by one party sending a notice of arbitration to the other party. The notice typically includes a summary of the dispute and a request for arbitration. The parties then agree on an arbitrator or a panel of arbitrators to hear the dispute. Once the arbitrator is appointed, a hearing takes place, where both parties are given an opportunity to present their evidence and make their case.

After the hearing, the arbitrator makes a decision, which is legally binding on both parties. The decision can only be appealed in limited circumstances, such as where there was a mistake of law or an arbitrator`s bias.


An arbitration agreement is an essential clause in any contract. It provides a cost-effective and efficient way of resolving disputes without the need for a court proceeding. The parties can also appoint an arbitrator with relevant expertise, which ensures that the decision is well-informed. If you are drafting a contract, including an arbitration agreement is a wise decision.

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