What Is An Arbitration Clause?

An "arbitration" clause in a provision in a contract that states that all disputes arising from such contract will be handled by arbitration rather than litigation. This is important because with growing court congestion, protracted litigation and spiralling lawyers' fees, maintaining a suit has become so expensive and counterproductive, particularly to small business owners.

Arbitration has become an increasingly popular form of alternative dispute resolution. Arbitration  allows  an independent arbiter to settle a dispute rather than litigate it before a court in a lawsuit. Absent an agreement to do so, parties are not required to submit disputes to arbitration.

Arbitration can have the following advantages:

1. Parties can choose the arbitrators, local or foreign.
2. Proceedings are private and confidential.
3. Compared to court litigation, arbitration is speedier and more cost efficient
4. Parties can choose the place of arbitration, and the place where arbitration proceedings will be conducted.
5. A foreign arbitral award can be enforced in any country.
6. Arbitration is less formal.
7. Arbitrators tend to be more sophisticated and knowledgeable than juries.

You should negotiate the specifics of any arbitration clause. For example, you might want to provide for three arbitrators instead of one or require that certain rules have to be followed.

If you think arbitration is best for you, here is a sample clause:

"Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the Philippine Dispute Resoluiton Center, Inc (PDRCI) Arbitration Rules as at present in force."

Note: Parties may wish to consider adding:

1. The number of arbitrator/s shall be ....(one or three)
2. The place of the arbitration shall be ... (city or country)
3. The language(s) to be used in the arbitral proceedings shall be ...