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When running a business, you may find yourself in a dispute with another company. You might come into trouble if they are refusing to pay a debt that they owe you. Alternatively, the other business may have breached a term in your contract. If negotiating directly with the other party is not working, you may need to consider other dispute resolution forums, such as arbitration. However, arbitration may not always be right for your business and, instead, you may wish to take the matter to court. This article will explain whether you can be forced to go to arbitration

What is Arbitration?

Arbitration is a form of alternative dispute resolution (i.e. an alternative to going to court). It involves an independent arbitrator making a decision about a dispute between parties. Arbitration has many benefits including the ability to:

  • tailor the process to fit your dispute best;
  • potentially reach a decision faster and at a lower cost when compared to court;
  • enforce the decision internationally in many countries; and
  • keep the dispute confidential as the facts do not end up in law reports or the media.  

Importantly, arbitration produces a legally binding decision that can be enforced by a court without the parties having to agree on a settlement.

However, the decision is difficult to appeal or, depending on the particular terms of the agreement, you may not be able to appeal it at all. 

Can You Be Forced to Participate in Arbitration?

If you have become involved in a dispute, the other party may wish to undergo arbitration. However, if going to court seems like the better alternative for your situation as you will always have the option of an appeal, you might want to refuse their idea of arbitration. However, are you legally obligated to go to arbitration?

In short, no. You cannot be forced to participate in arbitration. However, this is dependent on whether you have already previously agreed to undertake arbitration.

A critical difference between arbitration and court is that arbitration is consensual and you have to agree to participate. Otherwise, the arbitrator has no power to bind you with a decision. In contrast, in court, if you initiate proceedings, the other side must either defend the proceedings or settle.

What If I Have Agreed to Arbitration, But Have Changed My Mind?

If you have already agreed to arbitration, it is unlikely that you can change your mind. An agreement to arbitrate can arise through either:

  1. submitting a submission agreement once the dispute has arisen; or
  2. the arbitration clause that exists within the contract between you and the other party.

It is common to be unaware as to whether your contract already contains an arbitration clause. Many industries have standard form contracts with set terms that parties cannot change after signing. Furthermore, you might have already agreed to the company’s standard terms and conditions, which contain an arbitration clause. Therefore, it is extremely important to read any contract carefully before you sign it, as to avoid disputes like these.

Can I Get Out of Arbitration?

If your contract contains an arbitration clause, it might be compulsory to resolve your dispute through arbitration rather than going to court. If the clause makes arbitration compulsory and you attempt to take the case to court, the other party can apply to the court to have the proceedings stayed. This means that the court might refuse to hear the case on the basis that the dispute must go to arbitration.

When determining whether your contract makes arbitration compulsory, you should carefully look at the wording of the arbitration clause. If the clause uses terms like ‘must’ and ‘shall’, it is probably compulsory. In comparison, if the clause contains language like ‘may’ or ‘can’, you might still potentially be able to use the court system.

For example:

  • Non-compulsory: “If a dispute arises in connection with this contract, the parties must endeavour to resolve it amicably. If the parties cannot resolve the issue within 30 days, the parties may refer the dispute to arbitration.”
  • Compulsory: “If a dispute arises in connection with this contract the parties may, if they agree, refer it to mediation. If the parties cannot resolve the issue, the dispute must be resolved by arbitration.”

Key Takeaways

Arbitration can be a fantastic mechanism to resolve disputes if it fits the needs and priorities of your business.

However, if it does not suit your business, you will need to ensure that you are not legally obligating yourself to participate in arbitration when signing your initial contract. To do this, look at the wording of the arbitration clause and determine whether it is making arbitration compulsory. If you have any questions about whether arbitration is right for your business, get in touch with LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.


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