It therefor has become the norm within the outsourcing world that most contracts are using arbitration clauses to safeguard the legal interest of the parties.
Commercial Arbitration Firms like JAMS offer an alternative dispute resolution process which is faster and also cheaper than what is available through the courts. An added benefit might be that because of the nature of arbitration (private resolution) there is a significantly greater degree of confidentiality.
The big advantage arbitration does have is that countries like China, Mexico and India have signed the New York Convention for the Enforcement of Foreign Arbitral Awards, thus enabling the collection of judgements even in those countries which would not enforce a judgement obtained at a US court.
Another significant advantage utilizing the arbitration route is less cost and less time consuming, both of which constitute a significant advantages as compared to litigate in front of a US court.
There are of course pitfalls to consider when executing an arbitration clause. The wording of the clause has to be as such that it will withstand legal scrutiny in case a party wants to evade their arbitration responsibility.
At the very least the following key points should be incorporated into the arbitration clause:
- A provision stating that "all disputes arising under or in connection with the agreement shall be resolved" by the rules of a particular international arbitration organization
- A clear location of arbitration
- The number of arbitrators involved (typically one or three)
- The language in which the arbitration process will occur
- An agreement that any awards issued by the arbitrators "may be enforced in any court of competent jurisdiction"
Obviously a competent attorney should review any contract to make sure that the legal language used is up to par.
Looking out for the proper arbitration language will go a long way that in a situation where an outsourcing relationship has gone sour. No one ever wants to go to court and in a situation where some kind of dispute resolution is considered arbitration is a much better bet.