02-28-19

When is an arbitration clause an arbitration clause?

The Mississippi Court of Appeals recently examined the issue whether a contract provision that parties “agree to resolve all claims and contract disputes by negotiations, arbitration, litigation or other means…” is sufficient to create a binding agreement to arbitrate, particularly where one party demanded arbitration. [link to decision]  The owner argued the language was insufficient to manifest an intention on the part of the parties to waive the right to litigation.  The Court concluded there was no agreement to arbitrate because the clause “does not use express, unconditional language providing either party with the unilateral right to submit a dispute to binding arbitration.  Instead, it provides the parties with various dispute resolution options, none to the exclusion of the other.”  Finally, the Court concluded that an open-ended dispute resolution clause, such as the one found in the contract, does not become a “binding arbitration agreement simply because the parties left the matter of dispute resolution open to options provided under state law.”

The lesson to be learned from this decision is that a contract must clearly indicate an intent to arbitrate and, if contested, the court will look at the totality of the arbitration provisions to determine whether such an intent existed. If you are responsible for drafting an arbitration provision, it should clearly state the parties agree to arbitrate their disputes.  It should also provide, if preferred, broad language that “all disputes arising out of or related to the contract” must be arbitrated.  Finally, it should include the mechanism to be used for arbitration and any critical substantive or procedural requirements the parties desire. Remember, an arbitration agreement is a “contractual” agreement and an arbitrator is bound to follow the requirements set forth in the arbitration clause. Equally important, a court will look to those clauses in determining whether to compel arbitration.