What does the word boilerplate mean anyway? Where did the word come from and why do we even use it? Does anybody really care?
The only reason we even know this word is because damn lawyers refer to it when discussing the pages and pages of standard language at the end of a contract that nobody ever reads. While many people take this language for granted, it can have grave consequences for contracting parties if they don’t take time to understand why or if a particular provision should be included.
Case in point, the vaunted Arbitration Clause.
Everyone thinks arbitration is the remedy for long and lengthy court proceedings. It’s a magic elixir to resolve disputes quickly, efficiently and fairly. Most importantly, people think it costs a lot less than going to court and paying attorneys.
Let me explain why this view might be wrong.
• You can’t appeal an arbitrator’s decision, even if there was clear error by the arbitrator. If an arbitrator’s decision can be appealed to a court, why go through the arbitration process to begin with? Just head straight to court.
• There are no specific rules for arbitration (as there are for court proceedings). This means parties have to fight over how the proceeding will occur. Of course, this costs time and legal fees. More importantly when negotiating these provisions up-front, it can delay signing the contract and entering into a business deal both parties want.
• Like many contract provisions, negotiated arbitration provisions can be ambiguous. The result is the validity of the arbitration provision can be challenged in court (delaying the process more than if the parties just initially went to court).
• Arbitration might actually limit what you can recover if you win. A court gives you broader flexibility when claiming damages.
• The parties can always agree to arbitration when a dispute arises. Certain disputes may be better handled in court. Why eliminate your flexibility before you even know the issue in dispute?
There are also other, more subtle, issues can affect the benefits of arbitration.
• If litigation is properly in your local court, you might have “home court” advantage. If the arbitration specifically states where it will take place, you might not have this benefit.
• Many lawyers have some familiarity with local judges and know their quirks. When selecting arbitrators, your lawyer might not necessarily know him/her.
• Arbitrators (usually other practicing attorneys) are often more concerned with making sure they get appointed to other cases (and earning fees) than spending the time, effort, and energy to make legally correct decisions. The result is often a split-decision; nobody wins, nobody loses and everyone walks away with a sour taste in their mouth.
• Some cases are better handled by a court. If there is an undisputed debt for a specific sum, arbitration has no value. Go to court and get a judgment. Many cases might also be won on a motion for summary disposition. This is usually faster and cheaper than arbitration.
Why You Should Care
Locking yourself into the arbitration process or course before you even know what type of dispute might need to be resolved, is just plain unwise. I strongly believe that you should leave yourself the flexibility to go to court when a dispute arises. Of course, if the parties agree at the time, they can arbitrate the dispute.