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Resolving Disputes Using Binding Arbitration

If you’ve ever been involved with another person in a business, partnership, lease, a loan or joint investment, it always starts out with great hope and expectations. Everyone is good willed, excited and optimistic. This is going to be great!

However, here are two truths about these business relationships that every person, especially Christians need to consider:

1. Every joint venture will end. Either it will end in death, dissolution, sale or disagreement. But, it will end. And most investors have no written plan for dealing with those inevitabilities.

2. Almost every venture will encounter unforeseen, serious difficulties for which no written provision for a resolution has been made. That’s fertile soil for most personal lawsuits.

So, before you enter into any joint venture, or if you’re in one presently but have not yet encountered these difficulties, a wise person will plan now for how they’ll resolve them, if and when they occur. Binding arbitration is my preferred method. It’s essentially a plan for dealing with serious, specific disputes that can’t realistically be foreseen.

Binding Arbitration

The primary benefits of having a binding arbitration agreement is that parties can, in advance establish a mutually acceptable method for resolving future disputes. It makes it less likely you will have to go to court or sue someone, it’s speeder than the judicial system, less expensive and private.  While this method is not found in the Bible, its intent is to live at peace with one another and to pursue justice. It’s affordable and honorable.

I apologize for the formal, legal language in the following text, but its language that has been suggested by a variety of Christian attorneys with whom I’ve worked, chosen for their precision and clarity on behalf of other attorneys you may work with.

The following are the basic elements, which ought to be considered if your desire is to incorporate binding arbitration into a partnership agreement, lease or other legal documents.

(a) Any dispute or disagreement arising out of or relating to this Agreement, Lease, Notes, the Collateral Documents of the Loan Documents, or relating to any breach or interpretation thereof, shall be resolved by binding arbitration, and only binding arbitration as set out below, with the exception of those described in section(b).

(b) This shall not, however, limit the right of any party to seek any summary, provisional or ancillary remedies (such as but not limited to summary eviction proceedings, injunctive relief, attachment or the appointment of a receiver) from any court having jurisdiction before, during or after the pendency of an arbitration proceeding, nor shall the institution or maintenance of any such action or proceeding constitute a waiver of the right of any party to submit a dispute to arbitration.

(c) Any party may begin the process of resolution by arbitration, by notifying the other party with whom they are in dispute, in writing by registered mail or courier requiring a signature by the recipient.

(d) Within thirty (30) days after the written notice has been received by one of the parties to this Agreement, each party, or their attorney will submit a written list of acceptable arbitrators and together shall mutually agree on one arbitrator.  If all parties fail to mutually agree on an arbitrator, then each party will submit three names, written on separate and identical pieces of paper and one name shall be drawn, blind from a container and that person, if willing, shall be the arbitrator.  Two other names will be drawn at the same time as number one and number two alternates.

(e) The arbitration shall be conducted on a date selected by the arbitrator which shall be at least ten (10) days and no more than sixty (60) days, if possible, after the arbitrator has agreed to serve, unless mutually agreed upon by all parties.  Neither party, their representatives nor attorneys shall have any independent contact with the arbitrator, or attempt to inform or influence the arbitrator prior to the arbitration, except to arrange the arbitration.

(f) Each party will have no more than two hours to present their case, or such additional time as the arbitrator decides.

(g) Such arbitration shall be informal, in accordance with procedures to be established by the arbitrator, and need not conform to the rules of the American Arbitration Association or any other established procedures.  The arbitrator should be someone who is deemed to be impartial, with some expertise or experience with the issues in dispute.

(h) The arbitrator shall have no more than seven (7) days from completion of such presentations to render its decision, including any damage awards, payment methods and dates of payments are to be made and other applicable decisions required for full compliance of the decision, including penalties for non-compliance.

(i) Unless otherwise agreed to by the parties, arbitration shall take place in (the name of your city or county) at a place selected by the Trustee, and the fees and direct out-of-pocket expenses of the arbitrator will be shared equally by the parties.  The arbitrator will set a preliminary budget and prior to the actual arbitration hearing, each party will deposit their proportional share to cover these expenses. Unspent funds will likewise be returned to all parties.

(j) Any award, order or judgment made pursuant to arbitration shall be deemed final and may be entered in any court having jurisdiction over the enforcement of the award, order or judgment.  Each party agrees to submit to the jurisdiction of any court for purposes of the enforcement of such award, order or judgment.

(k) The arbitrator shall have the power to award recovery of costs and fees, (including reasonable attorney fees and expert witness expenses) among the parties as the arbitrator determines to be equitable.

(l) The arbitrator shall be fully protected and indemnified with respect to any action taken.

Note: Clare De Graaf, the author of this sample document is not an attorney. Any final document should be reviewed or written by an licensed attorney. This document is intended only as a sample template for the basic elements which may want to be considered in any future document.

What about Christians?

The language I’ve suggested is obviously very legal and not spiritual. However, it does establish a mechanism for dealing with a wide range of potential issues. My strong preference is that two Christians in dispute use a Christian arbitrator, perhaps even the leadership of the church they may both attend, or leaders of a third church they both respect. “If any of you has a dispute with another, do you dare to take it before the ungodly for judgment instead of before the Lord’s people?” I Corinthians 6:1

In some cases partners have actually chosen ahead of time, mutual acceptable Christians they both admire, as arbitrators and have named them in the document, with second and third choices also named.  I’ve also helped Christians use binding arbitration to resolve issues even when they had no prior agreement to do so.

My History

My wife and I own investment real estate and we use binding arbitration in all our commercial leases.  Even our non-Christian tenants hate the idea of courts and I’ve never had an objection.

I’ve used binding arbitration a number of times to resolve other significant investment disputes and it works well. However, it’s also been my experience that whoever ends up writing the largest check rarely thinks it’s fair.

Binding arbitration is particularly helpful in partnerships to settle disputes regarding the evaluation of a business, or practice for the purposes of a buyout. Almost no partnerships have a plan for resolving those issues if all parties cannot agree on a fair price and terms. A binding arbitration provides a pre-agreed process for how those issues will be handled. If you’re currently in a partnership or investment it’s not too late to adopt this method to resolve future issues, or to resolve current, serious problems.

At the end of the day, Paul’s words in Phil. 2:4 should be our guiding principle in all these endeavors, “Not looking to your own interests but each of you to the interests of the others.”

Question:  Have you ever used binding arbitration and how has it worked?

Following Jesus in Real Life

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