Court Proceedings in Breach of an Arbitration Agreement: Understanding the Consequences
Arbitration agreements are a common feature of business contracts. These legal documents outline a dispute resolution process that involves a neutral third party, the arbitrator. When two parties sign an arbitration agreement, they are essentially agreeing to forego litigation in favor of a speedy and confidential arbitration process.
However, what happens when one party decides to breach the agreement and initiate court proceedings? In this article, we will explore the potential consequences of such actions.
Understanding the Arbitration Agreement
Before diving into the consequences of breaching an arbitration agreement, it is essential to understand the basics of the agreement itself. Typically, arbitration agreements include the following provisions:
– Identifies the parties involved in the agreement
– Details the arbitration process, including the selection of an arbitrator, location, rules, and timelines
– Defines the scope of disputes that are subject to arbitration
– States the consequences of non-compliance with the arbitration agreement
Courts and Arbitration Agreements
For arbitration agreements to be effective, they must be enforceable in court. The Federal Arbitration Act (FAA) sets the legal standard for enforcing arbitration agreements. The FAA requires courts to enforce valid arbitration agreements, even if one party prefers to litigate.
Consequences of Breaching an Arbitration Agreement
When a party breaches an arbitration agreement by filing a lawsuit instead of pursuing arbitration, several consequences may follow. These consequences include:
1. Mandatory Arbitration
If one party initiates court proceedings in breach of an arbitration agreement, the other party may request a stay on the litigation and force the dispute to arbitration. The court may then compel the parties to arbitration and dismiss the court proceeding.
2. Waiver of Arbitration
If the party that violated the arbitration agreement continues with the court proceedings, they may waive their right to arbitration. In this case, the court may continue with the litigation process, and the party that initiated court proceedings may lose their right to arbitrate.
3. Breach of Contract Claims
The party that suffered damages due to the other party`s breach of the arbitration agreement can sue for breach of contract. The damages may include any fees associated with the litigation, such as attorneys` fees, court costs, and expert witness fees.
4. Invalidating the Arbitration Award
If arbitration proceeds, and the arbitrator renders an award in favor of the party that breached the arbitration agreement, the non-breaching party may challenge the award in court. They can argue that the arbitrator had no authority to hear the case due to the breach of the arbitration agreement.
Conclusion
In conclusion, breaching an arbitration agreement can have severe consequences for both parties. The party that initiates court proceedings may lose their right to arbitrate, while the party that suffers damages may sue for breach of contract. It is essential to understand the terms of the arbitration agreement and comply with them to avoid litigation and potential financial damages.