Beware of arbitration clauses

Clients frequently use form contracts with their customers.  The clients figure that whoever put these contracts together for them must have known what they were doing and that all the provisions are solely for their benefit.  Unfortunately, there is one type of provision in a standard contract that often backfires instead of helping.  That provision is an arbitration clause.  For instance, if a client is owed $15,000, the court filing fee to start a law suit is $45.  However, the filing fee to arbitrate is an initial fee of $975, final fee of $300, plus the fee for the arbitrator, which is usually around $400 per hour. An arbitration award does not at all give any right to payment. A court proceeding has to be brought to “confirm” the arbitration award. This is true even if the debtor defaults. The loser of the arbitration can contest the award on limited grounds. If instead of arbitation a collection lawsuit is filed, the law is that the debtor-defendant need only point out to the court the arbitration clause, and the court is then forced to put a stop to the suit and the only choice left to the client is to pay the exorbitant fees for arbitration.  Still, arbitration can be useful to avoid drawn out pre-trial proceedings where a large sum is owed and a genuine dispute exists.  Also, arbitration provisions are strictly interpreted and a contract can very narrowly define exactly when arbitration is required. Accordingly, the following type of provision has been recommended by us for insertion in a form contract or credit application: “Any invoice from you shall be deemed conclusive proof of its contents unless written objection to it is received by you within 30 days of its issuance. As to any such invoice so timely protested or objected, the subject of the objection shall be settled by binding arbitration.”