Arbitration Pitfall

Posted on November 12, 2008


A recent decision by the Alabama Supreme Court should raise concern among members of the business community who for years have reflexively favored arbitration over the judiciary as a method for resolving disputes.  In a decision released in September, the Alabama Supreme Court held that manifest disregard of the law will no longer be a proper ground for vacating, modifying or correcting an arbitrator's award.  Do contracting parties really Intend (or desire) that an arbitrator should have the authority to disregard the law in determining and calculating an award?  If not, how can contracting parties avoid such a result?

At least two alternatives are available.  First, the contracting parties can simply omit any reference to arbitration in the contract.  Depending on the nature of the contract, if either (or both) parties believe that the law might be more favorable to their position, they can negotiate an agreement without an arbitration provision.  Second, an arbitration provision could expressly limit the authority of the arbitrator so as to make it clear that he or she is not empowered to disregard the law in determining or calculating an award.

  If your business is one whose contracts routinely contain arbitration provisions, you should consult your legal counsel to determine if and how you can protect your company  from the possibility of an arbitrator disregarding the law with impunity.

Paul  Liles, The Liles Firm