key term - Delegation clause

Definition

A delegation clause is a provision in a contract that allows the parties to delegate the authority to resolve disputes to an arbitrator rather than through traditional court proceedings. This clause typically specifies that any disputes arising from the contract must be submitted to arbitration, thus giving the arbitrator the power to determine not only the merits of the dispute but also issues related to arbitration itself. Such clauses are designed to streamline dispute resolution and reduce litigation costs.

5 Must Know Facts For Your Next Test

1. A delegation clause can enhance the efficiency of arbitration by allowing an arbitrator to decide issues of arbitrability, meaning whether a dispute is subject to arbitration.
2. Not all contracts contain a delegation clause; their inclusion depends on the parties' intent and negotiation.
3. Courts generally uphold delegation clauses as long as they are clear and unambiguous, reflecting the parties' intent to delegate authority.
4. If a delegation clause is challenged, courts will analyze its validity based on state contract law principles.
5. The enforceability of a delegation clause can impact the overall effectiveness of arbitration as a means of resolving disputes.

Review Questions

• How does a delegation clause impact the resolution of disputes in arbitration?
  • A delegation clause significantly influences dispute resolution by allowing an arbitrator to determine not just the merits of a case but also whether the case falls under the scope of arbitration. This means that if parties have agreed to a delegation clause, they effectively relinquish some control over the initial determination of their dispute, placing that authority in the hands of an arbitrator. This can lead to quicker resolutions since the arbitrator can address both jurisdictional and substantive issues without requiring court intervention.
• Evaluate the importance of clear language in drafting a delegation clause and its implications for enforceability.
  • Clear language in drafting a delegation clause is crucial because ambiguities can lead to challenges regarding its enforceability. Courts typically uphold delegation clauses that are explicit and straightforward, reflecting the parties' intent to have specific disputes determined by an arbitrator. If a delegation clause is poorly drafted or vague, it may be deemed unenforceable, leading parties back into traditional court systems, which undermines the intended benefits of arbitration, such as speed and reduced costs.
• Assess how delegation clauses can affect the relationship between contractual parties during disputes.
  • Delegation clauses can significantly alter the dynamics between contractual parties during disputes by creating a more structured and potentially less adversarial framework for resolution. By agreeing to delegate authority to an arbitrator, parties may be more inclined to resolve their issues amicably, knowing that an expert will make decisions based on their contractual agreement. This arrangement can foster cooperation and reduce hostility compared to traditional litigation, where confrontations are often more pronounced, ultimately leading to better long-term relationships between parties.

Related terms

arbitration agreement:

A written agreement in which parties agree to submit their disputes to arbitration instead of going to court.

arbitrator: An impartial third party who is appointed to resolve disputes through arbitration.

binding arbitration:

A form of arbitration where the decision made by the arbitrator is final and legally binding on both parties.