Michigan

The Devil's in the Details When It Comes to Michigan Arbitration Agreements

Arbitration agreements are becoming more and more common in a wide variety of Michigan contracts. The reason why arbitration is becoming so popular is that it is seen as generally being a faster, cheaper and less disruptive method for resolving business disputes than traditional litigation in the courts.

Although most lay people think that an arbitration agreement will automatically keep them out of court, that is true only if the arbitration agreement contains some statutorily required "magic" language. Michigan courts recognize two different types of arbitration agreements. The first is a "common-law" arbitration agreement, which is revocable by either party until the arbitration award is rendered. The second is a "statutory" arbitration agreement, which is non-revocable and binds both parties to the arbitration process.

Most lay people (and, I suspect, more than a few lawyers) are unaware of the differences between these two types of arbitration and do not know the "magic" language that is required to ensure that their arbitration agreement is of the "statutory" kind. Obviously, it is important to understand the requirements for invoking "statutory" arbitration, otherwise a party could find themselves having to litigate a dispute in court when they had been banking on resolving their dispute in an arbitration proceeding.

To be a "statutory" arbitration agreement, the arbitration clause must specifically state that "a judgment of any circuit court may be rendered upon the award made pursuant to such agreement." This requirement is found in the the Michigan Arbitration Act (MCL 600.5001). If that clause is included, neither party has the power to revoke the arbitration agreement unless the other party also agrees. But, if the arbitration clause does not include the "magic" statutory language, then it is a "common-law" arbitration agreement, which can be unilaterally revoked by either party up until the arbitration award is issued.

Every entrepreneur and small business who wants to be able to enforce their arbitration agreements should have a competent Michigan business lawyer review those agreements before they are signed. This will help to ensure that any arbitration provisions are properly drafted, thus preventing nasty surprises if and when it is necessary to invoke the arbitration process.

Full post as published by Michigan Business Lawyer Blog on February 13, 2008 (boomark / email).