The Clause Signed to Save Time

A Schaumburg software reseller is owed $180,000 by a vendor that stopped honoring its pricing commitments. When the reseller’s owner pulls the contract, he finds an arbitration clause calling for three arbitrators, a private arbitration provider, and hearings in Chicago—terms he remembers accepting because arbitration was supposed to be faster and cheaper.

That may still prove true. It is also possible, however, that the clause he signed has become the most expensive part of his claim.

The Appeal You Agreed to Give Up

The first trade-off is finality. Courts enforce arbitration agreements, but they review arbitration awards very narrowly. Under section 12 of the Illinois Uniform Arbitration Act (710 ILCS 5/12), a court may vacate an award only on limited grounds, such as corruption, fraud, or undue means, evident partiality, misconduct, or arbitrators exceeding their powers. However, an arbitrator’s mistake about the law or the evidence generally is not enough.

By contrast, a party that loses a trial in court can usually appeal legal errors, while a party that loses an arbitration usually has to live with the result. For a business confident in its legal position, that trade can be costly.

The Costs Don’t Disappear.

Cost is the second trade-off. Judges do not bill by the hour, but arbitrators do, and a three-arbitrator panel multiplies that expense. Filing and administrative fees charged by private providers can also exceed court filing fees, and someone has to pay for the hearing room.

Discovery is usually narrower in arbitration, which can save money, and the discovery rules are more lenient. However, this can also favor the party that already holds the key documents. If the vendor has the pricing data and the reseller does not, limited discovery handicaps the reseller.

Privacy Is a Term, Not a Default

Many businesses also choose arbitration expecting confidentiality. Arbitration is private in the sense that hearings are not open to the public, but whether the parties themselves must keep the dispute confidential depends on the contract and the rules it adopts. If confidentiality matters, the clause should say so.

You Can Lose the Right by Litigating

Timing matters as well, because a party that wants arbitration should say so early. Under federal arbitration law, the U.S. Supreme Court held in Morgan v. Sundance, Inc., 596 U.S. 411 (2022), that a party can waive its right to arbitrate by acting inconsistently with it, even if the other side cannot show prejudice. Illinois courts applying the state arbitration statute have generally required a showing of prejudice, but under either standard the safer course is to raise arbitration before litigating the merits.

The same rule can work in a party’s favor. A business that would rather be in court should take note when the other side files motions, takes discovery, or otherwise litigates the case before invoking the clause.

When Arbitration Is Worth It

None of this makes arbitration a bad choice. It can be faster, it avoids juries, it allows the parties to choose a decision-maker with technical expertise, and its awards can be easier to enforce across borders. The real problem, however, is treating the clause as boilerplate rather than as a set of decisions.

In fact, each of those decisions can be negotiated, including a single arbitrator for smaller claims, carve-outs for collection actions and emergency injunctions, a fee-shifting provision, limits on discovery, a defined location, and an express confidentiality term. A clause drafted with the likely dispute in mind is far more useful than one copied from the last contract, or one that conflicts with the contract’s other dispute terms.

Read the Clause Before the Dispute

For the reseller, the question is no longer whether arbitration was a good idea when the contract was signed. The question now is whether the clause, as written, still serves this claim and whether either side’s conduct has changed the answer, an analysis that is far easier at the beginning of a dispute, ideally before the first demand letter, than after the first motion has been filed.

We help businesses evaluate arbitration and forum clauses, both when negotiating contracts and when a dispute arises. If your contract requires arbitration, we can assess whether the clause helps or hurts your position and how to proceed. Contact us to discuss your matter.

This article provides general information and does not constitute legal advice. For guidance concerning a specific matter, see our contract review and advisory services. The available options depend on the contract language, the governing arbitration rules, and how the parties have proceeded. To discuss potential representation, request a consultation. Submitting an inquiry does not establish an attorney-client relationship.