Unilateral Arbitration Agreements Pose Risks

Kegler Brown Construction Law Newsletter

It is increasingly common to encounter dispute resolution provisions that allow one party the right to unilaterally select arbitration or litigation after the dispute develops.

These “unilateral arbitration” clauses are criticized by some as being unfair because they allow one party – usually the upstream party – to shop for a favorable venue once the dispute develops.

Even more problematic is the delay that often occurs while the selecting party decides whether to go to arbitration or litigation.

While many states enforce these unilateral clauses, courts in Montana and Maryland have found them unenforceable because of a lack of consideration or because they are unconscionable. Other states, like Ohio, consider the enforceability of such clauses on a more flexible case-by-case basis.

Those encountering unilateral dispute resolution provisions need to carefully consider whether to modify such clauses or not.