Legal Definitions - compromissory arbitration

Compromissory arbitration refers to a specific type of arbitration where parties agree, in advance and typically as part of a larger contract, that any future disputes arising from that contract will be resolved through arbitration rather than traditional court litigation.

This agreement, often called an "arbitration clause" or "compromissory clause," legally binds the parties to submit their disagreements to a neutral third party (an arbitrator or a panel of arbitrators) for a decision. This decision is usually final and legally enforceable. The defining characteristic of compromissory arbitration is that the commitment to arbitrate is made *before* any specific dispute has actually occurred, establishing a pre-existing framework for dispute resolution.

• Example 1: International Business Contract

  A technology company based in the United States enters into a complex licensing agreement with a software developer in India. To avoid potential jurisdictional conflicts and the complexities of litigating in different national court systems, their contract includes a clause stating: "Any dispute, controversy, or claim arising out of or relating to this agreement, or the breach, termination, or invalidity thereof, shall be settled by arbitration administered by the Singapore International Arbitration Centre (SIAC) in accordance with its rules."

  Explanation: This is an example of compromissory arbitration because both companies agreed to use arbitration for any future disputes *before* any specific disagreement arose. They proactively decided on a neutral forum and rules for resolving potential conflicts related to their licensing agreement.

• Example 2: Employment Agreement

  When a new senior manager is hired by a large financial institution, her employment contract contains a section that reads: "The Company and Employee agree that any dispute or claim arising out of or relating to this employment agreement or the breach thereof, including claims of wrongful termination or discrimination, shall be resolved exclusively by binding arbitration in New York City, New York, in accordance with the rules of the American Arbitration Association (AAA)."

  Explanation: This clause constitutes a compromissory arbitration agreement. Both the financial institution and the manager committed to resolving future employment-related disputes through arbitration *at the time the contract was signed*, well before any actual workplace issues might occur.

• Example 3: Commercial Lease Agreement

  A landlord and a restaurant owner sign a long-term lease for a commercial property. Within the lease document, there is a provision that states: "All claims, disputes, and other matters in question arising out of or relating to this Lease Agreement, or the breach thereof, shall be subject to binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association."

  Explanation: This is a compromissory arbitration clause because the landlord and the restaurant owner agreed *in advance* to arbitrate any disagreements that might arise during the term of their lease, such as disputes over rent, property maintenance, or lease termination, rather than taking them to court.