Originally from Dispute Resolution Journal

An important arbitration issue that has not received much attention in ADR or legal publications is that of the party who fails to advance required arbitration fees and arbitrator compensation. This article, which is an outgrowth of a roundtable discussion held by the American Arbitration Association, was written with two goals in mind. The first is to provide an overview of the nonpaying party problem and the drawbacks of the current options available to parties. This discussion includes commentary on recent case law related to the issue. The second goal is to propose a solution to the on paying party problem in business-to-business arbitration. The authors suggest a waiver clause in the agreement to arbitrate and they provide a sample clause for commercial parties to use. They discuss the law applicable to a waiver of arbitration, the relationship between §§ 3 and 4 of the Federal Arbitration Act, and due process requirements under federal and state arbitration laws. The authors hope to stimulate discussion of the issue and the proposed solution in the arbitration community.

A continuing complaint of parties who put arbitration clauses in their commercial agreements is that they are not realizing the benefits of arbitration due to the nonpaying party problem. The problem arises when one party fails to pay its share of the required deposit for arbitrator compensation and administrative arbitration fees. This article discusses the practical implications and legal issues resulting from this problem and proposes a solution that should preclude parties from using nonpayment of deposits strategically as a means of “gaming” the arbitration process.