When two parties enter into a contractual agreement, they may include an arbitration clause to resolve any future disputes. The clause specifies that if any dispute arises between the parties, they will resolve the issue through arbitration instead of going to court. However, there are instances where the dispute may fall outside of the scope of the arbitration agreement.

The scope of an arbitration agreement is defined by the language of the agreement itself. If the language is too narrow, it may not cover all potential disputes that may arise between the parties. Conversely, if the language is too broad, it may include disputes that both parties did not intend to be covered under the agreement.

One example of a dispute that may fall outside of the scope of an arbitration agreement is when a third party is involved. If a dispute involves a third party that is not a signatory to the agreement, the arbitration clause may not apply. For example, if a company has a contract with a vendor, and the vendor causes damage to a third party, the third party cannot be compelled to participate in arbitration.

Another scenario where a dispute may fall outside of the scope of the arbitration agreement is when one party alleges fraud or criminal activity. In such cases, the party may seek relief through the courts and not through arbitration. This is because criminal activity is not subject to arbitration and is a matter for law enforcement.

Similarly, if one party seeks injunctive relief to prevent harm to its business, the arbitration clause may not apply. Injunctive relief involves seeking a court order to prevent someone from taking a particular action. Since time is of the essence in such cases, seeking injunctive relief from the courts is often the most efficient way to protect a business.

In conclusion, although arbitration is a popular alternative to court proceedings, it is important to be aware of its limitations. When drafting an arbitration agreement, it is essential to include language that explicitly states the scope of disputes that will be subject to arbitration. Parties should consult with legal counsel to ensure that the agreement is well-drafted and covers all potential contingencies. Nevertheless, in situations where a dispute falls outside the scope of an arbitration agreement, parties should be prepared to seek relief through other means, such as the courts.