Unfortunately, a great number of attorneys do not give a lot of thought when drafting an Arbitration Clause in a contract as a means for resolving any disputes arising under or related to the contract. They fail to appreciate that the nature and scope of the arbitration and the authority of the arbitrator are case specific and defined by the terms of the Arbitration clause. The fundamental concept is that arbitration is a self-designed process enabling the parties to structure the process in any way desired. In Baravati v. Josphthal, Lyon & Ross, 28 F.3rd 704, 709 (7thCir. 1994), Judge Posner pronounced that “…short of authorizing trial by battle or ordeal, or more doubtfully, by a panel of three monkeys, parties can stipulate to whatever procedures they want to govern the arbitration of their disputes; parties are free to specify idiosyncratic terms of arbitration as they are to specify any other terms in their contract.”
With this as a guideline, counsel would be well served to recognize that the substance of the Arbitration Clause is as important, and maybe even more important, than substantive provisions of the contract. In all likelihood, the contract language will only be revisited in the event of a dispute. Even if a provider’s set of rules are incorporated, the parties can define such things as Arbitrator selection, scope of discovery, situs of the arbitration, law to be applied, authority of the Arbitrator(s) etc. For example, absent express authority in the Arbitration clause or the consent of the parties, it is doubtful whether an arbitrator can conduct independent research. Paul Bennett Marrow, in an article for the New York State Bar Association Journal (May 2013), argues persuasively that absent specific authority from the parties, either in the Arbitration clause or from the parties to the dispute, an Arbitrator lacks the authority to conduct independent research and, if he does such research, he might be jeopardizing the award.
Here is an abbreviated, certainly not all inclusive, checklist of topics that might be considered when drafting an Arbitration Clause:
- Number of arbitrators
- Arbitrators Qualifications
- Locale Provisions
- Documents-Only Hearing
- Duration of Arbitration Proceedings
- Assessment of Forum Fees and Attorneys’ Fees
- Type of Award
- Non-Payment of Arbitration Expenses
A useful tool in drafting Arbitration Clauses is the American Arbitration Association’s Clause Building tool. https://www.clausebuilder.org/
Most counsel and parties do not want to focus upon the dispute resolution clause when drafting a contract for it shines a light on a potential dispute at a time when the parties are trying to make a deal. That being said, it is still important to clearly define the process of the arbitration should one be necessary. Failure to do so will leave the parties with a dispute resolution process that might not meet the needs of the parties.