Drafting Arbitration Clauses in Business Contracts

A CAREFULLY DRAFTED ARBITRATION CLAUSE IS IMPORTANT IN THE DISPUTE RESOLUTION PROCESS. WHAT FACTORS SHOULD ATTORNEYS CONSIDER IN DRAFTING ARBITRATION CLAUSES IN BUSINESS CONTRACTS?

Drafting an arbitration clause is more of an art than a science and its terms are going to vary based on the specific client’s needs and risk.  Attorneys should give this clause attention because a poorly drafted arbitration clause can do more harm than good.  Some factors attorneys should consider in drafting arbitration clauses are:

 

  • Which disputed will be subject to arbitration?  Any and all disputes arising under or in connection with the contract? Or should specific types of disputes be carved out and a different dispute resolution method used for those?
  • Applicable Rules. It is important to specify the arbitration rules that will govern. Be sure to check the rules to see if they fit the parties needs or whether they should be modified.  Also consider whether certain disputes might be more appropriate for expedited procedures.
  • Unequivocal language. Be clear and unequivocal in making arbitration the exclusive forum for the resolution of such disputes.  Avoid using permissive words, like “may submit the dispute to arbitration” and avoid referring to alternative forums.  Leaving the clause open for interpretation leads to court challenges, motion practice, delays, and increased costs. 
  • Consider additional specifics if appropriate to the parties’ risks, including the number of arbitrators, the place of arbitration, the governing law, how emergency or injunctive relief will be handled, and whether there will be any appellate rights or review of the arbitral award. Make sure the applicable institutional rules do not conflict and make the clause clear and unambiguous if it differs from the specified rules.
  • Detailed arbitration clauses may cover apportionment of costs, the payment of attorneys’ fees, the arbitrator’s ability to award interest and punitive damages or limitations on same, multi-party contracts, and more. To the extent these are included, thought should be given to anticipated risks unique to the parties and their business needs. 

If appropriately drafted, the dispute resolution clause can be an efficient and cost effective method to resolving conflicts outside of court.  It can be tailored to your individual risks and set forth a clear path for a swift alternative to litigation.   Importantly, it can give you control — control over the scope, control over the costs, and control over who adjudicates your dispute.  This contractual provision is worth spending the time and effort to draft properly and sensibly.   

 

Learn more helpful ADR insights from Jennifer Grippa.

 

About Jennifer Grippa

As a mediator and arbitrator at Miles, Jennifer Grippa handles complex disputes, including automobile, aviation, banking, bankruptcy, business/commercial, civil rights, construction, contracts, cybersecurity, employment, engineering and construction, environmental, estate/probate/trusts, false arrest and imprisonment, federal law, government, insurance, intellectual property, international, medical and nursing malpractice, personal injury/torts, premises liability, product liability, professional liability, real estate, securities, surety, third party criminal acts, trucking, trusts and estates, and wrongful death matters.