TAKE CONTROL OF YOUR ARBITRATION PROCESS! What CEOs and General Counsel Need to Know About Drafting Arbitration Provisions in Contracts

Arbitration was devised to be a faster, less expensive alternative to litigation. In recent years, however, that has often not been the case as parties and their counsel seek to obtain the same extensive discovery procedures that they would have been able to pursue in court or engage in collateral court proceedings to avoid the arbitration altogether. Indeed, pre-arbitration wrangling can impose layers of litigation upon the arbitration and enormous expense and delay on both parties. Such proceedings have become a weapon in the arsenal of the party that wants to avoid resolution of the dispute or to wield their greater economic power in the hopes of exhausting their adversary’s resources before the merits of the dispute can be reached.

Once the arbitration is underway, the proceeding itself may become bogged down as litigators seek broad discovery or file the same dispositive motions that they would have filed in court, all resulting in a geometric expansion of the time and cost of the arbitration. Add to this the facts that, unlike court proceedings, parties in arbitration forfeit significant rights of review and have the additional expense of paying for the arbitrators, and it is not surprising that such experiences have caused both parties and counsel alike to question whether arbitration is a viable and desirable dispute resolution option.

The good news is that arbitration can be restored to not only being a cheaper and quicker dispute resolution procedure, but one which can be carefully tailored to the parties’ specific needs. Moreover, the means to do this is totally within the parties’ control. This chapter will tell you how to do take that control.

Arbitration is a creature of contract. In fact, a court will not compel a party to go to arbitration unless it is clear that the parties agreed to arbitrate the claims being asserted. Just as courts will enforce an agreement of the parties to resolve their dispute through arbitration, they will also enforce the contractual procedures the parties set forth to govern that arbitration. Arbitration tribunals and arbitrators, too, are bound to procedures agreed to by the parties. Although it is possible to enter into an arbitration agreement after a dispute has arisen, most arbitration clauses are contained within the contract establishing the parties’ relationship long before a dispute has arisen. Indeed, this is the best time to reach an agreement as to a dispute resolution process that works for both parties as the parties are focused on entering a deal and anticipating a positive relationship. It is, of course, much harder to do so after things go wrong.

All too often, however, the arbitration clauses included in contracts are boilerplate, which state little more than that the parties agree to arbitrate some or all disputes that may arise between them and identify a selected tribunal, set of rules, location and governing law for the proceeding. Frequently, neither the lawyers nor the parties to the contract have had much experience with what actually occurs if and when the clause is triggered and little thought is given as how they may be able to impact the process. Including boilerplate, ambiguous or poorly drafted arbitration clauses not only opens up the door to all types of challenges resulting in much delay and expense, but it is a lost opportunity to design a process that will work in a way that, unlike court proceedings, can be carefully customized to your business, your needs and your potential disputes.