Drafting an Arbitration Clause: A Step-By-Step Guide

Hughes H

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Drafting an Arbitration Clause: A Step-By-Step Guide

Presented by

Hagit Elul,

Partner, Litigation

and Arbitration [email protected]

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Drafting An Arbitration Clause

Step One: Define what is arbitrable:

Any dispute arising out of or relating to this contract or the

breach thereof,

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Step Two: Commit the parties to arbitration:

Any dispute arising out of or relating to this contract, or the

breach thereof, shall be finally resolved by arbitration

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Step Three: Pick a set of rules (and, in this case, an

institution):

Any dispute arising out of or relating to this contract,

or the breach thereof, shall be finally resolved by

arbitration administered by the American Arbitration

Association under its Commercial Arbitration Rules,

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Step Four: Provide for entry of Judgment:

This is essential to enforcement in the United States

(See 9 U.S.C. §9):

Any dispute arising out of or relating to this contract,

or the breach thereof, shall be finally resolved by

arbitration administered by the American Arbitration

Association under its Commercial Arbitration Rules,

and judgment upon the award rendered by the

arbitrators may be entered in any court having

jurisdiction.

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Step Five: Specify the language:

This, obviously, is principally important in international

arbitrations:

Any dispute arising out of or relating to this contract, or the

breach thereof, shall be finally resolved by arbitration

administered by the American Arbitration Association under

its Commercial Arbitration Rules, and judgment upon the

award rendered by the arbitrators may be entered in any

court having jurisdiction. The arbitration will be

conducted in the English language

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Step Six: Specify the location:

Any dispute arising out of or relating to this contract, or

the breach thereof, shall be finally resolved by arbitration

administered by the American Arbitration Association

under its Commercial Arbitration Rules, and judgment

upon the award rendered by the arbitrators may be

entered in any court having jurisdiction. The arbitration

will be conducted in the English language in the city of

New York, New York,

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Step Seven: Specify the procedural law:








New York, New York, in accordance with the United

States Arbitration Act.

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Step Eight: Specify the number of arbitrators:








New York, New York, in accordance with the United

States Arbitration Act. There shall be three arbitrators,

named in accordance with such rules.

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Step Nine: Provide for mediation first:

This provision, again based on the AAA standard

clause, should be inserted at the beginning: (a) If a dispute arises out of or relates to this contract, or the breach thereof,

and if said dispute cannot be settled through negotiation, the parties agree

first to try in good faith to settle the dispute by mediation under the

Commercial Mediation Rules of the American Arbitration Association, before

resorting to arbitration.

(b) Any dispute arising out of or relating to this contract, or the breach thereof, that

cannot be resolved by mediation within 30 days shall be finally resolved by

arbitration administered by the American Arbitration Association under its

Commercial Arbitration Rules, and judgment upon the award rendered by the

arbitrators may be entered in any court having jurisdiction. The arbitration will be

conducted in the English language in the city of New York, New York, in

accordance with the United States Arbitration Act. There shall be three arbitrators,

named in accordance with such rules.

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Step Ten: Provide for the form of award: (a) If a dispute arises out of or relates to this contract, or the breach thereof, and if

said dispute cannot be settled through negotiation, the parties agree first to try in

good faith to settle the dispute by mediation under the Commercial Mediation Rules

of the American Arbitration Association, before resorting to arbitration.

(b) Any dispute arising out of or relating to this contract, or the breach thereof,

that cannot be resolved by mediation within 30 days shall be finally resolved by

arbitration administered by the American Arbitration Association under its

Commercial Arbitration Rules, and judgment upon the award rendered by the

arbitrators may be entered in any court having jurisdiction. The arbitration will be

conducted in the English language in the city of New York, New York, in accordance

with the United States Arbitration Act. There shall be three arbitrators, named in

accordance with such rules. The award of the arbitrators shall be accompanied

by a statement of the reasons upon which the award is based.

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Step Eleven (Optional): Preclude Class or

Consolidated Procedures:

(c) No dispute among the parties to this agreement shall be consolidated

with any other dispute involving any other party, nor may it be brought or

included as part of any proceeding on behalf of or against a class.

Alternative Step Eleven: Provide for Class

Arbitration

(c) Any dispute under this agreement as to which class arbitration

treatment is sought shall be administered under the Supplementary

Rules for Class Arbitration of the American Arbitration Association.

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Step Twelve (optional): Provide for substantive law,

but only if that subject is not dealt with elsewhere

in the agreement:

(c) The arbitrators shall decide the dispute in

accordance with the substantive law of the state of

New York, and the award of the arbitrators shall be

accompanied by a statement of the reasons upon which

the award is based.

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Step Thirteen (optional): Provide for interim relief.

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Step Fourteen (optional): Provide for including or

excluding parents or affiliates. Adversaries often

bring suits in court against related parties for tort that

are really disguised efforts to evade obligations to

submit disputes to arbitration. One way to head off

such efforts is to provide:


the breach thereof, including any dispute involving

the parent company, subsidiaries, or affiliates under

common control of any party, shall be finally resolved

by arbitration * * * .

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Step Fifteen (optional): Provide for Confidentiality:

(c) The parties agree that the existence of any dispute

subject to this provision, any proceedings to resolve such

dispute, and all submissions received by any party from

any other party in connection with such dispute or

proceedings shall be treated as confidential, and shall not

be disclosed to any third party except as required by law

or compelled by legal process.

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Step Sixteen (optional): Provide for Ties

Concerning Business Disputes:

(a) Any dispute between the Parties concerning the

conduct of the business affairs of the Venture (a

“Business Dispute”) shall be submitted in the first instance

to the Management Committee of the Venture. The

Management Committee shall decide such Business

Dispute in accordance with the provisions of Section __ of

this Agreement, and the decision of the Management

Committee shall be final.

(con’t)

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Step Sixteen (optional): Provide for Ties

Concerning Business Disputes (con’t.): (b) In the event that the Management Committee is deadlocked or is otherwise

unable to resolve a Business Dispute, any party may request in writing that such

Business Dispute be submitted to a Special Committee consisting of a senior

representative of each of the Parties. Each Party shall name a senior

representative to such Special Committee within 15 days of the date of a written

request from any Party that the Business Dispute be submitted to a Special

Committee, and any party failing to name such a representative within that time

shall lose the opportunity to participate in the Special Committee. The

Special Committee shall hold a meeting (in person or electronically) within 30 days

of such notice, and shall attempt to negotiate a reasonable business solution to the

Business Dispute.

(c) Any Business Dispute that cannot be resolved by a Special Committee within

60 days of the written notice calling for a Special Committee may be submitted by

either party to mediation, and if necessary to arbitration, in accordance with

Section __ of this Agreement.

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Other subjects that can be dealt with in an

arbitration clause:

Providing for problems created when there are multiple parties

to an arbitration, such as how each side will pick an arbitrator.

Providing limits on the authority of the arbitrators to award

punitive or similar damages. One should not, however, try to limit

the arbitrators’ authority to

award statutory remedies.

Scope of discovery. Many international clauses refer to the IBA

Rules on the Taking of Evidence in International Commercial

Arbitration (www.ibanet.org).

Waiver of sovereign immunity.

Ability of the arbitrators to award attorneys fees.

http://www.ibanet.org/

Documents

Drafting an Arbitration Clause: A Step-By-Step Guide