By R. David Gallo
In our K&H Arbitration Blog series “For a Good Clause,” we examine arbitration agreements through a variety of lenses to help you draft and select arbitration clauses that meet your business needs. In this installment, we provide a list of questions that you can use to better craft and understand your arbitration agreement.
You have some real power to determine the contours of your arbitration. Legally and practically, this power is most potent when you are drafting your arbitration agreement. Take the time to discuss with your counterparties during contract negotiations what it will look like if the parties end up in arbitration. Whether the parties are drafting an arbitration clause from scratch, making minor modifications to a clause used in an earlier contract, or dropping an off-the-shelf model clause into their contract, they should understand the who, what, when, where, and how of their arbitration agreement.
Who (is submitting to arbitration)? Typically, your contract will provide that it is the parties to the contract who agree to submit to arbitration, and this aligns with the foundational principle that arbitration is a voluntary process. Still, many arbitrations get sidetracked by the question of whether a party that did not sign the contract should nevertheless be a party to the arbitration. This may be because one of the parties is judgment proof and its parent company has deep pockets, or because a third party participated in the performance or alleged breach of the underlying contract. Consider whether your particular corporate or contractual circumstances call for clarifying the issue of who should–or should not–be arbitrating in connection with your contract. And if you are selecting a set of institutional rules that will apply to your arbitration, carefully read any provisions regarding joinder of additional parties. See, e.g., International Chamber of Commerce (“ICC”) Arbitration Rules, Art. 7. The parties may decide that it is best to strike or modify such rules (as parties are generally permitted to do).
What (do you agree to arbitrate)? This is often called the “scope” of the arbitration agreement. Most model clauses contain broad scope language such as: “Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration.” A broad scope often makes sense, given that the parties rarely know exactly what kind of dispute will later arise. But you may also decide that you want a clause with a narrow scope, submitting only specific kinds of disputes to arbitration and leaving the rest to the courts. Whatever you choose, be deliberate. If you want a narrow scope, spend some time with your attorney determining whether it is actually clear which potential disputes fall inside and outside your clause. If it is not clear, then clean up your scope language.
When (can a party initiate arbitration)? As soon as a dispute arises? Or does a party need to follow any pre-arbitration steps? These steps may include mediation, or a meeting between officers of each side. Clauses with these prerequisites are sometimes called “multi-step” clauses. Pre-arbitration steps can be a great idea if the parties are prepared to take seriously the good faith that is required to make non-binding dispute resolution fruitful. Or, pre-arbitration steps can be a source of delay and posturing that get in the way of moving your dispute towards a resolution. If you decide to use a multi-step clause, give some thought to what it means for a party to “comply” with pre-arbitration steps. An agreement to negotiate may sound nice, but does it have any teeth?
Where (will the arbitration take place)? You may want your arbitration to take place in a location convenient to your business affairs, or in a location that relates to the performance of the contract. These are important considerations. But you should also know that there are meaningful differences among the arbitration laws of different states and countries. It is worth a conversation with your attorney to determine whether the jurisdiction you believe is the most convenient also presents obstacles to achieving your goals.
How (will the arbitration be administered)? Will an institution such as the JAMS run your arbitration? Or will it be “ad hoc,” meaning that the parties largely run the show? Will you have a single arbitrator or a panel of three? Each of your choices here involve trade-offs. Institutional arbitrations come with administrative services that many counsel and parties prefer to outsource, but those services are not free. Similarly, some prefer the deliberative process of a three-panel tribunal but, of course, all three arbitrators will need to be paid.
These questions do not address every aspect of an agreement to arbitrate, but they should be part of your efforts to ensure that the agreement is a good fit for the parties’ circumstances, needs, and expectations. The earlier you address these issues, the better. Once a dispute has arisen, parties may be incentivized to dig in, exploit uncertainty in the arbitration clause, and oppose even common-sense proposals by the other party.
About the author:
R. David Gallo specializes in business litigation and arbitration. Prior to moving to Atlanta, David studied under leading arbitration practitioners and scholars at Columbia Law School, practiced litigation and arbitration at two AmLaw 100 firms in New York, and taught arbitration at Fordham Law School.
About the Arbitration Blog
This blog is a user-friendly resource for businesses and individuals who find themselves faced with issues involving arbitration. Perhaps you want to include an arbitration clause in your contract, or you are being asked to sign a contract with an arbitration clause. Maybe a dispute has arisen and you want to begin arbitration proceedings but you are not sure whether your arbitration clause covers the dispute (hint: it usually does). Perhaps you received a subpoena for documents in connection with an arbitration in which you are not otherwise involved. This blog provides you with answers to simple questions and will help you ask the right questions when confronted with more complex issues.
Among other topics, we cover how to draft an arbitration clause and what to expect in arbitration proceedings. We discuss the differences and similarities among arbitrations governed by Georgia law, federal law, and international law. We explore—in layman’s terms, whenever possible—the Georgia Arbitration Code, the Federal Arbitration Act, transnational law, and decisions from Georgia’s state courts, Georgia’s federal district courts, the U.S. Court of Appeals for the Eleventh Circuit, the U.S. Supreme Court, and foreign tribunals. We provide toolkits and checklists you can use to navigate everyday arbitration issues. We discuss the various contexts and industries in which we have handled arbitration issues for our clients, including:
- Breach of Contract
- Closely Held Company Shareholder Disputes
- Earn Out Disputes
- Executive Separation/Severance
- Franchise Disputes
- Mergers and Acquisitions
- Real Estate
- Trusts and Estates
- Vendor/Supplier Disputes
- Trusts and Estates
We are available and eager to discuss your arbitration issues with you.
Attorneys at Krevolin & Horst with extensive arbitration experience: