Arbitration Clauses
| Publication year | 2014 |
| Pages | 59 |
| Citation | Vol. 43 No. 8 Pg. 59 |
Articles Alternative Dispute Resolution
Arbitration Clauses
By James L. Stone
Alternative Dispute Resolution articles are sponsored by the CBA Alternative Dispute Resolution Section. They describe recent developments in the evolving field of ADR with a particular focus on issues affecting Colorado attorneys and ADR providers.
Coordinating Editor
Marshall A. Snider, Denver—(303) 885-6659, msniderarb@comcast.net
About the Author
Jim Stone is an ADR professional. He practices arbitration on the American Arbitration Association Commercial Arbitration panel. He practices mediation with ADR Source. He also teaches ADR as an Adjunct Professor at the University of Denver Sturm College of Law—jstonel672@aol.com.
Properly drafted arbitration clauses allow arbitrations to proceed more efficiently and expeditiously than civil litigation. Poorly drafted arbitration clauses may cause the parties' process to become inefficient and expensive. This article identifies appropriate terms to be included in an agreement to arbitrate, which should allow for an efficient and expeditious process.
This article gives guidance to lawyers drafting and litigating domestic commercial disputes under an agreement to arbitrate. The suggested arbitration clauses discussed below can be used as appropriate, based on the needs of the clients.[1]
An appropriately constructed arbitration clause will assist in avoiding many of the adverse effects that might arise during litigation of an arbitration. Planning and creating the clause before a dispute arises is much easier and effective than doing so when the parties are at odds and do not trust each other.
The transactional lawyer is advised by a client that he wants to arbitrate disputes that may arise in the agreement. He wants a process that is more efficient and less expensive than a civil suit. The attorney and client discuss the benefits and limitations of arbitration. He asks the attorney to include an arbitration clause in the transactional document. Initially, the attorney has to look into the future and speculate as to what pre-dispute terms might give her client the best advantage in an arbitration. For example: Will the client need to conduct discovery? Does the client desire to limit liability? These and other issues need to be considered.
Arbitration Agreements
Arbitration agreements come in all sizes, from simple one-sentence agreements to a multi-page, all-encompassing agreement. A dozen or so topics could be included in an arbitration clause to achieve the goals of enforceability, efficiency, and effectiveness. Some of these topics will be addressed a fter a short discussion of the foundation for an agreement to arbitrate.
Arbitration is a "creature of contract." As such, the parties are free to design the terms they wish to include in their agreement. These terms will control the arbitration process and provide a structure for judicial enforcement and facilitation of the agreement to arbitrate.
The U.S. Supreme Court has on many occasions expressed that arbitration is "a creature of contract." Recently, the Court stated: "Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."[2]
With rare exception, the only obligation one has to arbitrate the resolution of a dispute is by agreement. In the absence of an agreement to arbitrate, a party is not bound to forgo his or her right to a civil trial. The terms of the agreement to arbitrate define the parties' rights, duties, and obligations concerning the arbitration process in their particular dispute.
Scope of the Dispute
The agreement to arbitrate should identify the disputes that are subject to arbitration. Typically, the agreement to arbitrate will be embedded in a contract concerning a particular transaction (referred to in this article as the transactional contract). An arbitration clause will frequently provide that any disputes concerning the interpretation, validity, and enforcement of the transactional contract are subject to arbitration. The clause may be broader in scope than disputes arising under the transactional contract and the arbitration clause could cover any disputes of any nature between the parties to the transactional contract. A sample scope clause follows:
Any dispute, claim, or controversy arising out of or relating to this Agreement or the breach, termination, interpretation, or validity thereof, shall be determined by arbitration before [name of institution, etc.].
Binding or Advisory
The parties should decide whether they want the arbitrator's decision to be advisory or binding. Binding agreements to arbitrate are adjucatory in nature and nonbinding agreements are non-adjudicatory, similar to a dispute resolution process known as "early neutral evaluation." Arbitration...
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