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What arbitration clauses should say (and usually don’t)

A large number of business contracts contain some “boilerplate” language to the effect that any disputes will be resolved by arbitration. That’s fine – but a good arbitration clause should be a little more specific, and should resolve the most common sorts of questions that tend to arise when problems actually do go to arbitration.

After all, the point of an arbitration clause is to provide a quick, inexpensive resolution of disputes. So why allow an actual arbitration to be bogged down by unnecessary and preventable delays and issues?

A good arbitration clause should say:

  • How will the arbitrator be selected? Will each side choose from a list provided by a specified organization? What happens if they can’t agree?
  • Must the arbitrator have a specific expertise or other qualifications?
  • Will the proceedings be covered by a confidentiality requirement?
  • Must the two sides go to mediation first, to try to resolve the dispute before arbitration? If so, how will a mediator be selected?
  • Where will the arbitration be held? If the parties are far apart geographically, can some or all of the proceedings be held electronically?
  • Will court rules of evidence apply? Or can the arbitrator decide on the rules?
  • Is there a time limit during which the arbitration must occur?
  • What powers does the arbitrator have? Can he or she just award money? What about punitive damages? What about equitable relief, i.e., ordering one party to do something or not do something?
  • Will the arbitrator have the power to order equitable relief for one side on an emergency basis, before the case as a whole is decided?
  • If one side claims that a particular dispute isn’t covered by the arbitration clause, can the arbitrator decide whether it’s covered?
  • Who will pay the arbitrator’s fees?

You can still use a “boilerplate” clause in most cases, but a slightly longer version that answers these questions will go a long way toward guaranteeing the sort of quick and easy resolution of disputes that prompted you to want arbitration in the first place.

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