Building Effective Arbitration Agreements

The party suggesting or requiring an arbitration agreement has a number of important decisions to make, and the web sites of arbitration service providers can provide very useful information. The American Arbitration Association, for example, has a very useful Clause Builder aid that can be accessed at www.adr.org, or directly at https://www.clausebuilder.org/cb/faces/index?_afrLoop=1525857755205010&_afrWindowMode=0&_adf.ctrl-state=q5nrtb073_4.
The parties can also decide to change the terms of the agreement, to avoid disputes about its enforceability or to improve the quality of the arbitration. Particularly when one side has drafted its own agreement without using the models of arbitration service providers, there are often ambiguities or inconsistencies to be ironed out.
The following questions should be considered, along with others:

  • What is the scope of the disputes to be submitted to arbitration? If there are limits, a dispute might be arbitrated in part, and the remainder might be decided in court.
  • Where will the arbitration take place? Near the witnesses and documents (which is cheapest) or at corporate headquarters (a common but sometimes expensive choice)?
  • How will the arbitrator(s) be selected?
  • Is the case important enough to justify the added expense and scheduling problems of a panel of three arbitrators, instead of one?
  • Is the case important enough to justify building in an appeal process within the arbitration, so that the arbitration award can be appealed to a panel of arbitrators? The added protection against an errant decision has to be balanced against the added cost and delay.