The principles for drafting a pre-dispute arbitration clause are straightforward. They do require an understanding of the legal relationship, which will be the subject of the clause, some sense of the nature of disputes that are likely to arise and a basic understanding of arbitration process.
Following are the top 10 rules:
- Identify the scope of arbitration with precision. The gold standard is “all disputes arising out of or relating to this Agreement . . .” This is a “broad form” clause that is invariably interpreted by courts to encompass related tort and statutory claims. Anything less may limit the arbitrators’ power to determining only contractual disputes.
- Decide whether determining arbitrability shall be delegated to the arbitrators or left with the court. Typical delegation language: “any controversy, claim or dispute arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate…” Courts will enforce such delegations.
- State who will administer the arbitration. “The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures.” If neither an institution nor institutional rules are mentioned, the arbitration will be non-administered (ad hoc).
- Choose rules to govern the arbitration in the case of a non-administered clause: “The arbitration shall be governed by the UNCITRAL Rules.”
- Decide between a sole arbitrator and a tripartite panel and specify the method of selection of the arbitrator(s), mindful of the default process contained in the designated rules in the event of a failure to agree: “Each party shall select an arbitrator (who shall serve as a neutral arbitrator as that term is used in the Revised Code of Ethics for Arbitrators in Commercial Disputes); the party-appointed arbitrators shall jointly select the presiding arbitrator.”
- Specify the governing (substantive) law: “shall be determined by arbitration in Los Angeles, California, in accordance with the laws of the State of California for agreements made in and to be performed in California.”
- Address the scope of discovery unless the (default) rules are acceptable to the parties.
- Choose a venue for the arbitration: “shall be determined by arbitration in Los Angeles, California…”