Drafting Arbitration Clauses That Keep You Out of Court

Carrie McNair
Nov 13 2019

 Parties can contractually agree to settle disputes via an arbitration process, in lieu of traditional litigation. If an agreement includes a solid arbitration clause, arbitration can be a less expensive, more predictable option for dispute resolution compared to courtroom litigation. However, a poorly drafted arbitration clause can double the expense of dispute resolution and can result in parties fighting over the details of the arbitration clause in the courtroom, rather than the dispute in arbitration. The following are a few practical considerations for anyone drafting or reviewing an arbitration clause.

 If you want to stay out of a courtroom when a dispute arises, you must draft an arbitration clause that is broad enough to cover all disputes that may arise between the parties. An arbitration clause must clearly state that all disputes between the parties are arbitrable; there should be no exceptions to this declaration in an arbitration clause. If your arbitration clause allows for any exceptions to the arbitrability of a dispute, one party could file an action in court to determine whether a dispute is subject to the arbitration clause in your agreement.

 In this vein, be careful to ensure that the language indicating that all disputes are subject to arbitration follows throughout your entire document and is not contradicted by other portions of your document. For example, you should not have a paragraph on page one of your agreement indicating all disputes are subject to arbitration, but then three pages into your agreement, you indicate one exception for a specific type of dispute. An arbitration clause should clearly and unmistakably provide that all disputes between the parties are subject to arbitration.

 An arbitration clause should clearly provide that all matters should be subject to arbitration, including initial, gateway matters such as the validity, revocability, and enforceability of the arbitration agreement. A party can only be forced to arbitrate those issues that are specifically agreed upon; thus, a solid arbitration agreement should include a declaration that the parties will arbitrate all matters, even initial ones.

 Arbitration is a matter of contract, and parties can be held to their contractional obligations; however, if the language in the arbitration agreement is not clear, litigation can follow. Ensuring that your arbitration clause covers all disputes and all matters will certainly help clearly denote which disputes and which matters are subject to the arbitration clause.