Drafting Better Arbitration Clauses
By: Adam S. Hall
Arbitration can be an efficient, economical way to resolve disputes. As an alternative dispute resolution procedure, arbitration must be agreed to in the contract between the parties. Yet, the arbitration provision itself is often given little thought. Often a single sentence, a typical arbitration provision merely states that the parties agree to resolve any disputes relating to their agreement by way of binding arbitration. Sometimes, the provision goes a bit further, stating that the arbitration shall occur before the American Arbitration Association (or another alternative dispute resolution forum) pursuant to the rules of that forum. Arbitration provisions can be much better. With some thought in the drafting process, the intended benefits of arbitration can be increased exponentially.
Speed – Arbitration is oft touted as a better forum for dispute resolution than a court proceeding due to its speed. The American Bar Association reports that a typical arbitration is completed in 7.3 months.[1] FINRA (which governs securities disputes) reports that securities disputes are typically resolved in 14 – 18 months.[2] In many kinds of disputes, this is simply too long.
Through the drafting process, otherwise avoidable delays can be eliminated. For example, the arbitrator selection process often takes several months. This time can be minimized by requiring arbitrator selection within 30 days of the initiation of the dispute. Pretrial discovery can also be sped up, if not eliminated, by the inclusion of mandatory disclosures, perhaps as soon as 30 days after filing. Finally, the hearing may be mandated to occur within a specific time period, such as 90 days of filing, with a written ruling required by a date certain shortly thereafter. Including specific deadlines for required actions in the arbitration provision can significantly speed up the process.
Efficient Discovery – Another intended benefit of arbitration is reduced discovery expenses. Through better drafting, discovery expenses can be even further reduced. Discovery can be streamlined or eliminated though a mandatory disclosure process drafted into the arbitration provision requiring turnover of pre-determined categories of information and the identification of witnesses. If one fears elimination of a discovery process, reasonable provisions can be drafted to limit the extent of permissible discovery, particularly in the context of electronically stored information which can overwhelm and eliminate all other economic efficiencies of arbitration.
Finality of Result – Appellate review of arbitration is extremely limited. For example, an arbitrator’s erroneous interpretation of law is not typically reversible on appeal unless the appellate court found a clear or manifest disregard of the law.[3] In an effort to avoid this type of otherwise unreviewable error, the arbitration provision can be drafted to require that the arbitrator follow the law.
Adam S. Hall is a partner at Hall, Lamb, Hall and Leto, P.A. Hall handles matters involving complex corporate and business litigation. Hall can be reached at 305-374-5030 www.hlhlawfirm.com
[1] ABA Section of Dispute Resolution,” Benefits of Arbitration for Commercial Disputes.”
[2] Mini-Survey – Average Turnaround Time and hearing Duration, Securities Arbitration Commentator, December 14, 2014.
[3]Montes v. Shearson Lehman Bros., Inc., 128 F.3d 1456, 1460 (11th Cir. 1997).
November 2017