Today’s issue of the New York Law Journal contains my article “The AAA Standard Arbitration Clause: Room for Improvement.” Click here to go to a pdf copy. (It’s also available here if you subscribe to the New York Law Journal.)
It was fun to write, and here’s why:
- I got to revisit a topic, arising out of or relating to, that I’ve worried at inconclusively in several blog posts.
- The provision in question raises a great categories-of-contract-language issue. Regular readers will know that I regard mastery of categories of contract language to be the foundation of controlled drafting.
- I was able to demonstrate that even if in your review of contract language you’re limited to examining how you say something, not what you say, you can still make drastic improvements.
- And I was able harbor the illusion that I was somehow sticking it to The Man.
In case it isn’t obvious, in the article I don’t consider what topics should be included in an arbitration provision. Instead, I limited myself to offering a redraft of the AAA standard abitration clause.
This is the first “traditional media” article I’ve written in just over a year. This blog gives me a big enough soapbox to stand on that these days I generally don’t feel inclined to seek other outlets. But this was a juicy topic, and I thought it might appeal to a broader-than-normal audience. And I knew that the prospect of extra scrutiny would focus my mind.
I don’t expect that this article will be my last word on this topics addressed in it. I welcome any comments.
Ken, interesting article.
Perhaps you could turn your attention to the LCIA clause?
Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause.
The number of arbitrators shall be [one / three].
The seat, or legal place, of arbitration shall be [City and / or Country].
The language to be used in the arbitral proceedings shall be [ ].
The governing law of the contract shall be the substantive law of [ ].
I was going to include the WIPO clause in this email but it seems to be a version of the above with more legal verbiage added.
Mark: I’ve just quit the field of battle, and you want me to gird my loins and wade in again? Have pity!
Anyone who has read MSCD halfway attentively could take a stab at revising the LCIA provision. (For the uninitiated, “LCIA” stands for London Court of International Arbitration.) For the moment, I’ll sit on the sidelines.
Ken
Jason: I don't follow your reasoning. I invite you to suggest language that you think would work better. Ken
At a minimum, take out initiate.
"As the exclusive means to resolve any dispute…"
However, I do not understand your concern that this would preclude the parties from settling a dispute, since regardless of what a commercial contract says, the parties can always agree to something else later on.
A legally binding settlement would be in writing and would be the resolution of the dispute, anything short of this would require resolution by arbitration.
I’m not a big fan of passive voice, especially when a party is surrendering its rights to seek legal redress in court.
I still like –
"Any dispute arising…will be [shall be/must be] resolved by arbitration…"
Another note, you should specifically carve out a right to seek injunctive and equitable relief.
Jason: Unless you give me a good reason, I ain't taking anything out!
And it's not that the original would preclude the parties from settling a dispute. Instead, it's that I don't see the point of having a provision that doesn't reflect what's actually happening.
The only passive voice in my provision is also in your language: "resolved by arbitration." And I think it's appropriate.
My brief in this article was to rework the AAA standard arbitration clause. I didn't attempt to recommend what you should put in an arbitration provision in your contract: that's an entirely different inquiry, and a much broader one. But I alluded in the article to the role of courts with respect to "interim measures."
Ken
Ken,
Initiate limits the scope of what is covered by the arbitration clause. If arbitral proceedings are already "initiated," this clause would not bar the parties from seeking redress in courts. I do not understand that limitation and why you wanted to include it, it will allow a finicky judge to attribute a narrow meaning to initiate and conclude that once arbitration is initiated, anything goes.
Jason: Whether parties to an arbitration can go to court to seek equitable remedies or to appeal an arbitration is a separate can of worms that is a function of law and arbitration rules. That's why I limited my provision to initiation of proceedings. Ken
I like some of the changes, but believe your final result is a defective clause. You state that "As the exclusive means of initiating adversarial proceedings to resolve any dispute arising out…a party may demand that any such dispute be resolved by arbitration…" The problem with this is that if a party breaches this clause by filing a claim in court, the respondent would not be able to compel arbitration, the dispute is already initiated. If you get a judge who does not favor arbitration clauses, you risk litigating in court because the literal reading of this clause would allow it.
Ken,
How about:
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The exclusive means of resolving any dispute arising out of this agreement that is not settled pursuant to a written agreement between the parties is to submit the dispute to binding arbitration administered by the American Arbitration Association in accordance with its commercial arbitration rules, and each party hereby consents to any such dispute being so resolved. Judgment on any award rendered in any such arbitration may be entered in any court having jurisdiction.
[Any claim for preliminary injuncitive relief may be submitted to a court of competent jurisidiction, and all other claims, including any claim for permanent injunctive relief, shall be submitted to arbitration as stated in this arbitration provision.] [Any claim for preliminary injunctive relief shall be submitted to binding arbitration administered by the American Arbitration Association in accordance with its optional rules for emergency measures of protection.]
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All comments are welcome.
Fred Wilf
Fred: Thank you for taking a crack at this.
I found the opening of your first paragraph a bit of a conundrum: if a dispute is settle by written agreement, then there's nothing left to resolve. And generally, ditch pursuant to.
Your "arising out of this agreement" skips the "subject matter of the agreement" issue.
I think your "is to submit" fudges the categories-of-contract-language issue.
Regarding your second paragraph, see the last paragraph of my reply to Jason. And is the discretion in the first sentence limited? See MSCD 2.88. And your use of shall fails the important "has a duty" test.
Ken