Hughes H
ubbard
Drafting an Arbitration Clause: A Step-By-Step Guide
Presented by
Hagit Elul,
Partner, Litigation
and Arbitration [email protected]
Hughes H
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Drafting An Arbitration Clause
Step One: Define what is arbitrable:
Any dispute arising out of or relating to this contract or the
breach thereof,
Hughes H
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Drafting An Arbitration Clause
Step Two: Commit the parties to arbitration:
Any dispute arising out of or relating to this contract, or the
breach thereof, shall be finally resolved by arbitration
Hughes H
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Drafting An Arbitration Clause
Step Three: Pick a set of rules (and, in this case, an
institution):
Any dispute arising out of or relating to this contract,
or the breach thereof, shall be finally resolved by
arbitration administered by the American Arbitration
Association under its Commercial Arbitration Rules,
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Drafting An Arbitration Clause
Step Four: Provide for entry of Judgment:
This is essential to enforcement in the United States
(See 9 U.S.C. §9):
Any dispute arising out of or relating to this contract,
or the breach thereof, shall be finally resolved by
arbitration administered by the American Arbitration
Association under its Commercial Arbitration Rules,
and judgment upon the award rendered by the
arbitrators may be entered in any court having
jurisdiction.
Hughes H
ubbard
& R
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Drafting An Arbitration Clause
Step Five: Specify the language:
This, obviously, is principally important in international
arbitrations:
Any dispute arising out of or relating to this contract, or the
breach thereof, shall be finally resolved by arbitration
administered by the American Arbitration Association under
its Commercial Arbitration Rules, and judgment upon the
award rendered by the arbitrators may be entered in any
court having jurisdiction. The arbitration will be
conducted in the English language
Hughes H
ubbard
& R
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Drafting An Arbitration Clause
Step Six: Specify the location:
Any dispute arising out of or relating to this contract, or
the breach thereof, shall be finally resolved by arbitration
administered by the American Arbitration Association
under its Commercial Arbitration Rules, and judgment
upon the award rendered by the arbitrators may be
entered in any court having jurisdiction. The arbitration
will be conducted in the English language in the city of
New York, New York,
Hughes H
ubbard
& R
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Drafting An Arbitration Clause
Step Seven: Specify the procedural law:
Any dispute arising out of or relating to this contract, or
the breach thereof, shall be finally resolved by arbitration
administered by the American Arbitration Association
under its Commercial Arbitration Rules, and judgment
upon the award rendered by the arbitrators may be
entered in any court having jurisdiction. The arbitration
will be conducted in the English language in the city of
New York, New York, in accordance with the United
States Arbitration Act.
Hughes H
ubbard
& R
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LP
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Drafting An Arbitration Clause
Step Eight: Specify the number of arbitrators:
Any dispute arising out of or relating to this contract, or
the breach thereof, shall be finally resolved by arbitration
administered by the American Arbitration Association
under its Commercial Arbitration Rules, and judgment
upon the award rendered by the arbitrators may be
entered in any court having jurisdiction. The arbitration
will be conducted in the English language in the city of
New York, New York, in accordance with the United
States Arbitration Act. There shall be three arbitrators,
named in accordance with such rules.
Hughes H
ubbard
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Drafting An Arbitration Clause
Step Nine: Provide for mediation first:
This provision, again based on the AAA standard
clause, should be inserted at the beginning: (a) If a dispute arises out of or relates to this contract, or the breach thereof,
and if said dispute cannot be settled through negotiation, the parties agree
first to try in good faith to settle the dispute by mediation under the
Commercial Mediation Rules of the American Arbitration Association, before
resorting to arbitration.
(b) Any dispute arising out of or relating to this contract, or the breach thereof, that
cannot be resolved by mediation within 30 days shall be finally resolved by
arbitration administered by the American Arbitration Association under its
Commercial Arbitration Rules, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction. The arbitration will be
conducted in the English language in the city of New York, New York, in
accordance with the United States Arbitration Act. There shall be three arbitrators,
named in accordance with such rules.
Hughes H
ubbard
& R
eed L
LP
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Drafting An Arbitration Clause
Step Ten: Provide for the form of award: (a) If a dispute arises out of or relates to this contract, or the breach thereof, and if
said dispute cannot be settled through negotiation, the parties agree first to try in
good faith to settle the dispute by mediation under the Commercial Mediation Rules
of the American Arbitration Association, before resorting to arbitration.
(b) Any dispute arising out of or relating to this contract, or the breach thereof,
that cannot be resolved by mediation within 30 days shall be finally resolved by
arbitration administered by the American Arbitration Association under its
Commercial Arbitration Rules, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction. The arbitration will be
conducted in the English language in the city of New York, New York, in accordance
with the United States Arbitration Act. There shall be three arbitrators, named in
accordance with such rules. The award of the arbitrators shall be accompanied
by a statement of the reasons upon which the award is based.
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ubbard
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Drafting An Arbitration Clause
Step Eleven (Optional): Preclude Class or
Consolidated Procedures:
(c) No dispute among the parties to this agreement shall be consolidated
with any other dispute involving any other party, nor may it be brought or
included as part of any proceeding on behalf of or against a class.
Alternative Step Eleven: Provide for Class
Arbitration
(c) Any dispute under this agreement as to which class arbitration
treatment is sought shall be administered under the Supplementary
Rules for Class Arbitration of the American Arbitration Association.
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Drafting An Arbitration Clause
Step Twelve (optional): Provide for substantive law,
but only if that subject is not dealt with elsewhere
in the agreement:
(c) The arbitrators shall decide the dispute in
accordance with the substantive law of the state of
New York, and the award of the arbitrators shall be
accompanied by a statement of the reasons upon which
the award is based.
Hughes H
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Drafting An Arbitration Clause
Step Thirteen (optional): Provide for interim relief.
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Drafting An Arbitration Clause
Step Fourteen (optional): Provide for including or
excluding parents or affiliates. Adversaries often
bring suits in court against related parties for tort that
are really disguised efforts to evade obligations to
submit disputes to arbitration. One way to head off
such efforts is to provide:
Any dispute arising out of or relating to this contract, or
the breach thereof, including any dispute involving
the parent company, subsidiaries, or affiliates under
common control of any party, shall be finally resolved
by arbitration * * * .
Hughes H
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Drafting An Arbitration Clause
Step Fifteen (optional): Provide for Confidentiality:
(c) The parties agree that the existence of any dispute
subject to this provision, any proceedings to resolve such
dispute, and all submissions received by any party from
any other party in connection with such dispute or
proceedings shall be treated as confidential, and shall not
be disclosed to any third party except as required by law
or compelled by legal process.
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Drafting An Arbitration Clause
Step Sixteen (optional): Provide for Ties
Concerning Business Disputes:
(a) Any dispute between the Parties concerning the
conduct of the business affairs of the Venture (a
“Business Dispute”) shall be submitted in the first instance
to the Management Committee of the Venture. The
Management Committee shall decide such Business
Dispute in accordance with the provisions of Section __ of
this Agreement, and the decision of the Management
Committee shall be final.
(con’t)
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Drafting An Arbitration Clause
Step Sixteen (optional): Provide for Ties
Concerning Business Disputes (con’t.): (b) In the event that the Management Committee is deadlocked or is otherwise
unable to resolve a Business Dispute, any party may request in writing that such
Business Dispute be submitted to a Special Committee consisting of a senior
representative of each of the Parties. Each Party shall name a senior
representative to such Special Committee within 15 days of the date of a written
request from any Party that the Business Dispute be submitted to a Special
Committee, and any party failing to name such a representative within that time
shall lose the opportunity to participate in the Special Committee. The
Special Committee shall hold a meeting (in person or electronically) within 30 days
of such notice, and shall attempt to negotiate a reasonable business solution to the
Business Dispute.
(c) Any Business Dispute that cannot be resolved by a Special Committee within
60 days of the written notice calling for a Special Committee may be submitted by
either party to mediation, and if necessary to arbitration, in accordance with
Section __ of this Agreement.
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Drafting An Arbitration Clause
Other subjects that can be dealt with in an
arbitration clause:
Providing for problems created when there are multiple parties
to an arbitration, such as how each side will pick an arbitrator.
Providing limits on the authority of the arbitrators to award
punitive or similar damages. One should not, however, try to limit
the arbitrators’ authority to
award statutory remedies.
Scope of discovery. Many international clauses refer to the IBA
Rules on the Taking of Evidence in International Commercial
Arbitration (www.ibanet.org).
Waiver of sovereign immunity.
Ability of the arbitrators to award attorneys fees.
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