Drafting an Arbitration Provision
The VirtualCourthouse Way
By Judge Arthur M. Monty Ahalt
VirtualCourthouse provides a fresh new approach to arbitration.An approach which provides flexibility and cost
savings not available through AAA, JAMs, National Arbitration Forum. Have you noticed that arbitration has become
more time consuming and more expensive as each year passes. How has that happened when the whole notion ,50 years
ago was, for Arbitration to reduce the cost and time of litigation? Well, one observation would lay the blame at
the foot of trying to provide too many rules to cover to many possibilities. Take a look at any major ADR
provider’s rules - in many cases they are more involved than a courts rules of procedure.
Here is how the unaware gets caught up in that dilemma. Client engages a lawyer to draft a contact. Lawyer suggests
to client that it is best to insert a provision in the contract agreeing to arbitrate any dispute. Client is aware
of all of the horror stories about the cost of litigation and says “ by all means keep me out of court “. Lawyer
inserts a provision which says - “ Any dispute between the parties will be arbitrated in accordance with the rules
of the American Arbitration Association.” Two years go by and the parties have a major disagreement. One party
looks up the AAA rules and finds out that the AAA rules require the claim to be filed with AAA. The parties now
have no choice about how much will be charged or who the arbitrator will be.AAA’s panel of neutrals are not
competitively formed. AAA restricts the number of neutrals - never a good idea as that type of activity keeps
prices high and many highly qualified neutrals off of AAA panels. They have agreed to a dispute resolution service
that provides little flexibility - many would say more expensive than court.Many attorneys find the AAA
administrative process to be cumbersome, unwieldy and time consuming.
What then is the best way to draft an arbitration provision in a contract ? The first order of business is to
understand the legal territory. Generally speaking, arbitration agreements are enabled by Federal and State law
-the Federal Arbitration Act or the Uniform Arbitration Act. Both Federal and State Acts provide similar
provisions, although there are significant differences in some special areas. Both Acts are similar in that they
- Enforcement of agreements to arbitrate;
- The appointment of an arbitrator where the parties cannot agree;
- The subpoena of witnesses;
- The confirmation of awards by judgement in court.
When drafting an arbitration provision in a contract the important items to consider.
- Administration Cost
- Identity of the neutral
- Greatest number of qualified neutrals to select from
- Closed panels increase costs and are anti- competitive
- Allowing the parties the opportunity to agree on a neutral
- Neutral compensation
- Simplification of the rules without sacrificing important legal rights
- Flexibility - Does an ADR provider have the ability to change ?
- Reduce Costs
- Adopt new technology
The key issue here is to provide the maximum amount of flexibility so that a fair , fast and inexpensive conclusion
can be reached. When the parties reserve the right or alternative to select the ADR solution provider until a
dispute arises they build in cost flexibility. The alternative is to select and name an ADR solution provider that
has the same flexibility built in. VirtualCourthouse provides that flexibility.
The VirtualCourthouse Rules are flexible yet binding -
1. The rules of arbitration or mediation are what the parties agree. The neutral
will ask the parties if they have agreed upon rules. If the parties cannot agree on the rules or disagree on
specific rules then the rules will be as the neutral determines appropriate for the parties.
2. Neutral Selection. The neutral (arbitrator, mediator) will be determined by the agreement of the parties. The
parties by agreement may request VirtualCourthouse to designate a neutral. Before VirtualCourthouse designates a
neutral VirtualCourthouse will consult with the parties. If the parties cannot agree then either party may petition
a court of competent jurisdiction to appoint a neutral.
Provide your client with the best alternative chose a VirtualCourthouse contract
provision now - click here for contract
Some folks will maintain that these provisions are not strong
enough to make sure that they stay out of court. But, stay out of court at what price. If the parties or anyone
wants to be truly adversarial than the matter ought to be in the court system.Arbitration at all costs is not
very wise. It is very common these days for cases to start in court and end up in arbitration after discovery
and court ordered mediation have taken place.The court system with its rules and procedures while allowing
adversaries to be adversaries still is based on the underpinnings of sound fair minded judges.