AA few months ago, I had the honor of participating in a dispute resolution forum as part of a panel of legal experts from around the world. The panel, entitled “IR Global Disputes Group Virtual Series: Staying Ahead of the Curve,” was hosted by the international professional services network IR Global. I was the assigned panelist to provide my impressions on these issues from a United States legal perspective. The questions, and my answers, are general in nature and are not designed to answer every scenario or set of facts that may apply to the positive or negative implications of arbitration. This post will summarize my comments from the final session of this three-session panel.
Our third forum session tackled the question, “What is your best practice approach for ensuring arbitration clauses are to the real advantage of your client?” In questions like these, I start by looking at what each party is trying to accomplish by contracting with each other, and what kinds of disputes might arise from this arrangement. The next important question to consider is selecting the specific jurisdiction whose laws are most likely to benefit my client in an arbitration.
The choice of jurisdiction often hinges on the type of business activities or industry involved. A banking or financial transaction, for instance, would probably be best served by the arbitration statues set down by New York law. In the case of a surety or insurance transaction, I might advocate for jurisdiction according to Illinois, Ohio, or Michigan statues. If the transaction involves intellectual property (IP) law, I may recommend that the arbitration clause adheres to California statues. The reason I would pick and choose from the various states is that each of them has established a particularly long and rich history of dealing with these respective legal categories.
The agreed-upon site for the arbitration itself is a different matter. I recommend conducting the physical arbitration in my client’s home state whenever possible. At the same time, I want to make sure that we will have ready access to a deep pool of expertise from local arbitrators who have the necessary skill and experience in the particular field of law that applies to the case.
As for the choice of arbitrator, I value industry experience above other factors. The arbitrator need not be a judge or attorney to do a good job; indeed, a professional in the business or industry reflected in the dispute can often bring the necessary practicality and insight to the role.
Fees and damages pose additional considerations when selecting the right ingredients for an advantageous arbitration clause. Including a fee arrangement that recoups the prevailing party for arbitration costs and expenses is a smart way of encouraging all parties to think carefully before leaping into arbitration proceedings. At the same time, it’s important to set some limits on the potential for financial damages. I would include an agreement that the damages not be extraordinary or punitive in nature, keeping the scope of the damages to what would be expected from a commercial transaction.
Last but not least, it’s worth evaluating whether a mandatory mediation clause might make good sense for all concerned. This clause requires the party to go through mediation in an effort to settle the dispute as smoothly and easily as possible. While this option might not be appropriate for large, complex cases where enormous sums of money are at stake, it could work quite well for many smaller-scale situations.
You can find part TWO of this three-article series HERE. Part ONE of this article series can be accessed HERE.
