According to Black’s Law Dictionary, arbitration is “a method of dispute resolution involving one or more neutral third parties, who are agreed to by the disputing parties and whose decision is binding.”

At the 2018 Association of Corporate Counsel Annual Meeting, a panel moderated by Steve Skulnik of Thomson Reuters discussed dispute resolution various clauses and the importance of making sure they are given the needed attention and understanding. The members of the panel included: Christine Vargas Colmey, Sovos Compliance, LLC; John Hay, Dentons; and Jeffrey Prokop, Alcon Laboratories, Inc.

When is the arbitration clause needed and what is the point of this clause?

The panel described an arbitration clause “to impose a binding, enforceable obligation to submit disputes to arbitration.” And the reason to have this clause in contracts or agreements is “to provide certainty before a dispute arises as to how disputes will be resolved.”

The panel emphasized that dispute resolution clauses should get their due attention throughout the contract drafting process. They noted that the focus is usually on more substantive matters such as payments or renewal terms, and often there is minimal thought put into place about how to handle matters should things turn sour either on the whole or around a specific area. They suggested avoiding a “cut-and-paste” method from other contracts or emplyoing blanket clauses, as well as drafting a clause without consideration of key issues.

Another key tip was to “avoid silence.” The panel walked through one scenario where a dispute resolution clause was intentionally left out from the beginning due to the contentious nature of he negotiations. Because the parties could not agree, they left out any dispute resolution clause figuring they could agree if and when a dispute arose on how they would settle the dispute. But with respect to their previous negotiations, that likely was not the most prudent approach.

Why should one care about how arbitration clauses are drafted?

The panel noted several benefits of having explicit clauses in agreements. These clauses allow parties to resolve disputes while avoiding the courts. The clauses save time and money as well as facilitate a more efficient arbitration. Also, having an effective dispute resolution mechanism in place can often deter breaches of contract.

In addition to providing these insights, the panel walked through multiple examples of clause. Further, they looked at various aspects of arbitration from specific rules or procedures to choices regarding law, arbitral seat and arbitrator selection.

The value of arbitration clauses was strongly emphasized along with steps to ensure they are developed to address any conceivable needs that may arise from a dispute.