John M. Townsend is a partner in the Washington, D.C., office of Hughes Hubbard & Reed LLP and is the chair of the firm’s Arbitration and ADR Group. He is a member of the Board of Directors and the Executive Committee of the American Arbitration Association. He also chairs the AAA’s Law Committee.
Too often, drafters of arbitration agreements attempt to reinvent the wheel. There are time-tested arbitration clauses that work well and are easily adapted to transactions the parties plan to enter. John Townsend tells drafters how to avoid the most common pitfalls—or deadly sins—and how to draft the clause the right way. In so doing, drafters can steer clear of such problems as over-specificity, ambiguity, conflicting clauses, and other problems.
From time to time, someone tries to define what a perfect arbitration clause would look like. Efforts to do so usually founder on one of the strengths of arbitration, which is its adaptability to the particular circumstances of the parties and the dispute. Therefore, while it is difficult to generalize about what would make a “perfect” clause, it is not nearly as difficult to identify some of the features that make for a bad one. This article identifies seven of the most damning “sins” that plague arbitration clauses and offers suggestions for addressing the most important issues drafters face.
Credit for identifying the sin of equivocation as the cardinal sin of arbitration-clause drafting goes to Laurence Craig, Rusty Park and Jan Paulsson, who so named it in their book International Chamber of Commerce Arbitration.1 The essence of this sin is the failure to state clearly that the parties have agreed to binding arbitration. Because arbitration is a creature of contract, if there is no contract, there is no agreement to arbitrate.