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Having received presidential assent on August 9, 2019, the Arbitration and Conciliation
(Amendment) Act, 2019 (‘2019 Amendment’) has formally been published in the Official
Gazette. The key features of the Amendment are dealt with below:
Modified timeline for completion of proceedings
The 2019 Amendment relaxes the stringent time-period for completion of arbitration
proceedings as prescribed by the 2015 Amendment to a certain extent.
The 2019 Amendment frees international commercial arbitrations from a pre-determined
time-period, albeit retaining a ‘pious-hope’ provision for completion thereof within a period
of 12 months from the date of completion of pleadings. In the case of a domestic arbitration,
the time-period of 12 months (extendable of course by another 6 months subject to consent by
the parties, and thereafter by the Court) for the conclusion of the proceedings is now to be
reckoned from the date of completion of pleadings instead of from the date of constitution of
the arbitral tribunal.
In order to ensure that this phase of completion of pleadings does not become a runawayhorse, there is a period of six months which has been prescribed for the filing of the Statement
of Claim and Defence. It is, however, unclear as to what are the consequences of a breach of
the six-month period by the parties.
Mandate of the Arbitrator(s) to continue pending an application for extension of time
The 2019 Amendment specifies that when the parties have approached the Court concerned
with an application under Section 29A for extension of time for completion of the arbitration
proceedings, then the mandate of the arbitrator(s) shall continue till the disposal of the said
application.
This ensures the continuation of the arbitration proceedings for the period when the said
application is pending before the Court, which period prior to this amendment could not be
put to any beneficial use inasmuch as an arbitrator(s) with a lapsed mandate could revive the
proceedings only once the Court would allow an application filed under Section 29A.
Yet further, it has also been provided in the 2019 Amendment that if a Court deems it fit to
effect a reduction in the fees of the arbitrator(s) while considering such an application, it shall
140 The 2019 Arbitration Amendment Act and the Changes It Ushers In – A Primer
do so only after giving the arbitrator(s) concerned an opportunity of being heard in the
matter.
Confidentiality of Arbitration Proceedings
The 2019 Amendment explicitly incorporates a requirement for the arbitrator(s), the arbitral
institution concerned and the parties themselves to maintain the confidentiality of all
arbitration proceedings, except where disclosure of the award is necessary for the purpose of
its implementation and enforcement.
Manner of demonstrating circumstance(s) that would justify interference with an award
in a petition under Section 34
An interesting modification brought about by the 2019 Amendment is in relation to the
manner of ‘proving’ the pre-requisites for interference with an award under Section 34.
Whereas the provision in the 1996 Act required a party to ‘furnish proof’ of the existence
of circumstances that would justify interference with an award, the 2019 Amendment clarifies
that the said circumstances have to be established on the basis of the record of the arbitral
tribunal. This not only removes the otherwise ambiguous phrase ‘furnish proof’, yet further, it
seems to expressly clarify that the demonstration has to be made by the party concerned on
the basis of the record of the arbitral tribunal alone, thereby expressly barring reference to
material which was not placed before the arbitral tribunal.
Excision of Power of Arbitrators to make orders under Section 17 in the Post-Award
stage
The 2015 Amendment had permitted the parties to obtain interim measures from an arbitral
tribunal under Section 17 of the 1996 Act during the pendency of the arbitration proceedings
or at any time after the making of the award, but before it was enforced in accordance with
Section 36.
This period for which the arbitral tribunal can order interim relief has now been reduced in
the 2019 Amendment, by the removal of the said power after the making of the arbitral
award. This, therefore, means that after the making of an award and before its enforcement, it
is the concerned Court only which can be approached for interim measures under Section 9 of
the 1996 Act. This ties in with the general prescription that the arbitral tribunal is by and
large functus-officio after the passing of the award except for certain limited functions such as
those mentioned in Section 33 of the 1996 Act.
Protection for Arbitrators
The 2019 Amendment also puts in place an express safety-net for arbitrators and clarifies that
no suit or other legal proceedings shall lie against an arbitrator(s) for anything done in good
faith or intended to be done under the 1996 Act.
The 2019 Arbitration Amendment Act and the Changes It Ushers In – A Primer 141
Prima Facie finding enough for refusal to refer parties to Arbitration under Section 45
The 2019 Amendment has sought to bring about textual equivalence between Section 45 and
Section 8 of the 1996 Act as regards the nature of the determination required to be made by a
Court. Section 45 which required the Court to come to a definitive finding that a matter was
not capable of settlement through arbitration, has now been amended to reflect, parimateria with Section 8(1), that a Court may refuse a reference to arbitration under Section 45
upon arriving at a prima-facie finding that the arbitration agreement was null and void,
inoperative or incapable of being performed.
Formal recognition of Arbitral Institutions and delegation of crucial functions
The 2019 Amendment brings to practical fruition the normative push initiated by the 2015
Amendment towards setting up and establishing arbitral institutions in the country. To this
end, the 2019 Amendment specifically empowers the Supreme Court and the High Courts to
designate arbitral institutions for performing crucial functions, including appointment of
arbitrators.
This is a significant step inasmuch as appointment of arbitrators under Section 11 has
consistently been regarded as a judicial function in terms of the judgment of the Supreme
Court in SBP & Co. v. Patel Engineering Ltd. [(2005) 8 SCC 618], though there was a
dilution of this principle in the 2015 Amendment inasmuch as it provided, under Section
11(6)(B), that delegation of the powers of appointment of an arbitrator by the Court
concerned to an arbitral institution shall not amount to a delegation of judicial power.
This function has now by the 2019 Amendment been expressly permitted to be delegated to
an institution to be so designated by the Court concerned. The applications for appointment
which were hitherto to be filed before the Supreme Court, in the case of an international
commercial arbitration, and the High Court, in the case of a domestic arbitration, are now to
be filed before the institution, if any, designated by the Supreme Court and the High Court
respectively.
An arbitral institution when so approached is required to dispose of the application within a
period of 30 days from the date of service of notice on the opposite party, though the
practicality or mandatory enforceability of this provision is uncertain. Yet further, if the High
Court concerned is unable to designate an arbitral institution for lack of availability, then the
High Court may maintain a panel of arbitrators for discharging the functions and duties of
arbitral institution and any reference to the arbitrator(s) would be deemed to be an arbitral
institution.
142 The 2019 Arbitration Amendment Act and the Changes It Ushers In – A Primer
While there can be a lot of debate about the efficacy of delegating such a function to an
arbitral institution, on an ancillary note, it is definitely another indicator of the rapidly
denigrating position of the Supreme Court as a Constitutional Court, and its evolution into a
predominantly appellate forum.
The present position is that orders passed by the High Courts in exercise of jurisdiction under
Section 11 are, due to the lack of an appellate provision in the 1996 Act, directly assailed
before the Supreme Court in exercise of jurisdiction under Article 136 of the Constitution of
India. Now, with the delegation of the power of appointment of arbitrators under Section 11
being delegated to arbitral institutions, the Supreme Court of India will directly hear
challenges, under Article 136, against orders passed by designated arbitral institutions. This
distinction or affliction, depending on the perspective, is seemingly unique to the Indian
Supreme Court amongst apex judicial forums in countries across the world.
Applicability of the Fee Provisions enshrined in the Fourth Schedule
The 2019 Amendment postulates, through some very convoluted language, that in the absence
of a designated arbitral institution, the High Court is required to maintain a panel of
arbitrators and if a party were to appoint an arbitrator from such a panel then the fee as
stipulated in the Fourth Schedule shall be applicable to the arbitrator so appointed.
Yet further, any reference to an arbitrator from this panel is to be deemed to be a reference to
an arbitral institution. Even in the case of a designated arbitral institution, unless in the case of
an international commercial arbitration or in the case where the parties have agreed for
determination of fees as per the rules of an arbitral institution, then the fee as stipulated in the
Fourth Schedule shall be applicable to the arbitrator so appointed by the arbitral institution
concerned.
Establishment of the Arbitration Council of India
Tied in with the introduction of arbitral institutions is the creation of the Arbitration Council
of India which, in terms of the provisions of the 2019 Amendment, has been modelled as a
premier arbitration regulator/overseer performing various functions for promoting, reforming
and advancing the practice of arbitration in the country. In the furtherance of this goal, the
Arbitration Council of India has been given powers inter-alia for grading arbitral institutions,
recognizing professional institutes providing accreditation of arbitrators, maintaining a
repository of arbitral awards made in India etc.
The constitution of the Arbitration Council of India as comprising of the Chairperson, a Chief
Executive Officer and various members has also been laid down in perfunctory detail. For
greater clarity on the exact scope of the powers and functions of the Arbitration Council of
India, and its internal constitution, one would have to await the introduction of the relevant
The 2019 Arbitration Amendment Act and the Changes It Ushers In – A Primer 143
regulations in this regard which the Central Government has been empowered to frame and
prescribe.
Express Qualifications to be accredited as an Arbitrator
Unlike the 1996 Act or the 2015 Amendment, wherein there were no specific qualifications
prescribed for being appointed as an arbitrator, aside from the general requirements of
independence and impartiality, the 2019 Amendment has introduced the Eighth Schedule
which specifically provides that only a certain specific class of persons holding certain
qualifications would be eligible to be accredited as an arbitrator including advocates,
chartered accountants, cost accountants and company secretaries [all with 10 years of
experience] or officers of the Indian legal service, or officers with a law degree or an
engineering degree [both in the government and in the private sector with 10 years of
experience], officers having senior level experience of administration [both in the government
and in the private sector with 10 years of experience], or a person having educational
qualification at the degree level with 10 years of experience in a technical or scientific stream
in the fields of telecom, information technology, intellectual property rights or other
specialized areas [both in the government and in the private sector].
The ability to be an arbitrator is therefore expressly tied-in with qualification and experience.
There are a few more vague general norms applicable to arbitrators, which primarily deal with
their impartiality and independence and their legal and practical competence to be able to
render a reasoned award and their understanding of the applicable law and best practices.
Significantly, any person having been convicted of any offence involving moral turpitude or
an economic offence would fall afoul of these norms. However, both these qualifications and
norms, are introduced by the 2019 Amendment in relation to Section 43J which pertains to
accreditation of arbitrators by the Arbitration Council of India. There does not seem to be any
express reference to the incorporation of these parameters in the existing Fifth Schedule or the
Seventh Schedule, meaning thereby that for the moment there is no proscription against
persons not falling within the parameters as specified in the Eighth Schedule being appointed
as arbitrators.
Non-Retrospective
The retrospective nature of the far-ranging 2015 Amendment inasmuch as it related to Court
proceedings has been conclusively determined by the Supreme Court in the judgment
in Board of Control for Cricket in India v. Kochi Cricket (P.) Ltd. [(2018) 6 SCC 287] in the
context of Section 36 of the 1996 Act, and in Ssangyong Engineering and Construction Co.
144 The 2019 Arbitration Amendment Act and the Changes It Ushers In – A Primer
Ltd. v. National Highways Authority of India [2019 (3) Arb. LR 152 (SC)] in the context of
Section 34 of the 1996 Act.
In Kochi Cricket (supra), the Supreme Court had gone so far as to express its displeasure with
the then pending proposal to render the 2015 Amendment prospective in nature. The Supreme
Court had urged a re-think in this regard. However, Parliament has specifically disregarded
the advice of the Supreme Court, and through the 2019 Amendment expressly made the 2015
Amendment prospective in nature i.e. the provisions of the 2015 Amendment would only
apply to cases where the arbitration was invoked post October 23, 2015. The allencompassing language makes the applicability of the 2019 Amendment prospective not only
to arbitration proceedings themselves but also related court proceedings.
The immediate fallout of this, inter-alia, would that be a large number of execution petitions
which, inspired by the decision in Kochi Cricket (supra), had come to be filed in relation to
awards which arose from arbitrations which were invoked prior to October 23, 2015 and in
which Section 34 award-challenge petitions are pending, would now, unless the same have
already been disposed of, be rendered non-maintainable inasmuch as Section 36 of the unamended 1996 Act provides for automatic stay of awards upon the filing of a Section 34
award-challenge petition.
However, the 2019 Amendment does not itself contain an express provision about the
retrospectivity or otherwise of the changes it introduces to the 1996 Act. Whereas such an
omission arguably veers to a presumption of prospectively, this issue is nonetheless likely to
lead to future litigation on this aspect in the absence of an express provision.
Excerpts from Drafting Dispute Resolution Clauses
American Arbitration Association
Drafting clear, unambiguous clauses contributes to the efficiency of the ADR process.
For example, arbitration agreements require a clear intent to arbitrate. It is not enough to state
that “disputes arising under the agreement shall be settled by arbitration.” While that language
indicates the parties’ intention to arbitrate and may authorize a court to enforce the clause, it
leaves many issues unresolved. Issues such as when, where, how and before whom a dispute
will be arbitrated are subject to disagreement once a controversy has arisen, with no way to
resolve them except to go to court. Some of the more important elements a practitioner should
keep in mind when drafting, adopting or recommending a dispute resolution clause follow.
➢ The clause might cover all disputes that may arise, or only certain types.
➢ It could specify only arbitration – which yields a binding decision – or also
provide an opportunity for non-binding negotiation or mediation.
➢ The arbitration clause should be signed by as many potential parties to a
future dispute as possible.
➢ To be fully effective, “entry of judgment” language in domestic cases is
important.
➢ It is normally a good idea to state whether a panel of one or three arbitrator(s)
is to be selected, and to include the place where the arbitration will occur.
➢ If the contract includes a general choice of law clause, it may govern the
arbitration proceeding. The consequences should be considered….
➢ The parties are free to customize and refine the basic arbitration procedures to
meet their particular needs. If the parties agree on a procedure that conflicts with
otherwise applicable AAA rules, the AAA will almost always respect the wishes of
the parties….
➢ The parties can provide for arbitration of future disputes by inserting the
following clause into their contracts (the language in the brackets suggests possible
alternatives or additions).
➢ Any controversy or claim arising out of or relating to this contract, or the
breach thereof, shall be settled by arbitration administered by the American
Arbitration Association in accordance with its Commercial [or other] Arbitration
Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
➢ We, the undersigned parties, hereby agree to submit to arbitration
administered by the American Arbitration Association under its Commercial [or
other] Arbitration Rules the following controversy: [describe briefly]. We further
agree that a judgment of any court having jurisdiction may be entered upon the
award.
The standard clause is often the best to include in a contract. It makes clear that all
disputes are arbitrable. Thus, it minimizes dilatory court actions to avoid the arbitration
process. It is self-enforcing. Arbitration can continue despite an objection from a party, unless
the proceedings are stayed by court order or by agreement of the parties. It provides a
146 Excerpts from Drafting Dispute Resolution Clauses
complete set of rules and procedures. This eliminates the need to spell out dozens of
procedural matters in the parties’ agreement. It provides for the selection of a specialized,
impartial panel. Arbitrators are selected by the parties from a screened and trained pool of
available experts.
The parties should consider adding a requirement regarding the number of arbitrators
appointed to the dispute and designating the place and language of the arbitration…..For
strategic or long-term commercial international contracts, the parties may wish to provide a
“step” dispute resolution process encouraging negotiated solutions, or mediation in advance
of arbitration or litigation. A model step clause and mediation clause follow.
“In the event of any controversy or claim arising out of or relating to this contract, the
parties hereto shall consult and negotiate with each other and, recognizing their mutual
interests, attempt to reach a solution satisfactory to both parties. If they do not reach
settlement within a period of 60 days, then either party may, by notice to the other party and
the International Centre for Dispute Resolution, demand mediation under the International
Mediation Procedures of the International Centre for Dispute Resolution. If settlement is not
reached within 60 days after service of a written demand for mediation, any unresolved
controversy or claim arising out of or relating to this contract shall be settled by arbitration
in accordance with the International Arbitration Rules of the International Centre for Dispute
Resolution.”
Usually, the effective management of time and expense in arbitration is best left in the
hands of experienced case managers and arbitrators. Occasionally, however, parties wish to
ensure that matters are resolved in a minimum of time and without recourse to the expense
and time necessitated by common law methods of pre-hearing information exchange. The
clauses that follow limit the time frame of arbitration (clauses presented in the alternative)
and the amount of pre-hearing information exchange available to the parties. One word of
caution: once entered into, these clauses will limit the arbitrator’s authority to mold the
process to the specific dictates of the case.
Other Provisions That Might be Considered
A. Specifying a Method of Selection and the Number of Arbitrators
The parties may agree to have one arbitrator or three (which significantly increases the
cost).
The arbitration clause can also specify by name the individual whom the parties want as
their arbitrator. However, the potential unavailability of the named individual in the future
may pose a risk. All of these issues and others can be dealt with in the arbitration clause.
Some illustrative provisions follow.
➢ The arbitrator selected by the claimant and the arbitrator selected by
respondent shall, within 10 days of their appointment, select a third neutral arbitrator. In
the event that they are unable to do so, the parties or their attorneys may request the
American Arbitration Association to appoint the third neutral arbitrator. Prior to the
commencement of hearings, each of the arbitrators appointed shall provide an oath or
undertaking of impartiality.
Excerpts from Drafting Dispute Resolution Clauses 147
➢ Within 14 days after the commencement of arbitration, each party shall select
one person to act as arbitrator and the two selected shall select a third arbitrator within 10
days of their appointment. [The party-selected arbitrators will serve in a non-neutral
capacity.] If the arbitrators selected by the parties are unable or fail to agree upon the
third arbitrator, the third arbitrator shall be selected by the American Arbitration
Association.
➢ In the event that arbitration is necessary, [name of specific arbitrator] shall
act as the arbitrator.
When providing for direct appointment of the arbitrator(s) by the parties, it is best to
specify a time frame within which it must be accomplished. Also, in many jurisdictions, the
law permits the court to appoint arbitrators where privately-agreed means fail. Such a result
may be time consuming, costly, and unpredictable. Parties who seek to establish an ad-hoc
method of arbitrator appointment might be well advised to provide a fallback, such as, should
the particular procedure fail for any reason, “arbitrators shall be appointed as provided in the
AAA Commercial Arbitration Rules.”
B. Arbitrator Qualifications
The parties may wish that one or more of the arbitrators be a lawyer or an accountant or
an expert in computer technology, etc. In some instances, it makes more sense to specify that
one of three arbitrators be an accountant, for example, than to turn the entire proceeding over
to three accountants. Sample clauses providing for specific qualifications of arbitrators are set
forth below.
➢ The arbitrator shall be a certified public accountant.
➢ The arbitrator shall be a practicing attorney [or a retired judge] of the
[[specify]] [Court].
➢ The arbitration proceedings shall be conducted before a panel of three neutral
arbitrators, all of whom shall be members of the bar of the state of [specify],
actively engaged in the practice of law for at least 10 years.
➢ The panel of three arbitrators shall consist of one contractor, one architect,
and one construction attorney.
➢ The arbitrators will be selected from a panel of persons having experience
with and knowledge of electronic computers and the computer business, and
at least one of the arbitrators selected will be an attorney.
➢ In the event that any party’s claim exceeds $1 million, exclusive of interest
and attorneys’ fees, the dispute shall be heard and determined by three
arbitrators.
Parties might wish to specify that the arbitrator should or should not be a
national or citizen of a particular country. The following examples can be
added to the arbitration clause to deal with this concern.
➢ The arbitrator shall be a national of [country].
148 Excerpts from Drafting Dispute Resolution Clauses
➢ The arbitrator shall not be a national of either [country A] or [country B].
➢ The arbitrator shall not be of the nationality of either of the parties.
C. Locale Provisions
Parties might want to add language specifying the place of the arbitration. The choice of
the proper place to arbitrate is most important because the place of arbitration implies
generally a choice of the applicable procedural law, which in turn affects questions of
arbitrability, procedure, court intervention and enforcement. In specifying a locale, parties
should consider (1) the convenience of the location (e.g., availability of witnesses, local
counsel, transportation, hotels, meeting facilities, court reporters, etc.); (2) the available pool
of qualified arbitrators within the geographical area; and (3) the applicable procedural and
substantive law. Of particular importance in international cases is the applicability of a
convention providing for recognition and enforcement of arbitral agreements and awards and
the arbitration regime at the chosen site. An example of locale provisions that might appear in
an arbitration clause follows.
➢ The place of arbitration shall be [city], [state], or [country].
D. Language
In matters involving multilingual parties, the arbitration agreement often
specifies the language in which the arbitration will be conducted. Examples of such
language follow.
➢ The language(s) of the arbitration shall be [specify].
➢ The arbitration shall be conducted in the language in which the contract was
written.
Such arbitration clauses could also deal with selection and cost allocation of an
interpreter.
E. Governing Law
It is common for parties to specify the law that will govern the contract and/or
the arbitration proceedings. Some examples follow.
➢ This agreement shall be governed by and interpreted in accordance with the
laws of the State of [specify]. The parties acknowledge that this agreement evidences
a transaction involving interstate commerce. The United States Arbitration Act shall
govern the interpretation, enforcement, and proceedings pursuant to the arbitration
clause in this agreement.
➢ Disputes under this clause shall be resolved by arbitration in accordance with
Title 9 of the US Code (United States Arbitration Act) and the Commercial
Arbitration Rules of the American Arbitration Association.
➢ This contract shall be governed by the laws of the state of [specify].
F. Conditions Precedent to Arbitration
Excerpts from Drafting Dispute Resolution Clauses 149
Under an agreement of the parties, satisfaction of specified conditions may be required
before a dispute is ready for arbitration. Examples of such conditions precedent include
written notification of claims within a fixed period of time and exhaustion of other
contractually established procedures, such as submission of claims to an architect or engineer.
These kinds of provisions may, however, be a source of delay and may require linkage with a
statute of limitations waiver (see below). An example of a “condition precedent” clause
follows.
➢ If a dispute arises from or relates to this contract, the parties agree that upon
request of either party they will seek the advice of [a mutually selected engineer] and
try in good faith to settle the dispute within 30 days of that request, following which
either party may submit the matter to mediation under the Commercial Mediation
Procedures of the American Arbitration Association. If the matter is not resolved
within 60 days after initiation of mediation, either party may demand arbitration
administered by the American Arbitration Association under its [applicable] rules.
G. Preliminary Relief
If the parties foresee the possibility of needing emergency relief akin to a temporary
restraining order, they might specify an arbitrator by name for that purpose in their arbitration
clause or authorize the AAA to name a preliminary relief arbitrator to ensure an arbitrator is
in place in sufficient time to address appropriate issues. Specific clauses providing for
preliminary relief are set forth below.
➢ Either party may apply to the arbitrator seeking injunctive relief until the
arbitration award is rendered or the controversy is otherwise resolved. Either party
also may, without waiving any remedy under this agreement, seek from any court
having jurisdiction any interim or provisional relief that is necessary to protect the
rights or property of that party, pending the establishment of the arbitral tribunal (or
pending the arbitral tribunal’s determination of the merits of the controversy).
Pending the outcome of the arbitration, parties may agree to hold in escrow
money, a letter of credit, goods, or the subject matter of the arbitration. A sample of a
clause providing for such escrow follows.
➢ ESCROW 1 : Pending the outcome of the arbitration [name of party] shall
place in escrow with [law firm, institution, or AAA] as the escrow agent, [the sum of
________, a letter of credit, goods, or the subject matter in dispute].
The escrow agent shall be entitled to release the [funds, letter of credit, goods, or
subject matter in dispute] as directed by the arbitrator(s) in the award, unless the
parties agree otherwise in writing.
H. Consolidation
Where there are multiple parties with disputes arising from the same transaction,
complications can often be reduced by the consolidation of all disputes. Since arbitration is a
process based on voluntary contractual participation, parties may not be required to arbitrate a
dispute without their consent. However, parties can provide for the consolidation of two or
more separate arbitrations into a single proceeding or permit the joinder of a third party into
150 Excerpts from Drafting Dispute Resolution Clauses
an arbitration. In a construction dispute, consolidated proceedings may eliminate the need for
duplicative presentations of claims and avoid the possibility of conflicting rulings from
different panels of arbitrators. However, consolidating claims might be a source of delay and
expense. An example of language that can be included in an arbitration clause follows.
➢ The owner, the contractor, and all subcontractors, specialty
contractors, material suppliers, engineers, designers, architects, construction
lenders, bonding companies, and other parties concerned with the construction of
the structure are bound, each to each other, by this arbitration clause, provided
that they have signed this contract or a contract that incorporates this contract by
reference or signed any other agreement to be bound by this arbitration clause.
Each such party agrees that it may be joined as an additional party to an
arbitration involving other parties under any such agreement. If more than one
arbitration is begun under any such agreement and any party contends that two or
more arbitrations are substantially related and that the issues should be heard in
one proceeding, the arbitrator(s) selected in the first-filed of such proceedings
shall determine whether, in the interests of justice and efficiency, the proceedings
should be consolidated before that (those) arbitrator(s).
I. Document Discovery
Under the AAA rules, arbitrators are authorized to direct a prehearing exchange of
documents. The parties typically discuss such an exchange and seek to agree on its scope. In
most (but not all) instances, arbitrators will order prompt production of limited numbers of
documents which are directly relevant to the issues involved. In some instances, parties might
want to ensure that such production will in fact occur and thus provide for it in their
arbitration clause. In doing so, however, they should be mindful of what scope of document
production they desire. This may be difficult to decide at the outset. If the parties address
discovery in the clause, they might include time limitations as to when all discovery should be
completed and might specify that the arbitrator shall resolve outstanding discovery issues.
Sample language is set forth below.
➢ Consistent with the expedited nature of arbitration, each party will,
upon the written request of the other party, promptly provide the other with
copies of documents [relevant to the issues raised by any claim or counterclaim]
[on which the producing party may rely in support of or in opposition to any
claim or defense]. Any dispute regarding discovery, or the relevance or scope
thereof, shall be determined by the [arbitrator(s)] [chair of the arbitration panel],
which determination shall be conclusive. All discovery shall be completed within
[45] [60] days following the appointment of the arbitrator(s).
J. Depositions
Generally, arbitrators prefer to hear and be able to question witnesses at a hearing rather
than rely on deposition testimony. However, parties are free to provide in their arbitration
Excerpts from Drafting Dispute Resolution Clauses 151
clause for a tailored discovery program, preferably to be managed by the arbitrator. This
might occur, for example, if the parties anticipate the need for distant witnesses who would
not be able to testify except through depositions or, in the alternative, by the arbitrator holding
a hearing where the witness is located and subject to subpoena. In most cases where parties
provide for depositions, they do so in very limited fashion, i.e., they might specify a 30-day
deposition period, with each side permitted three depositions, none of which would last more
than three hours. All objections would be reserved for the arbitration hearing and would not
even be noted at the deposition except for objections based on privilege or extreme
confidentiality. Sample language providing for such depositions is set forth below.
➢ At the request of a party, the arbitrator(s) shall have the discretion to
order examination by deposition of witnesses to the extent the arbitrator deems
such additional discovery relevant and appropriate. Depositions shall be limited
to a maximum of [three] [insert number] per party and shall be held within 30
days of the making of a request. Additional depositions may be scheduled only
with the permission of the [arbitrator(s)] [chair of the arbitration panel], and for
good cause shown. Each deposition shall be limited to a maximum of [three
hours] [six hours] [one day’s] duration. All objections are reserved for the
arbitration hearing except for objections based on privilege and proprietary or
confidential information.
K. Duration of Arbitration Proceeding
Parties sometimes underscore their wish for an expedited result by providing in the
arbitration clause, for example, that there will be an award within a specified number of
months of the notice of intention to arbitrate and that the arbitrator(s) must agree to the time
constraints before accepting appointment. Before adopting such language, however, the
parties should consider whether the deadline is realistic and what would happen if the
deadline were not met under circumstances where the parties had not mutually agreed to
extend it (e.g., whether the award would be enforceable). It thus may be helpful to allow the
arbitrator to extend time limits in appropriate circumstances. Sample language is set forth
below.
➢ The award shall be made within nine months of the filing of the
notice of intention to arbitrate (demand), and the arbitrator(s) shall agree to
comply with this schedule before accepting appointment. However, this time
limit may be extended by agreement of the parties or by the arbitrator(s) if
necessary.
L. Remedies
Under a broad arbitration clause and most AAA rules, the arbitrator may grant “any
remedy or relief that the arbitrator deems just and equitable” within the scope of the parties’
agreement. Sometimes parties want to include or exclude certain specific remedies. Examples
of clauses dealing with remedies follow.
152 Excerpts from Drafting Dispute Resolution Clauses
➢ The arbitrators will have no authority to award punitive or other damages not
measured by the prevailing party’s actual damages, except as may be required by
statute.
➢ In no event shall an award in an arbitration initiated under this clause exceed
$________.
➢ In no event shall an award in an arbitration initiated under this clause exceed
$________ for any claimant
➢ The arbitrator(s) shall not award consequential damages in any arbitration
initiated under this section.
➢ Any award in an arbitration initiated under this clause shall be limited to
monetary damages and shall include no injunction or direction to any party other than
the direction to pay a monetary amount.
➢ If the arbitrator(s) find liability in any arbitration initiated under this clause,
they shall award liquidated damages in the amount of $________.
➢ Any monetary award in an arbitration initiated under this clause shall include
pre-award interest at the rate of __% from the time of the act or acts giving rise to
the award.
M. “Baseball” Arbitration
“Baseball” arbitration is a methodology used in many different contexts and is
particularly effective when parties have a long-term relationship.
- The procedure involves each party submitting a number to the arbitrator(s) and serving
the number on his or her adversary on the understanding that, following a hearing, the
arbitrator(s) will pick one of the submitted numbers, nothing else.
A key aspect of this approach is that there is incentive for a party to submit a highly
reasonable number, since this increases the likelihood that the arbitrator(s) will select that
number. In some instances, the process of submitting the numbers moves the parties so close
together that the dispute is settled without a hearing. Sample language providing for
“baseball” arbitration is set forth below.
➢ Each party shall submit to the arbitrator and exchange with each
other in advance of the hearing their last, best offers. The arbitrator shall be
limited to awarding only one or the other of the two figures submitted.
N. Arbitration within Monetary Limits
Parties are often able to negotiate to a point but are then unable to close the remaining
gap between their respective positions. By setting up an arbitration that must result in an
award within the gap that remains between the parties, the parties are able to eliminate
extreme risk, while gaining the benefit of the extent to which their negotiations were
successful. There are two commonly-used approaches. The first involves informing the
arbitrator(s) that the award should be somewhere within a specified monetary range. Sample
contract language providing for this methodology is set forth below.
Excerpts from Drafting Dispute Resolution Clauses 153
➢ Any award of the arbitrator in favor of [specify party] and against
[specify party] shall be at least [specify a dollar amount] but shall not exceed
[specify a dollar amount]. [Specify a party] expressly waives any claim in excess
of [specify a dollar amount] and agrees that its recovery shall not exceed that
amount. Any such award shall be in satisfaction of all claims by [specify a party]
against [specify a party].
A second approach is for the parties to agree but not tell the arbitrator(s) that the amount
of recovery will, for example, be somewhere between $500 and $1,000. If the award is less
than $500, then it is raised to $500 pursuant to the agreement; if the award is more than
$1,000, then it is lowered to $1,000 pursuant to the agreement; if the award is within the
$500-1,000 range, then the amount awarded by the arbitrator(s) is unchanged. Sample
contract language providing for this methodology is set forth below.
➢ In the event that the arbitrator denies the claim or awards an amount
less than the minimum amount of [specify], then this minimum amount shall be
paid to the claimant. Should the arbitrator’s award exceed the maximum amount
of [specify], then only this maximum amount shall be paid to the claimant. It is
further understood between the parties that, if the arbitrator awards an amount
between the minimum and the maximum stipulated range, then the exact awarded
amount will be paid to the claimant. The parties further agree that this agreement
is private between them and will not be disclosed to the arbitrator.
O. Assessment of Attorneys’ Fees
The AAA rules generally provide that the administrative fees be borne as incurred and
that the arbitrators’ compensation be allocated equally between the parties and, except for
international rules, are silent concerning attorneys’ fees; but this can be modified by
agreement of the parties. Fees and expenses of the arbitration, including attorneys’ fees, can
be dealt with in the arbitration clause. Defining the term ‘prevailing party’ within the contract
is recommended to avoid misunderstanding. Some typical language dealing with fees and
expenses follows.
➢ The prevailing party shall be entitled to an award of reasonable
attorney fees.
➢ The arbitrators shall award to the prevailing party, if any, as
determined by the arbitrators, all of its costs and fees. “Costs and fees” mean all
reasonable pre-award expenses of the arbitration, including the arbitrators’ fees,
administrative fees, travel expenses, out-of-pocket expenses such as copying and
telephone, court costs, witness fees, and attorneys’ fees.
➢ Each party shall bear its own costs and expenses and an equal share
of the arbitrators’ and administrative fees of arbitration.
➢ The arbitrators may determine how the costs and expenses of the
arbitration shall be allocated between the parties, but they shall not award
attorneys’ fees.
154 Excerpts from Drafting Dispute Resolution Clauses
P. Reasoned Opinion Accompanying the Award
In domestic commercial cases, arbitrators usually will write a reasoned opinion
explaining their award if such an opinion is requested by all parties. While some take the
position that reasoned opinions detract from finality if they facilitate post-arbitration resort to
the courts, parties sometimes desire such opinions, particularly in large, complex cases or as
already provided by most applicable rules in international disputes. If the parties want such an
opinion, they can include language such as the following in their arbitration clause.
➢ The award of the arbitrators shall be accompanied by a reasoned
opinion.
➢ The award shall be in writing, shall be signed by a majority of the
arbitrators, and shall include a statement setting forth the reasons for the
disposition of any claim.
➢ The award shall include findings of fact [and conclusions of law].
➢ The award shall include a breakdown as to specific claims.
Q. Confidentiality
While the AAA and arbitrators adhere to certain standards concerning the privacy or
confidentiality of the hearings (see the AAA-ABA Code of Ethics for Arbitrators in
Commercial Disputes, Canon VI), parties might also wish to impose limits on themselves as
to how much information regarding the dispute may be disclosed outside the hearing. The
following language might help serve this purpose.
➢ Except as may be required by law, neither a party nor an arbitrator
may disclose the existence, content, or results of any arbitration hereunder
without the prior written consent of both parties.
The preceding language could also be modified to restrict only disclosure of certain
information (e.g., trade secrets).
R. Appeal
The basic objective of arbitration is a fair, fast and expert result, achieved economically.
Consistent with this goal, an arbitration award traditionally will be set aside only in egregious
circumstances such as demonstrable bias of an arbitrator. Sometimes, however, the parties
desire a more comprehensive appeal, most often in the setting of legally complex cases. Some
sample clauses incorporating appeal provision are
➢ “Notwithstanding any language to the contrary in the contract
documents, the parties hereby agree: that the Underlying Award may be appealed
pursuant to the AAA’s Optional Appellate Arbitration Rules (“Appellate Rules”);
that the Underlying Award rendered by the arbitrator(s) shall, at a minimum, be a
reasoned award; and that the Underlying Award shall not be considered final until
after the time for filing the notice of appeal pursuant to the Appellate Rules has
expired. Appeals must be initiated within thirty (30) days of receipt of an
Underlying Award, as defined by Rule A-3 of the Appellate Rules, by filing a
Excerpts from Drafting Dispute Resolution Clauses 155
Notice of Appeal with any AAA office. Following the appeal process the
decision rendered by the appeal tribunal may be entered in any court having
jurisdiction thereof…”
S. Mediation-Arbitration
A clause may provide first for mediation under the AAA’s mediation procedures. If the
mediation is unsuccessful, the mediator could be authorized to resolve the dispute under the
AAA’s arbitration rules. This process is sometimes referred to as “Med-Arb.” Except in
unusual circumstances, a procedure whereby the same individual who has been serving as a
mediator becomes an arbitrator when the mediation fails is not recommended, because it
could inhibit the candor which should characterize the mediation process and/or it could
convey evidence, legal points or settlement positions ex parte, improperly influencing the
arbitrator. Sample:
If a dispute arises from or relates to this contract or the breach thereof, and if the dispute
cannot be settled through direct discussions, the parties agree to endeavor first to settle the
dispute by mediation administered by the American Arbitration Association under its
Commercial Mediation Procedures before resorting to arbitration. Any unresolved
controversy or claim arising from or relating to this contract or breach thereof shall be settled
by arbitration administered by the American Arbitration Association in accordance with its
Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. If all parties to the dispute agree, a mediator
involved in the parties’ mediation may be asked to serve as the arbitrator.
