Have you ever walked in to a party where everyone seemed to know each other really well, and you…well, you knew no one? That’s what it feels like when you are in a court house in a jurisdiction not your own.
One way to avoid that feeling is by including in your contracts that disputes will be resolved via arbitration instead of in a court in a jurisdiction that’s foreign to you. Arbitration levels the playing field for all parties involved and avoids the “home court” advantage because you get to choose your own judge (or judges). In your arbitration provision, you can include qualifications for your judge (or judges) to ensure that they have some knowledge about your particular industry – that way you don’t have to spend a great deal of time trying to get your trier of fact to understand your business, and you can simply focus on the disputed issues. There are also other benefits to arbitration, including the fact that it can be confidential, so no one needs to know that you’re embroiled in a lawsuit. In an arbitration, you have more control over the process as it is the “parties’ arbitration” so the parties get to choose how their arbitration should be handled. Further, courtroom rules of evidence are not strictly applicable; there usually is no motion practice or formal discovery; and there is no requirement for transcripts of the proceedings or for written opinions of the arbitrators – all factors that may lead to speedier and less costly resolution.
One word of caution, it can get more expensive, and less organized, if you do not choose a specific arbitral tribunal and instead opt for an ad hoc arbitration (i.e. not supervised). Being an arbitrator for the American Arbitration Association (the “AAA”), I’m partial to that tribunal. They are organized and have case managers that help move the process forward from the moment you file your dispute through resolution, in an efficient manner. Further, the AAA has a set of rules that govern the arbitration proceeding, and to which the arbitrators are bound. This allows for a more consistent process.
Here’s a very basic arbitration provision you can include in your contracts:
“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.”
Of course, you can get more fancy in your clause depending on your needs. You can include for example:
- the location of the arbitration
- the language of the arbitration
- qualifications of the arbitrators
Something to keep in mind is that the arbitration clause is binding. So, if you get too specific in your requirements, i.e. requesting that the arbitrator is knowledgeable in DNA sequencing of microbes and speaks and reads Cantonese, Spanish, Portuguese and Russian, it may be hard to find an arbitrator meeting those requirements, adding to more disputes with the adverse party. My advice is keep it real and reasonable.