Some Critical Opportunities to Consider When Your Agreement is Made

Part Four of Four (read Part One, Part Two, and Part Three)

Unlike court rules, none of the ready-made sets of procedural rules for arbitration is set in stone. Agreements to arbitrate—and governing how to arbitrate—are just that: agreements. As a result, almost the whole of the arbitration process can be managed and controlled, if only a party takes the time to craft carefully and negotiate the provisions of the arbitration agreement. This can range from selecting a ready-made set of rules that will likely advantage the party in an arbitration to actually writing or modifying provisions regarding certain key issues.

But having agreed to a set of rules at the point of contracting, a party may be unable to change those rules when it finds itself in an actual arbitration—especially if the other party perceives the rules previously adopted as providing a tactical advantage. If, for instance, the rules chosen significantly limit the discovery allowed, the party that wants to avoid discovery will object to altering them. It is therefore important to consider in advance the rules that will apply to an arbitration.

Whether or not an agreement to arbitrate calls for arbitration with a particular agency or under an agency’s procedural rules, there are certain things that parties may wish to address specifically in an arbitration agreement. Examples include:

• How will the arbitration be commenced? In particular, how may the demand be served? Personal process-service can be difficult when, for example, the other party is overseas or does not want to be served. An arbitration agreement can provide for service by mail or even email.

• Venue. Where will the arbitration be held?

• The number of arbitrators. Will it be one, three, or some other number?

• Arbitrator qualifications. Do you want to ensure subject-matter expertise? Years of experience?

• Manner of selection of arbitrators. If one, will it be by consensus? If no consensus, will the parties ask the court to choose? If three, will each party pick one and let those two pick the third? And how much ex parte substantive communication will be allowed with the prospective arbitrators in the selection process?

• Scope and manner of discovery. Will there be depositions, and if so, how many? What documents will be exchanged? And will there be a process for requesting documents or testimony from third parties?

There are other procedural points that often can be effectively negotiated at the outset of an arbitration if not sooner—again, regardless of whether the agreement adopts an administrating agency or an agency’s procedural rules. Examples include:

• Arbitrator disclosures. Are there specific kinds of affiliations, associations, or activities that the parties wish to have arbitrators disclose as part of the selection process?

• Arbitrator disqualification. What is the process for deciding challenges based on arbitrator partiality? Will it be decided by the other two (in a three-arbitrator panel), or by another arbitrator?

• Scope and manner of discovery may also be decided by agreement at the outset, with the caveat that one side of the other may see the default discovery rules as advantageous and thus be reluctant to deviate from them.

• Scheduling issues. These are best decided in the arbitration and by agreement.

The more an arbitration agreement adopts a ready-made set of procedural rules without party-agreed exceptions, the more important it becomes to choose the set of rules carefully. While it may seem inherently speculative to ask what rules you will find advantageous in a dispute that has yet to arise, there are some things that are known from the nature and context of the agreement. For instance, how important will it be—for a particular contract—to have the checks and balances of a three-arbitrator panel, and is it worth the cost? And for the disputes most likely to arise out of the agreement, is the other party likely to have the important documents and witnesses on its side? If so, you may be better off with JAMS rules or with no rules at all (in which case discovery would be governed by the UAA in Washington, giving arbitrators broad discovery powers with no presumptive limits).

In short, the opportunity is there, when the agreement is made, to tilt the eventual playing field to the extent a party knows the field where the dispute will be played out. This opportunity should not be overlooked. The alternative—to adopt a set of rules because they are generally accepted and thus carry the weight of approval, without having read them or compared them to the alternatives, and without modifying them to fit your expected strategic needs—is to squander a significant opportunity to shape the outcome of your next arbitration.

–Miles Yanick

Part One | Part Two | Part Three