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Drafting Dispute
Resolution Clauses:
A Practical Guide
To be of maximum benefit, an arbitration clause should
address the special needs of the parties involved. An
inadequate arbitration clause may produce as much delay,
expense and inconvenience as a traditional lawsuit. When
writing an arbitration clause, keep in mind that its purpose
is to resolve disputes, not create them. If disagreements
arise over the meaning of the arbitration clause, it is often
because it failed to address the particular needs of the
parties. Drafting an effective arbitration agreement is the
first step on the road to successful dispute resolution.
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by the American Arbitration Association
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Every year, millions of business contracts are
written which provide for arbitration as a
means of resolving disputes. Most provide for
administration by the American Arbitration
Association, a public- service, not-for-profit
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resolution procedures.The AAA's mission is:
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Arbitration Case
education and training, issues specialized
publications, and conducts research on out-
of-court dispute settlement.
Typically, the parties' agreement to arbitrate is
contained in a future- disputes clause which,
when inserted in their contract, provides that
any disagreements will be resolved through
arbitration under the rules of the American
Arbitration Association.
During the more than 60 years of its
existence, the AAA has refined its standard
arbitration clause. This clause, when linked to
AAA's administration, offers the parties a
simple, time-tested means of resolving
disputes. Occasionally, parties or their
counsel desire additional provisions.
This booklet has been prepared as a general
guide for drafting dispute resolution clauses.
* It contains examples of clauses and
portions of clauses that have been used by
parties in cases filed with the AAA. The
readers should feel free to contact the AAA
for further information.
* Specialized guides have also been prepared
for drafting dispute resolution clauses for
employment, as well as professional
accounting and related services.
1994; all rights are reserved by the American
Arbitration Association.
TABLE OF CONTENTS
Major Features of Arbitration
Standard Arbitration Agreements
Customized Arbitration Agreements
Mini-Trial
Negotiation
Mediation
Mediation/Arbitration
Arbitration/Mediation
Governing Law
Provisional Remedies
Conditions Precedent to Arbitration
Escrow Provision
Locale Provisions
Language
Bifurcation
Arbitrator Selection
Number and Qualifications of Arbitrators
Nationality of Arbitrator
Consolidation
Remedies
Confidentiality
Award Provisions
Discovery
Judicial Reference
Written Opinions
Appeal
Fees and Expenses
Large, Complex Case Dispute Resolution
Prgm
International Disputes
Conclusion

MAJOR FEATURES OF ARBITRATION

Arbitration is a private, informal process by

which all parties agree, in writing, to submit
their disputes to one or more impartial
persons authorized to resolve the controversy
by rendering a final and binding award. It is
used for a wide variety of disputes: from
commercial disagreements involving
construction, securities transactions,
computers, or real estate (to name just a few),
to insurance claims and labor union
grievances.

The major features of arbitration are:

1. A written agreement to resolve disputes by

the use of impartial arbitration. Such a
provision may be inserted in a contract for the
resolution of future disputes, or may be an
agreement to submit to arbitration an existing
dispute.

2. Informal procedures. Under the rules, the

procedure is relatively simple; strict rules of
evidence are not applicable; there is no
motion practice or formal discovery; there are
no requirements for transcripts of the
proceedings or for written opinions of the
arbitrators. Though there is no formal
discovery, the AAA's various commercial
rules* allow the arbitrator to require the
production of relevant documents. The AAA's
rules are flexible and can be varied by mutual
agreement of the parties.

3. Impartial and knowledgeable neutrals to

serve as arbitrators. Arbitrators are selected
for specific cases because of their knowledge
of the subject matter. Based on that
experience, arbitrators can render an award
grounded on thoughtful and thorough
analysis.

4. Final and binding awards which are

enforceable in a court. Court intervention and
review is limited by applicable state or federal
arbitration laws, and award enforcement is
facilitated by these same laws.

* See back cover for listing of AAA rules and

procedures.

STANDARD ARBITRATION AGREEMENTS

It is not enough to state that "disputes arising

under the agreement shall be settled by
arbitration." While this language indicates the
parties' intent to arbitrate and may authorize a
court to enforce the clause, it leaves many
issues unresolved. Issues such as to when,
where, how, and before whom a dispute will
be arbitrated, are subject to disagreement,
with no way to resolve them except to go to
court.

The standard arbitration clause suggested by

the American Arbitration Association
addresses those questions. It has proven
highly effective in over a million disputes. The
parties can provide for the arbitration of
future disputes by inserting the following in
their contracts:

STD1 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
[applicable] rules and judgment upon the
award rendered by the arbitrator may be
entered in any court having jurisdiction
thereof.

The arbitration of existing disputes may be

accomplished by use of the following:

STD2 We, the undersigned parties, hereby

agree to submit to arbitration administered by
the American Arbitration Association under its
[applicable] rules the following controversy
[cite briefly]. We further agree that we will
faithfully observe this agreement and the
rules, and that we will abide by and perform
any award rendered by the arbitrator(s) and
that a judgment of the court having
jurisdiction may be entered upon the award.

The above clauses, which refer to the time-

tested rules of the AAA, have consistently
received judicial support. The standard clause
is often the best to include in a contract. By
invoking the AAA's rules, these clauses meet
the requirements of an effective arbitration
clause:

1. It makes clear that all disputes are

arbitrable. Thus, it minimizes dilatory court
actions to avoid the arbitration process.

2. 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.

3. It provides for a complete set of rules and

regulations. This feature eliminates the need
to spell out rules and regulations in the
parties' agreement.

4. It provides for the appointment of an

impartial neutral. Arbitrators are selected by
the parties from a large pool of available
experts. Under the AAA rules, a procedure is
available to disqualify an arbitrator for bias.

5. It settles disputes over the locale of the

proceeding. When the parties disagree, locale
determinations are made by the AAA as
administrator, alleviating the need for
direction from the courts.

6. It can provide for administrative

conferences. If the clause provides for the
AAA's Commercial Arbitration Rules,
Construction Industry Arbitration Rules, or
related rules for resolving business disputes,
there is a provision for an administrative
conference with the parties' representatives
and an AAA staff member to expedite the
arbitration proceedings.

7. It can provide for preliminary hearings. If

the clause provides for the AAA's various
commercial arbitration rules, a preliminary
hearing can be arranged in large and complex
cases to specify the issues to be resolved,
clarify claims and counter claims, provide for
an exchange of information, and consider
other matters that will expedite the arbitration
proceedings.

8. Mediation is available. If the clause

provides for the AAA's various commercial
arbitration rules, mediation conferences can
be arranged to facilitate a mutual settlement,
without additional administrative cost to the
parties.

9. It establishes time limits to assure prompt

disposition of disputes. An additional feature
of the AAA's various commercial arbitration
rules are the Expedited Procedures which are
used to resolve smaller claims.

10. It insulates the arbitrator from the parties.

Under the vast majority of rules which provide
for the resolution of business disputes, the
AAA channels communications between the
parties and the arbitrator, which serves to
protect the continued neutrality of the
arbitrator and the process.

11. It establishes a procedure for the serving

of notices. Depending on the rules used and
the type of the case, notices can be served by
regular mail, addressed to the party or its
representative at the last known address.
Under most of the rules, the AAA and the
parties may use facsimile transmission, telex,
telegram, or other written forms of electronic
communication to give the notices required by
the rules.

12. It gives the arbitrator the power to decide

matters equitably and to fashion any
appropriate relief, including specific
performance. The AAA rules allow the
arbitrator to grant any remedy or relief that the
arbitrator deems just and equitable and within
the scope of the agreement of the parties,
including, but not limited to, specific
performance of a contract.

13. It allows ex parte hearings. A hearing can

be held in the absence of a party who was
given due notice. Thus, a party cannot avoid
an adverse award by merely refusing to
appear.

14. It provides for enforcement of the award.

The award can be enforced in any court
having jurisdiction, with only limited grounds
for resisting the award.

CUSTOMIZED ARBITRATION AGREEMENTS

The standard clause does not always meet

the mutual needs of the parties. Arbitration
being a consensual process, the parties are
free to design their arbitration agreement in
whatever manner they choose.

To assist in drafting arbitration clauses that

modify or add to the standard clause, the
following examples of arbitration clauses
used by parties to accomplish a variety of
purposes have been compiled. Although the
Association does not specifically recommend
these clauses, they illustrate some of the
choices made by parties in addressing the
various areas described below.

One important "drafting pointer" should be

noted here. If, in a domestic transaction as
distinguished from an international
transaction, the parties desire that the
arbitration clause be final and binding, and
subject to enforcement in a court of
appropriate jurisdiction, it is essential that the
clause contain an "entry of judgment"
provision, such as that found in the standard
arbitration clause ("and judgment upon the
award rendered by the arbitrator may be
entered in any court having jurisdiction
thereof").

MINI-TRIAL

The mini-trial is a structured dispute

resolution method in which senior executives
of the parties involved in a dispute meet in the
presence of a neutral advisor and, after
hearing presentations of the merits of each
side of the dispute, attempt to formulate a
voluntary settlement. A clause providing for
mini-trial might read:

MT1 Any controversy or claim arising out of or

relating to this contract shall be submitted to
the American Arbitration Association under its
Mini-Trial Procedures.

NEGOTIATION

The parties may wish to attempt to resolve

their disputes through negotiation prior to
arbitration. A sample of a clause which
provides for negotiation follows:

NEG1 In the event of any dispute, claim,

question, or disagreement arising out of or
relating to this Agreement or the breach
thereof, the parties hereto shall use their best
efforts to settle such disputes, claims,
questions, or disagreement. To this effect,
they shall consult and negotiate with each
other, in good faith and, recognizing their
mutual interests, attempt to reach a just and
equitable solution satisfactory to both parties.
If they do not reach such solution within a
period of sixty (60) days, then upon notice by
either party to the other, disputes, claims,
questions, or differences shall be finally
settled by arbitration administered by the
American Arbitration Association in
accordance with the provisions of its
[applicable] rules.

MEDIATION

The parties may wish to attempt mediation

before submitting their dispute to arbitration.
This can be accomplished by making
reference to mediation in the arbitration
clause. To be most effective, the mediation
clause can specify the AAA's Commercial or
Construction Industry Mediation Rules.
Examples of such language follows:

MED1 If a dispute arises out of or relates to

this contract, or the breach thereof, and if said
dispute cannot be settled through negotiation,
the parties agree first to try in good faith to
settle the dispute by mediation administered
by the American Arbitration Association under
its Commercial Mediation Rules, before
resorting to arbitration, litigation, or some
other dispute resolution procedure.

MED2 The parties hereby submit the following

dispute by mediation administered by the
American Arbitration Association under its
Commercial Mediation Rules. [The clause
may also provide for the qualifications of the
mediator(s), method of payment, locale of
meetings, and any other item of concern to
the parties.]

MEDIATION/ARBITRATION

A clause can be inserted into a contract that

first provides for mediation under the AAA's
mediation rules. If the mediation is
unsuccessful, the dispute would then go to
arbitration under the AAA's arbitration rules.
This process is sometimes referred to as
"Med#Arb." Samples of med#arb clauses
follow:

MEDARB1 If a dispute arises out of or relates

to this contract, or the breach thereof, and if
said dispute cannot be settled through direct
discussions, the parties agree to first
endeavor to settle the dispute in an amicable
manner by mediation administered by the
American Arbitration Association under its
Commercial Mediation Rules, before resorting
to arbitration. Thereafter, any unresolved
controversy or claim arising out of 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 upon the Award rendered
by the arbitrator(s) may be entered in any
court having jurisdiction thereof.

MEDARB2 Any other claim, dispute or other

matter in question arising out of or related to
this Agreement or breach thereof shall be
settled in accordance with Article 4 of AIA
Document A201, except that in addition to
and prior to arbitration, the parties shall
endeavor to settle disputes by mediation in
accordance with the Construction Industry
Mediation Rules of the American Arbitration
Association arising under this Paragraph shall
be conducted in accordance with the
provisions of Subparagraphs 9.1.2 and 9.1.3.*

MEDARB3 If a monetary dispute arises out of

or relating to this contract, the parties agree
to first submit it to mediation administered by
the American Arbitration Association under its
Commercial Mediation Rules and, if unable to
agree upon a settlement amount, to submit
their dispute to a neutral person appointed by
the AAA who shall select between their final
negotiated positions, that selection being
binding upon the parties.

* Reprinted from AIA Document A121/CMc

and AGC Document 565, Standard Form of
Agreement Between Owner and Construction
Manager- 1991 Edition. The AIA/AGC should
be contacted for instructions on the use of its
Form Documents.

ARBITRATION/MEDIATION

Parties can also provide for

arbitration/mediation which works as follows:
the arbitration proceeds along the traditional
track, with the arbitrator rendering an award.
The decision is then sealed for a period
certain, during which the parties attempt to
mediate. If the dispute is successfully settled
in mediation, the award is destroyed or
transmitted to the parties, pursuant to the
terms of the parties' agreement. If the
mediation does not produce a settlement, the
award is issued and is fully enforceable and
binding.

ARBMED1 Any controversy or claim arising

out of or relating to this contract, or the
breach thereof, shall first be submitted to
arbitration administered by the American
Arbitration Association in accordance with its
[applicable] rules. The award rendered by the
arbitrator under the rules shall be sealed for
[specify number] days while the parties
attempt to mediate the dispute. Said
mediation shall be administered by the
American Arbitration Association under its
[applicable] mediation rules. The mediator
shall not be the arbitrator previously
appointed to hear the dispute. If the mediation
is successful, the parties agree that the award
of the arbitrator shall be [destroyed]
[transmitted to the parties for their
information]. If the mediation is unsuccessful,
the award of the arbitrator shall be
transmitted to the parties and judgment upon
said award may be entered in any court
having jurisdiction thereof.

GOVERNING LAW

It is not uncommon for parties to specify the

law that will govern the contract and/or the
arbitration proceedings. Some examples
follow:

GOV1 . . . shall be resolved by arbitration in

accordance with Title 9 of the U.S. Code
(United States Arbitration Act) and the
Commercial Arbitration Rules of the American
Arbitration Association.

GOV2 This contract shall be governed by the

laws of the State of [specify].

GOV3 . . . shall be settled by arbitration in

accordance with [state] Arbitration Law and
administered by the American Arbitration
Association under its [applicable] rules.

GOV4 In rendering the award, the arbitrator

shall determine the rights and obligations of
the parties according to the substantive and
procedural laws of [state].

GOV5 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.
In international cases, where the parties have
not provided for the law applicable to the
substance of the dispute, the AAA's
International Arbitration Rules contain specific
guide lines for arbitrators regarding applicable
law. See discussion of international disputes
on page 36.

PROVISIONAL REMEDIES

While the AAA's rules give the arbitrator the

authority to grant interim relief, the parties
may wish to make this power explicit, or give
themselves the option of applying to court for
provisional remedies, in conjunction with the
arbitration process. This can be accomplished
as follows:

PROV1 Any provisional remedy which would

be available from a court of law, shall be
available from the arbitrator, to the parties to
this Agreement pending arbitration.

PROV2 Either party may make an application

to the arbitrator seeking injunctive relief to
maintain the status quo until such time as the
arbitration award is rendered or the
controversy is otherwise resolved.

PROV3 Either party may, without

inconsistency with this agreement, seek from
a court any interim or provisional relief that
may be 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).

PROV4 Either party may apply to any court

having jurisdiction hereof and seek injunctive
relief so as to maintain the status quo until
such time as the arbitration award is rendered
or the controversy is otherwise resolved.

Note that the AAA's rules also provide for

interim relief by the arbitrator upon the
application of a party.

CONDITIONS PRECEDENT TO ARBITRATION

By agreement of the parties, certain

conditions may have to occur before a dispute
is ready for arbitration. Examples of
conditions precedent include written
notification of claims within a fixed period of
time and exhaustion of other contractually
established procedures. These kinds of
provisions may, however, be a source of delay.
Examples of "conditions precedent" language
follows:

CONPRE1 If a dispute arises out of or relates

to this contract, the parties agree that senior
management will try in good faith to settle the
dispute within thirty days thereafter before
resorting to arbitration administered by the
American Arbitration Association under its
[applicable] rules.

CONPRE2 Any controversy or claim arising

out of or related to the contract, or the breach
thereof, shall be settled by arbitration in
accordance with the Construction Industry
Arbitration Rules of the American Arbitration
Association, and judgment upon the award
rendered by the arbitrator or arbitrators may
be entered in any court having jurisdiction
thereof, except controversies or claims
relating to aesthetic effect and except those
waived as provided for in Subparagraph 4.3.5.
Such controversies or claims upon which the
Architect has given notice and rendered a
decision as provided in Subparagraph 4.4.4
shall be subject to arbitration upon written
demand of either party. Arbitration may be
commenced when 45 days have passed after
a claim has been referred to the Architect as
provided in Paragraph 4.3 and no decision has
been rendered.*

Under a broad arbitration clause, i.e., one

which encompasses "any claim arising out of
or relating to" a contract, the question of
whether a claim has been asserted within an
applicable time limit is generally regarded as
an arbitrable issue.

* Reprinted from AIA Document A201, General

Conditions of the Contract for Construction-
1987 Edition. The AIA should be contacted for
instructions on the use of its Form
Documents.

ESCROW PROVISION

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 such a clause
providing for escrow follows:

ESC1 Pending the outcome of the arbitration

[name of party] shall place in escrow with [law
firm, institution or AAA] as escrow agent, [the
sum of _____________, letter of credit, goods, or
subject matter in dispute]. The escrow agent
shall be entitled to release such [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.

LOCALE PROVISIONS

Parties may want to add language specifying

the place of the arbitration. Examples of
locale provisions which may appear in an
arbitration clause follow:
LOC1 Any controversy relating to this
Agreement or any modi- fication or extension
of it, shall be resolved by arbitration in the city
of [specify], administered by the American
Arbitration Association under the then
prevailing [applicable] rules.

LOC2 Any controversy or claim arising out of

or relating to this Agreement or the breach
thereof will be settled by arbitration
administered by the American Arbitration
Association in accordance with its
[applicable] rules then in effect, and judgment
upon the award rendered by the arbitrator may
be entered in any court having jurisdiction.
Any such arbitration will be conducted in the
city nearest the customer's main U.S. office
having an AAA regional office.

LOC3 The arbitration proceedings shall be

conducted in [city], [state].

LOC4 The site of the arbitration shall be [city],

[state].

LOC5 The arbitration shall be held in [city],

[state], or at such other place as may be
selected by mutual agreement.

LOC6 . . . shall be settled by arbitration in

[city], [state], under the [applicable] Rules then
obtaining of the American Arbitration
Association.

In specifying a locale, parties also should

consider:
(1) the convenience of the location (e.g.,
availability of local counsel, transportation,
hotels, meeting facilities, etc.);
(2) the available pool of qualified arbitrators
within the geographical area;
(3) the applicable procedural and substantive
law. Of particular importance in international
cases is the applicability of a convention
providing for the recognition and enforcement
of arbitral agreements and awards, and the
arbitration regime at the chosen site.

LANGUAGE

In matters involving multi-lingual parties, the

arbitration agreement often specifies the
language in which the arbitration will be
conducted. An example of such language
follows:

LANG1 The language(s) of the arbitration

shall be [specify].

LANG2 The arbitration shall be conducted in

the [specify] language but at the request and
expense of a party, documents and testimony
shall be translated into [specify language].
LANG3 The arbitration shall be conducted in
the language in which the contract was
written.

Such arbitration clauses could also deal with

the selection and cost of an interpreter.

BIFURCATION

Parties can provide in their arbitration clause

for a bifurcated proceeding. For instance, the
parties can agree that evidence and testimony
first be given on the issue of liability. If liability
is found, the proceedings would continue on
the issue of damages. If liability is not found,
the matter might be declared closed and a
final award issued against the claimant. Such
a clause might read:

BIF1 The parties agree that the arbitrator shall

rule as to liability prior to receiving evidence
or testimony on any damage claim. In the
event liability is found, the arbitration
proceeding shall continue before the same
arbitrator to resolve any and all damage
issues.

ARBITRATOR SELECTION

Under the AAA's arbitration rules, arbitrators

are generally selected using a listing process.
The AAA administrator provides each party
with a list of proposed arbitrators who are
generally familiar with the subject matter
involved in the dispute. Each side is provided
ten days to strike any names deemed
unacceptable, number the remaining names in
order of preference, and return the list to the
Association. The AAA then invites arbitrators
to serve from among those names remaining
on the list, in the designated order of mutual
preference.

The parties may use other arbitrator

appointment systems, such as the party-
appointed method in which each side
designates one arbitrator, and the two thus
selected appoint the chair of the panel. This
method is not recommended by the AAA,
because use of partisan arbitrators can delay
the process and produce compromise awards
or deadlocks. One way to address those
problems is to agree that party-appointed
arbitrators serve in a neutral capacity.

The parties' arbitration clause can also

specify by name the individual the parties
want as their arbitrator.

All of these issues and others can be dealt

with in the arbitration clause. Some illustrative
provisions are noted below:
ARBSEL1 In the event arbitration is necessary,
[name of specific arbitrator] shall act as the
arbitrator.

ARBSEL2 The arbitrator selected by the

claimant and the arbitrator selected by
respondent shall, within ten 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
commence- ment of hearings, each of the
arbitrators appointed shall take an oath of
impartiality.

ARBSEL3 Within fifteen 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 ten days of their
appointment. 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.

When providing for direct appointment of the

arbitrator(s) by the parties, it is best to specify
a time frame within which same 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
may 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."

NUMBER AND QUALIFICATIONS OF

ARBITRATORS

Parties often have very definite ideas about

the qualifications of an arbitrator appointed to
a dispute. The qualifications requirements
may include specific educational, professional
or training experience. Parties concerned
about the number of arbitrators appointed in a
case can pre-determine whether the dispute
shall be heard by one arbitrator or by a panel
of three arbitrators. Typical additions to an
arbitration clause dealing with such matters
are:

QUAL1 The arbitrator shall be a certified

public accountant.

QUAL2 The arbitrator shall be a retired judge

of the [specify] Court.
QUAL3 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 ten
years.

QUAL4 The panel of three arbitrators shall

consist of one contractor, one architect and
one construction attorney.

QUAL5 Arbitrators must be members of the

[specify] State Bar actively engaged in the
practice of law with expertise in the process
of deciding disputes and interpreting
contracts in [the particular field of law
involving the subject controversy].

QUAL6 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.

QUAL7 One of the arbitrators shall be a

member of the Bar of the State of [specify],
actively engaged in the practice of law, or a
retired member of the state or federal
judiciary.

QUAL8 The arbitration shall be before one

neutral arbitrator to be selected in accordance
with the Commercial Rules of the American
Arbitration Association and shall proceed
under the Expedited Procedures of said Rules,
irrespective of the amount in dispute.

QUAL9 In the event any party's claim exceeds

$1 million, exclusive of interest and attorneys'
fees, the dispute shall be heard and
determined by three arbitrators.

NATIONALITY OF ARBITRATOR

Parties may 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:

NATLY1 The arbitrator appointed to hear and

decide disputes under this provision shall be a
citizen of [country].

NATLY2 The arbitrator shall be a national of

[country].

NATLY3 The arbitrator shall not be a national

of either country of the parties to the dispute.

CONSOLIDATION

Where there are multiple parties with disputes

arising from the same transaction,
complications may often be reduced by the
consolidation of all disputes. Parties can
provide for the consolidation of two or more
separate arbitrations into a single proceeding
or permit the intervention of a third party in 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.
Conversely, consolidating claims might be a
source of delay and expense. Examples of
language which can be included in an
arbitration clause follow:

CONSOL1 The owner, the contractor, all

subcontractors, speciality contractors,
material suppliers, engineers, designers,
architects, construction lenders, bonding
companies, and all other parties concerned
with the construction of the structure are
bound, each to each other, by this arbitration
clause, provided such party has signed this
contract, or has signed a contract which
incorporates this contract by reference, or
signs any other agreement to be bound by this
arbitration clause.

CONSOL2 Arbitration proceedings under this

agreement may be consolidated with
arbitration proceedings pending between
other parties if the arbitration proceedings
arise out of the same transaction or relate to
the same subject matter. Consolidation will be
by order of the arbitrator, in any of the pending
cases, or if the arbitrator fails to make such
an order, the parties may apply to any court of
competent jurisdiction for such an order.

CONSOL3 No arbitration arising out of or

relating to the Contract Documents shall
include, by consolidation or joinder or in any
other manner, the Architect, the Architect's
employees or consultants, except by written
consent containing specific reference to the
Agreement and signed by the Architect,
Owner, Contractor and any other person or
entity sought to be joined. No arbitration shall
include, by consolidation or joinder or in any
other manner, parties other than the Owner,
Contractor, a separate contractor as
described in Article 6 and other persons
substantially involved in a common question
of fact or law whose presence is required if
complete relief is to be accorded in
arbitration. No person or entity other than the
Owner, Contractor or a separate contractor as
described in Article 6 shall be included as an
original third party or additional third party to
an arbitration whose interest or responsibility
is unsubstantial. Consent to arbitration
involving an additional person or entity shall
not constitute consent to arbitration of a
dispute not described therein or with a person
or entity not named or described therein. The
foregoing agreement to arbitration and other
agreements to arbitrate with an additional
person or entity duly consented to by parties
to the Agreement shall be specifically
enforceable under applicable law in any court
having jurisdiction thereof.*

* Reprinted from AIA Document A201, General

Conditions of the Contract for Construction-
-1987 Edition. The AIA should be contacted
for instruction on the use of its Form
Documents.

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
specifically include or exclude certain
remedies. Particular care, however, should be
given to this type of arbitration provision, to
avoid unnecessary litigation about what
issues are arbitrable. Samples of clauses
dealing with remedies appear below:

REM1 The arbitrator shall have the authority

to award any remedy or relief that a court of
this state could order or grant, including,
without limitation, specific performance of
any obligation created under the agreement,
the awarding of punitive damages, the
issuance of an injunction, or the imposition of
sanctions for abuse or frustration of the
arbitration process.

REM2 The arbitrators will have no authority to

award punitive damages or any other
damages not measured by the prevailing
party's actual damages, and may not, in any
event, make any ruling, finding or award that
does not conform to the terms and conditions
of the Agreement.

REM3 Such arbitration shall be conducted in

[state], under the auspices of the American
Arbitration Association, in accordance with its
Commercial Arbitration Rules before a partner
of [specify name of accounting firm], an
independent public accounting firm. The
scope of the arbitration shall be limited to
whether the Closing Financial Statements
and/or the Statement of Seller's [specify year]
Sales were true and complete and were
prepared in accordance with Generally
Accepted Accounting Principles consistently
applied.

REM4 Arbitrators shall be empowered to

impose sanctions and to take such other
actions with regard to the parties as the
arbitrators deem necessary to the same
extent a judge could, pursuant to the Federal
Rules of Civil Procedure, the [state] Rules of
Civil Procedure and applicable law.

CONFIDENTIALITY

While the confidentiality of the hearings is

protected by AAA rules, and the arbitrators are
expected to adhere to ethical standards
concerning confidentiality (see AAA-ABA
Code of Ethics for Arbitrators in Commercial
Disputes, Canon VI), parties may also wish to
impose limits on themselves as to how much
information regarding the dispute may be
disclosed outside the hearing. The following
language may serve this purpose:

CONF1 Neither party nor the arbitrators may

disclose the existence, content, or results of
any arbitration hereunder without the prior
written consent of both parties.

The above language could also be modified to

restrict the disclosure of only certain
information (i.e. "trade secrets").

AWARD PROVISIONS

The arbitration clause can be specifically

worded to limit the remedial power of the
arbitrator, even if the evidence indicates that
greater relief might be warranted. For
example, the clause may establish high and
low figures beyond which the arbitrator may
not award. This is called "high- low"
arbitration. In some agreements, the arbitrator
is made aware of the high-low figures; in
others this information is not provided to the
arbitrator, but is contained in a separate
"control contract" between the parties.
Another variation is "last best offer"
arbitration, also known as "baseball"
arbitration. In this system, the parties
negotiate to their final positions, and the
arbitrator is compelled to select the figure of
one party or the other-nothing in between,
above, or below. While provisions such as
these are permissible and sometimes
appropriate, they have the potential to
produce results that are unusual or
unintended. Such provisions should only be
adopted with careful fore thought and
negotiation. Examples of such arbitration
clauses follow.

High/Low or Control Clause; Arbitrator Not

Informed of Limits:

AWARD1 In the event the arbitrator denies the

claim or awards an amount less than the
minimum amount of [specify], then this
minimum amount shall be paid to claimant.
Should the arbitrator's award exceed the
maximum amount of [specify], then 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.

High/Low Clause; Arbitrator Informed of

Limits

AWARD2 Any award of the arbitrator in favor

of [specify party] and against [specify party]
shall be at least [specify dollar amount] but
shall not exceed [specify dollar amount].
[Specify party] expressly waives any claim in
excess of [specify dollar amount] and agrees
that its recovery shall not exceed that amount.
Any such award shall be in satisfaction of all
claims by [specify party] against [specify
party].

Last Best Offer or "Baseball Clause":

AWARD3 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.

AWARD4 The parties agree that the arbitration

to be employed by the panel shall be "baseball
arbitration." Each party shall present to the
panel, for each taxable year at issue, the total
income amount that Apple Singapore would
have earned at arm's length relating to the
PCBN and system manufacture/assembly,
taking into account all sales, service, and use
of intangible property transactions, if any,
between Apple and Apple Singapore,
respectively. The parties are specifically
limited to presenting to the panel only one
amount for each taxable year in dispute. For
each taxable year in dispute, the panel shall
select one of the amounts presented by the
parties for that specific tax year.*

* Reproduced from Apple Computer Inc. and

Consolidated Subsidiaries vs Commissioner
of Internal Revenue, United States Tax Court,
Docket No. 21781--90.

DISCOVERY

Discovery frequently is time-consuming and

expensive. While full- blown discovery is
seldom recommended in arbitration,
information exchange can be beneficial in
large, complex cases. For such cases, the
AAA's various commercial arbitration rules
provide for an administrative conference with
the AAA staff, and/or a preliminary hearing
with the arbitrator. The purposes of such
meetings are to:

(1) clarify the issues to be resolved;

(2) specify the claims of each party;
(3) identify any witnesses to be called; and, at
a preliminary hearing,
(4) establish the extent of and schedule for
the production of relevant documents and
other information.

In addition to the information exchanges

facilitated by the above provision of the AAA
rules, some parties favor traditional discovery.
The following language can serve this
purpose:

DISC1 The arbitrator shall have the discretion

to order a pre-hearing exchange of
information by the parties, including, without
limitation, production of requested
documents, exchange of summaries of
testimony of proposed witnesses, and
examination by deposition of parties.

DISC2 The parties shall allow and participate

in discovery in accordance with the Federal
Rules of Civil Procedure for a period of ninety
(90) days after the filing of the Answer or
other responsive pleading. Unresolved
discovery disputes may be brought to the
attention of the chair of the arbitration panel
and may be disposed of by the chair of the
panel.

DISC3 Limited civil discovery shall be

permitted for the production of documents
and taking of depositions. All discovery shall
be governed by the [specify] Rules of Civil
Procedure. All issues regarding conformation
with discovery requests shall be decided by
the arbitrator.

If the parties do agree to discovery, they might

include time limitations as to when all
discovery should be completed. The parties
also should provide for resolution of
outstanding discovery issues by the arbitrator.

JUDICIAL REFERENCE

Under the laws of some states, courts may

refer all or some issues of a pending litigation
to a referee, who is authorized to issue a
report on certain issues of the dispute.
Toward that end, the AAA has developed
special Judidical Reference Procedures.
Parties may also stipulate to use the judicial
reference process, either after a dispute
arises or prior to same by use of a contractual
clause. Model language for these purposes is
set forth below:

JUDREF1 Any controversy or claim arising out

of or relating to this contract, or the breach
thereof, shall be determined, at the request of
either party, by a general reference conducted
by a referee appointed pursuant to the
provisions of [specify] and administered by
the American Arbitration Association in
accordance with its Judicial Reference
Procedures. The parties intend this general
reference agreement to be specifically
enforceable in accordance with [specify].

JUDREF2 It is hereby stipulated by the parties

hereto, through their respective undersigned
counsel, that trial by jury be waived as to
[specify] herein; that said [issue or cause] be
referred to [name] as referee to hear and
determine [said issue or all issues in this case
whether of fact or law] and to report his or her
statement of decision to the above-entitled
court within 20 days after testimony and
argument are concluded and that judgment
may be entered thereon as if the action had
been tried by the court; that the costs of the
referee be borne [parties to agree or court to
determine at time of appointment]; and that
an order to this effect may be entered
accordingly without further notice. This
general reference shall be administered by the
American Arbitration Association pursuant to
its Judicial Reference Procedures. With the
exception of international and labor relations
cases, arbitrators in business disputes
customarily render a brief decision without an
opinion. The AAA does not encourage
commercial arbitrators to write opinions that
give reasons for the award in domestic cases.
A lengthy written opinion can prolong a
proceeding and might open avenues for
attack by the losing party. Often, an itemized
award can eliminate the need to render an
opinion. However, in some situations, parties
may desire an award with written findings. In
such cases, the following language can be
written into their agreement:

OPIN1 The arbitration award shall be in

writing and shall specify the factual and legal
bases for the award.

OPIN2 The award of the arbitrators shall be

accompanied by a reasoned opinion.

OPIN3 Upon the request of a party, the

arbitrator's award shall include findings of fact
and conclusions of law.

OPIN4 The award shall be in writing and shall

be signed by a majority of the arbitrators, and
shall include a statement regarding the
disposition of any statutory claim.

APPEAL

Experienced parties and their attorneys rarely

write arbitration clauses which allow for
appeal of the arbitrator's award. Parties
generally appreciate the advantage of arbitral
finality and recognize that appeals will delay
the ultimate resolution of the dispute.
However, the parties may provide for an
appeal of the arbitrator's award. Parties may
also provide for appeals of court decisions, in
lieu of appellate court review, by slightly
modifying the clause below. An example of
such language is:

APP1 Either party may appeal the arbitration

panel's award to an appellate arbitrator by
filing with the AAA, within twenty days after
transmittal of the award, a written brief, not to
exceed twenty pages, stating the reasons why
the panel's decision should be reversed or
modified. The opposing party shall file with
the AAA and serve on the appealing party,
within twenty days after receiving the appeal
brief, an opposition brief, not to exceed twenty
pages. The appellate arbitrator shall be
appointed directly by the AAA, without
submission of lists of proposed arbitrators,
and shall be a retired judge of a court of
record in the state in which the arbitration was
held. Either party may request oral argument
which must be conducted within fourteen
days following the submission of the final
brief. The appellate arbitration shall be based
only on the record of the initial hearing and
oral argument, if any. The appellate arbitrator
shall render a written decision affirming,
reversing, modifying or remanding the arbitral
panel's decision within twenty days after
receiving the final appellate submissions. The
appellate arbitrator may reverse, modify or
remand the matter for further proceedings by
the arbitral panel only on one of the following
grounds:

1. Any ground specified in 9 U.S.C. sections

10 or 11;
2. If the award contains material errors of
applicable law;
3. If the award is arbitrary or capricious.

The appellate arbitrator may render a final

decision on appeal or remand the matter for
further proceedings by the arbitral panel.

FEES AND EXPENSES

The rules generally provide that the

administrative fees be borne as incurred and
that the arbitrators' compensation be
allocated equally between the parties, but this
can be modified by agreement of the parties.
Fees and expenses of the arbitration,
including attorneys' fees, can also be dealt
with in the arbitration clause. Some typical
language dealing with fees and expenses
follow:

FEE1 All fees and expenses of the arbitration

shall be borne by the parties equally. However,
each party shall bear the expense of its own
counsel, experts, witnesses, and preparation
and presentation of proofs.

FEE2 The prevailing party shall be entitled to

an award of reasonable attorney's fees.

FEE3 The arbitrator(s) is authorized to award

any parties such sums as shall be deemed
proper for the time, expense, and trouble of
arbitration, including arbitration fees and
attorneys' fees.

FEE4 The arbitrators shall award to the

prevailing party, if any, as determined by the
arbitrators, all of its costs and fees. "Costs
and fees" means 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.

FEE5 The parties shall each bear its own

costs and expenses and an equal share of the
arbitrators' and administrative fees of
arbitration.

FEE6 The arbitrators shall award costs and

expenses of the arbitration proceeding in
accordance with the provisions of the loan
agreement, promissory note and/or other loan
documents relating to the credit which is the
subject of the arbitrated claim or dispute.

LARGE, COMPLEX CASE PROGRAM

The Large, Complex Case Dispute Resolution

Program has been designed primarily for
business disputes involving claims of at least
$1,000,000, although parties are free to
provide for their use in other disputes. The key
elements of the Program are:

(1) the selection of arbitrators that satisfy

rigorous criteria to insure that the panel is an
extremely select one, and the training,
orientation and coordination of those
arbitrators in a manner designed to facilitate
the Program;

(2) the establishment of new procedures for

the administration of those cases that elect to
be included in the Program;
(3) the flexibility of those parameters so that
parties may more speedily and efficiently
resolve their disputes;

(4) the administration of large, complex cases

by trained, senior AAA staff.

The AAA has established the following criteria

for arbitrators serving in the Program.

1. Experience and Competence

a. Fifteen-year business or professional
practice involving complex legal or business
matters;
b. Extensive experience in dispute resolution;
c. Strong academic background and
professional/business credentials preferred;
d. Scholarship and continuing education
preferred.

2. Neutrality
a. Commitment to impartiality and objectivity;
b. Freedom from national or cultural prejudice;
c. Independence and open-mindedness.

3. Judicial Capacity
a. Dispute management skills;
b. Judicious temperament: impartiality,
patience, courtesy;
c. Talent for adjudication, negotiation and
conciliation.

4. Reputation
a. Highest respect of Bar and/or business
community;
b. Integrity, patience, courtesy.

5. Commitment and Availability

a. A willingness to serve if nominated, and
general availability to serve in accordance
with the needs of the parties;
b. Ability to devote time and effort to major
disputes;
c. Successful completion of an advanced AAA
panelist training course.

6. Quality Control
a. Careful attention paid to selecting panelists
to meet the needs of the particular dispute
and the desires of the parties;
b. Periodic review of the panel.

The Supplementary Procedures for Large,

Complex Disputes have been designed to be
extremely party-driven. They will be used upon
the agreement of the parties, or where a court
or other authorized body directs their
application.

The Procedures provide for an early

administrative conference with the AAA, and a
preliminary hearing with the arbitrators.
Documentary exchanges and other essential
exchanges of information are facilitated. The
Procedures also provide that a statement of
reasons may accompany the award, if
requested by the parties. The Procedures are
meant to supplement the applicable rules the
parties have agreed to use. They include the
possibility of the use of mediation to resolve
some or all issues at an early stage. Parties
may also wish to include other provisions,
contained in this guide, in their dispute
resolution procedures.

The parties can provide for the future

application of the Procedures by including the
following arbitration clause in their contract:

LCCP1 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
[applicable] Arbitration Rules and the
Supplementary Procedures for Large,
Complex Disputes, and judgment upon the
award rendered by the arbitrator(s) may be
entered in any court having jurisdiction
thereof.

A pending dispute can be referred to the

Program by the completion of a Submission
to Arbitration Agreement, if the underlying
contract documents do not provide for AAA
administration.

LCCP2 We, the undersigned parties, hereby

agree to submit to arbitration administered by
the American Arbitration Association under its
[applicable] Arbitration Rules and the
Supplementary Procedures for Large,
Complex Disputes, the following controversy
[cite briefly]. We further agree that we will
faithfully observe this agreement and the
rules, and that we will abide by and perform
any award rendered by the arbitrator(s) and
that a judgment of the court having
jurisdiction may be entered upon the award.

INTERNATIONAL DISPUTES

The American Arbitration Association

administers international commercial cases
under various arbitration rules either within or
outside the United States. The AAA
administers cases under its own International
Arbitration Rules, as well as under the
International Arbitration Rules of the
Asia/Pacific Center and the UNCITRAL Rules.
The following are samples of arbitration
clauses which relate to international disputes:

INTL1 Any controversy or claim arising out of

or relating to this contract shall be determined
by arbitration administered by the American
Arbitration Association in accordance with its
International Arbitration Rules.

INTL2 Any controversy or claim arising out of

or relating to this contract shall be determined
by arbitration in accordance with the
International Arbitration Rules of the
Asia/Pacific Center.

INTL3 Any dispute, controversy, or claim

arising out of or relating to this contract, or
the breach, termination, or invalidity thereof,
shall be settled by arbitration in accordance
with the UNCITRAL Arbitration Rules in effect
on the date of this contract. The appointing
authority shall be the American Arbitration
Association. The case shall be administered
by the American Arbitration Association in
accordance with its "Procedures for Cases
Under the UNCITRAL Arbitration Rules."

INTL4 The arbitration proceedings shall be

conducted in [city], [country].*

INTL5 The language(s) of the arbitration shall

be [specify].*

INTL6 The arbitrator appointed to hear and

decide disputes under this provision shall be a
citizen of [country].*

* See previous sections dealing with locale,

language, and nationality of the arbitrator for
additional clauses. The parties may wish to
expand any of these clauses by adding a
requirement regarding the number of
arbitrators appointed to the dispute.

The parties may also submit an international

dispute under the AAA's commercial and
other specialized arbitration rules, as
supplemented by the Supplementary
Procedures for International Commercial
Arbitration. These procedures do not
supersede any provision of the applicable
rules but merely codify various procedures
customarily used in international arbitration.
Included among them are provisions
specifying the neutrality of arbitrators,
consecutive hearing days, the language of
hearings, and opinions. The thrust of the
procedures is to expedite international
proceedings and keep them as economical as
possible.

The enforcement of international awards is

addressed by the 1958 U.N. Convention on
the Recognition and Enforcement of Foreign
Arbitral Awards, which has been ratified by
more than 80 nations, and in this hemisphere
by the recently adopted Inter-American
Convention on International Commercial
Arbitration.
CONCLUSION

To be of maximum benefit, an arbitration

clause should address the special needs of
the parties involved. An inadequate arbitration
clause may produce as much delay, expense
and inconvenience as a traditional lawsuit.
When writing an arbitration clause, keep in
mind that its purpose is to resolve disputes,
not create them. If disagreements arise over
the meaning of the arbitration clause, it is
often because it failed to address the
particular needs of the parties. Drafting an
effective arbitration agreement is the first
step on the road to successful dispute
resolution.

After a dispute arises, parties can request an

administrative conference with a senior staff
member of the AAA to assist them in
establishing appropriate procedures
necessary for their unique case. Such
conferences can expedite the arbitration
proceedings in many cases.

This brochure describes some of the ways in

which some parties have modified the AAA's
time-tested standard clause to deal with
specific concerns. Given that commercial
transactions vary greatly, its purpose is not so
much to urge use of the provisions cited, but
rather to suggest the range of possible
options. To arrive at the most suitable and
effective arbitration clause, parties should
consult legal counsel for guidance and
advice.
-----

This file was prepared from material

copyrighted by, and is posted with the
permission of, the American Arbitration
Association. For more info visit the AAA's web
site at https://www.adr.org
-----
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