Corporate & Securities Law

My Version of the AAA Standard Arbitration Clause

By Ken Adams

Here’s the standard arbitration clause recommended by the American Arbitration Association, as stated in the AAA commercial arbitration rules (free registration required):

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 under its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

Here’s what I don’t like about it (with occasional references to A Manual of Style for Contract Drafting)

• The couplet “controversy or claim” smacks of redundancy. (See MSCD 16.11.) Why not just say “disputes”? That’s the word used in the first actual rule stated in the AAA commercial arbitration rules, rule M-1, which refers to “mediation or conciliation of existing or future disputes.”
• I prefer “arising out of” rather than “arising out of and relating to.” What are you hoping to capture with the scattershot “relating to” that isn’t captured by “arising out of”? Whatever it might be?tort claims is a likely candidate?address it explicitly. (See MSCD 12.10.)
• It’s standard for a contract to refer to itself as “this agreement,” not “this contract.” (See MSCD 1.84.)
• The reference to “or the breach thereof” is redundant.
• This use of shall is inconsistent with the most disciplined use of shall?using it only to impose a duty on the subject of the sentence, as in Acme shall purchase the Shares. The test for this use of shall is whether you can replace shall with “has a duty to.” (See MSCD 2.25.) Use of shall in the AAA standard clause fails this test. Overuse of shall allows the drafter avoid articulating exactly what’s going on. The standard clause uses the passive voice, with “the parties” as the missing by-agent (see MSCD 2.67), but using the active voice instead (The parties shall settle) wouldn’t do the trick. I’d use The parties shall cause … to be settled, so as to reflect that arbitration requires the parties to cede authority to the arbitration panel. (See MSCD 2.79.)
• The reference to the AAA commercial arbitration rules constitutes not a reference to a title of a work but to a category of document. It’s analogous to referring to a set of bylaws. After all, there are other sets of commercial arbitration rules out there?the standard clause acknowledges as much by referring to “its Commercial Arbitration Rules.” Furthermore, the AAA commercial arbitration rules don’t refer to themselves as such?their title is “Commercial Arbitration Rules and Mediation Prodecures”. Lawyers are partial to giving initial capitals to anything that seems important, but they’d do better instead to follow The Chicago Manual of Style, which in this context would recommend lowercase letters. (See MSCD 16.43.) Alternatively, the standard clause could treat this reference as a reference to the title of a work, by saying something like “under its Commercial Arbitration Rules and Mediation Procedures.” But that would seem counterproductive, given that the title is wordy and generic. If the AAA wants further guidance on this, I suggest they submit a question to The Chicago Manual of Style Online.
• I’d address judgment on the award in a separate sentence.
• Using (s) is clumsy. (See MSCD 16.50.) Using instead “one or more arbitrators” would be an improvement, but it would be more succinct to refer instead to the arbitration itself.

So here’s the net effect of making those changes:

The parties shall cause any disputes arising out of this agreement, including any tort claims, to be resolved by arbitration administered by the American Arbitration Association in accordance with its commercial arbitration rules. Judgment on the award rendered in any such arbitration may be entered in any court having jurisdiction.

Yes, I know that the AAA’s model clause has, in the words of the AAA’s Drafting Dispute Resolutions: A Practical Guide (free registration required), “consistently received judicial support.” I guess that means it’s been “tested,” but excuse me if I don’t quake in my boots. No rational judge would see anything sinister in my changes, and drafting for the irrational judge is a losing proposition. (Incidentally, the standard clause as stated in Drafting Dispute Resolutions is slightly different from that stated in the AAA commercial arbitration rules.)

But why not simply leave the standard clause as is? Because a rational contract process requires consistent contract language. For anyone drafting a contract consistent with MSCD, the AAA model clause in its current form would strike a discordant note.

And anyway, one should always strive to improve model language. The AAA is considering revising its commercial arbitration rules and welcomes suggestions, which you can email to rules@adr.org. The deadline is September 1, 2009; consider this my entry, sneaking in under the deadline.

Full post as published by AdamsDrafting on August 30, 2009 (boomark / email).