The purpose of this bulletin, the second in our “Dispute Resolution Clauses - Two Minute Drafting Tips” series, is to provide parties involved in negotiating commercial agreements with quick, actionable tips for crafting effective dispute resolution clauses. This bulletin discusses drafting considerations related to the following:
- Specifying panel size; and
- Arbitrator qualifications.
Consider Panel Size and Complexity
The number of arbitrators can be a big cost driver, and should be carefully considered at the contract drafting stage.
There will be large and complex cases where three arbitrators provide significant value. The two party-appointed arbitrators (who in turn appoint the Chair) can help the Chair manage the process and ensure that both sides’ arguments are fully considered and addressed in the award.
However, it is not uncommon to see arbitration clauses stipulating three arbitrators even where the likely magnitude of any dispute is small. Some arbitral rules default to three arbitrators unless the parties specify otherwise, and parties simply incorporate the rules by reference without turning their mind to this issue. In many cases, even complex ones, one experienced arbitrator would be ample. In simpler or lower-value disputes, a panel of three senior arbitrators could quickly become uneconomic.
One of the reasons often cited for using three arbitrators is that it facilitates constituting the panel – each party picks one, and then those arbitrators are more likely to be able to agree on a Chair. This can be true. However, there are other ways to appoint a single arbitrator when parties do not agree. For instance, a clause could instead designate an appointing authority; institutions such as the Vancouver International Arbitration Centre (VanIAC) and the International Centre for Dispute Resolution (ICDR) offer appointing services for a fee even where they are not administering the entire arbitration.
Defining Arbitrator Qualifications in an Arbitration Clause
One oft-cited benefit of arbitration, versus litigation, is being able to choose your decision maker. It is possible to use an arbitration clause to narrow the pool of arbitrator candidates, but experience suggests that most of the winnowing is best left for when the dispute arises. The following tips apply where particular expertise is required or preferred:
- Qualifications, Not Individuals: Typically, it will make sense to focus on setting out the qualifications or areas of expertise required for the arbitrator(s), rather than naming specific individuals or even a list of individuals. This approach maintains flexibility and ensures the process is not hindered by personal circumstances of the named arbitrator(s).
- Avoid Describing Unicorns: Undue specificity on qualifications can severely restrict the pool of candidates. That may be desirable if the subject matter of the contract is very specialized. However, specificity can be counterproductive if it delays appointment or leaves options that are undesirable for other reasons, e.g., it excludes the most experienced arbitrators that could easily learn the subject matter. It is thus often advisable to specify more general categories of expertise, e.g., lawyer with experience in energy law.
