Arbitration Drafting Arbitration Agreements and Clauses 1 — Questions and Answers
Question 1: Which element is considered the most essential component of a valid pre-dispute arbitration agreement?
- A clear and mutual agreement to arbitrate future disputes (Correct answer)
- A specified damages cap
- A designated arbitration administrator named in advance
- A waiver of all appeal rights
Correct answer: A clear and mutual agreement to arbitrate future disputes
A valid arbitration agreement requires a clear mutual consent by both parties to submit future disputes to arbitration rather than litigation.
Question 2: Under the Federal Arbitration Act (FAA), an arbitration agreement is enforceable unless it is subject to which defenses?
- Any defense available under general contract law such as fraud, duress, or unconscionability (Correct answer)
- Only defenses that are unique to arbitration clauses
- Defenses based on the inconvenience of the arbitration location
- Defenses raised solely by the party seeking arbitration
Correct answer: Any defense available under general contract law such as fraud, duress, or unconscionability
The FAA places arbitration agreements on equal footing with other contracts, so they may be invalidated by general contract defenses like fraud, duress, or unconscionability.
Question 3: What is the significance of a 'broad' arbitration clause versus a 'narrow' one?
- A broad clause covers all disputes arising out of or relating to the contract, while a narrow clause limits arbitration to specific types of disputes (Correct answer)
- A broad clause allows either party to litigate while a narrow clause mandates arbitration
- A broad clause requires international arbitration while a narrow clause allows domestic proceedings
- A broad clause eliminates discovery while a narrow clause permits full discovery
Correct answer: A broad clause covers all disputes arising out of or relating to the contract, while a narrow clause limits arbitration to specific types of disputes
Broad clauses use language like 'arising out of or relating to' and sweep in virtually all disputes, whereas narrow clauses restrict arbitration to specific, enumerated claims.
Question 4: When drafting an arbitration clause, why is specifying the number of arbitrators important?
- It determines the composition of the tribunal and can affect cost, timeline, and deliberation balance (Correct answer)
- It controls whether the award is subject to judicial review
- It decides whether discovery is permitted in the proceeding
- It sets the maximum damages the arbitrator may award
Correct answer: It determines the composition of the tribunal and can affect cost, timeline, and deliberation balance
Specifying whether one or three arbitrators directly affects procedural complexity, cost, and the balancing of perspectives in deliberations.
Question 5: Which term describes a clause requiring parties to attempt negotiation or mediation before initiating arbitration?
- Escalation clause (Correct answer)
- Severability clause
- Choice-of-law clause
- Consolidation clause
Correct answer: Escalation clause
An escalation clause (also called a multi-step or tiered dispute resolution clause) mandates that parties exhaust earlier resolution steps like negotiation or mediation before proceeding to arbitration.
Question 6: What is a 'carve-out' in an arbitration agreement?
- A provision that excludes certain types of claims from arbitration and reserves them for court adjudication (Correct answer)
- A clause that removes the arbitrator's fee from the losing party's obligations
- A term allowing one party unilaterally to withdraw from arbitration
- A provision that limits the arbitral award to injunctive relief only
Correct answer: A provision that excludes certain types of claims from arbitration and reserves them for court adjudication
A carve-out explicitly excludes defined categories of claims (such as IP injunctions or regulatory matters) from the arbitration agreement, allowing those disputes to proceed in court.
Question 7: Which doctrine allows a court to enforce an arbitration agreement against a non-signatory?
- Equitable estoppel (Correct answer)
- Res judicata
- Lis pendens
- Forum non conveniens
Correct answer: Equitable estoppel
Under equitable estoppel, a non-signatory may be compelled to arbitrate when they directly benefit from or are intertwined with the contract containing the arbitration clause.
Arbitration Drafting Arbitration Agreements and Clauses 1
Which element is considered the most essential component of a valid pre-dispute arbitration agreement?