Arbitration Drafting Arbitration Agreements and Clauses 2 — Questions and Answers
Question 1: What purpose does a choice-of-law clause serve in an arbitration agreement?
- It specifies which jurisdiction's substantive law governs the merits of the dispute (Correct answer)
- It designates the country whose courts may vacate the arbitral award
- It selects the language in which arbitration must be conducted
- It limits the parties to remedies available only in the chosen jurisdiction's courts
Correct answer: It specifies which jurisdiction's substantive law governs the merits of the dispute
A choice-of-law clause identifies the substantive law the arbitrator must apply when resolving the merits, providing predictability for both parties.
Question 2: Why is a severability clause (also called a separability clause) included in many arbitration agreements?
- To ensure the arbitration clause remains valid and enforceable even if other parts of the underlying contract are found void (Correct answer)
- To allow the arbitrator to sever and discard unfavorable evidence
- To give courts the right to sever the arbitration clause from any award rendered
- To separate the arbitrator's fee obligation from the parties' other contractual duties
Correct answer: To ensure the arbitration clause remains valid and enforceable even if other parts of the underlying contract are found void
A severability clause ensures that challenges to the validity of the main contract do not automatically nullify the arbitration agreement contained within it.
Question 3: Which approach do most institutional arbitration rules (e.g., AAA, JAMS) take regarding the arbitrability of a dispute when the clause is ambiguous?
- They favor a presumption of arbitrability, resolving doubts in favor of arbitration (Correct answer)
- They refer all ambiguity questions to the nearest federal district court
- They require a second agreement between the parties before proceeding
- They automatically dismiss the case until the clause is clarified by mutual amendment
Correct answer: They favor a presumption of arbitrability, resolving doubts in favor of arbitration
Courts and most institutional rules apply a presumption of arbitrability, meaning ambiguous clauses are construed in favor of sending the dispute to arbitration.
Question 4: What is the 'seat' of arbitration and why does it matter when drafting an arbitration clause?
- The legal place of arbitration that determines which jurisdiction's procedural law and supervisory courts govern the proceedings (Correct answer)
- The physical location where all hearings must physically take place
- The nationality of the presiding arbitrator
- The institutional administrator chosen to administer the arbitration
Correct answer: The legal place of arbitration that determines which jurisdiction's procedural law and supervisory courts govern the proceedings
The seat is the legal domicile of the arbitration, fixing which national courts may supervise the proceedings, grant interim relief, and potentially vacate the award.
Question 5: When an arbitration clause limits discovery to document exchange only, what is the primary benefit parties typically seek?
- Reduced cost and faster resolution by avoiding depositions and extensive interrogatories (Correct answer)
- Guaranteed confidentiality of all evidence produced during the proceeding
- Elimination of the arbitrator's ability to order interim relief
- Ensuring that no expert witnesses may testify at the hearing
Correct answer: Reduced cost and faster resolution by avoiding depositions and extensive interrogatories
Restricting discovery to document exchange avoids the expense and delay of depositions, interrogatories, and broad document requests associated with litigation.
Question 6: What risk does a party face if it drafts an arbitration clause that is found to be unconscionable by a court?
- The clause may be invalidated and the parties may be required to litigate in court instead (Correct answer)
- The party must pay treble damages for including an unconscionable term
- The arbitrator is automatically disqualified and must be replaced
- The award is automatically increased in favor of the non-drafting party
Correct answer: The clause may be invalidated and the parties may be required to litigate in court instead
If a court finds an arbitration clause procedurally or substantively unconscionable, it may refuse to enforce the clause and send the dispute to litigation.
Question 7: Which clause in an arbitration agreement allows one proceeding to address claims by or against multiple related parties simultaneously?
- Consolidation or class arbitration clause (Correct answer)
- Interim measures clause
- Confidentiality clause
- Default award clause
Correct answer: Consolidation or class arbitration clause
A consolidation or class arbitration clause permits aggregation of related claims or parties into a single proceeding, promoting efficiency when multiple disputes share common issues.
Arbitration Drafting Arbitration Agreements and Clauses 2
What purpose does a choice-of-law clause serve in an arbitration agreement?