Arbitration clause

In the United States, the federal government has expressed a policy of support of arbitration clauses, because they reduce the burden on court systems to resolve disputes. This support is found in the Federal Arbitration Act, which permits compulsory and binding arbitration, under which parties give up the right to appeal an arbitrator's decision to a court. In Prima Paint Corp. v. Flood & Conklin Mfg. Co., the U.S. Supreme Court established the "separability principle", under which enforceability of a contract must be challenged in arbitration before any court action, unless the arbitration clause itself has been challenged.

Some jurisdictions exclude or restrict the possibility of arbitration for reasons of the protection of weaker members of the public, e.g. consumers. For example, German law excludes disputes over the rental of living space from any form of arbitration,[1] while arbitration agreements with consumers are only considered valid if they are signed,[2] and if the signed document does not bear any other content than the arbitration agreement.[3]

Mandatory arbitration clauses are widespread but not universal in the United States. For example, they are used by Amazon.com, 15 of the largest 20 U.S. credit card issuers, and 7 of the 8 largest cell phone companies, and 2 out of 3 major bike sharing companies in Seattle.[4]

The American Arbitration Association provides the following template for an arbitration clause:[5]

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

In keeping with the informality of the arbitration process, the law in England and Wales is generally keen to uphold the validity of arbitration clauses even when they lack the normal formal language associated with legal contracts. Clauses which have been upheld include:

• "arbitration in London – English law to apply"[6]
• "suitable arbitration clause"[7]
• "arbitration, if any, by ICC Rules in London"[8]

The courts have also upheld clauses which specify resolution of disputes other than in accordance with a specific legal system. These include provision indicating:

• that the arbitrators "must not necessarily judge according to the strict law but as a general rule ought chiefly to consider the principles of practical business"[9]
• "internationally accepted principles of law governing contractual relations"[10]

A number of international arbitration bodies provide sample arbitration clauses for parties to use. Examples of these are:

• The Chartered Institute of Arbitrators:

"Any dispute or difference arising out of or in connection with this contract shall be determined by the appointment of a single arbitrator to be agreed between the parties, or failing agreement within fourteen days, after either party has given to the other a written request to concur in the appointment of an arbitrator, by an arbitrator to be appointed by the President or a Vice President of the Chartered Institute of Arbitrators."

• The London Court of International Arbitration:

"Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause.

The number of arbitrators shall be [one/three].

The seat, or legal place, of arbitration shall be [insert city or country].

The language to be used in the arbitral proceedings shall be [insert language].

The governing law of the contract shall be the substantive law of [insert governing law]."

• The International Court of Arbitration:

"All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules."

• The American Arbitration Association also provides a wide sample of bespoke arbitration clauses on its website.

• Epic Systems Corp. v. Lewis, a United States Supreme Court case that considers whether arbitration clauses are legal under the National Labor Relations Act

• The Arbitration Database

• Gary Born. International Arbitration and Forum Selection Agreements: Planning, Drafting and Enforcing book (2010)