Alternative dispute resolution provisions are frequent inhabitants of all sorts of contracts. In the M&A world, they might govern the means of resolving a purchase price adjustment, a representation breach, or an escrow dispute. Arbitration provisions also are frequently included in representations and warranties insurance policies, which are increasingly used to insure the risk of loss caused by a representation breach. It is crucial that M&A practitioners understand the implications of an agreement’s arbitration provision and how to draft an arbitration provision that serves their clients’ needs. This article will discuss five issues that counsel should consider when drafting an arbitration provision and provide insights on how to effectively craft an arbitration clause to enable the efficient and cost-effective resolution of M&A disputes in domestic arbitration.
1. Confirm That Arbitration Is Best for Your Client
There are many advantages to arbitration. Arbitration permits parties to control the dispute resolution process. Parties can agree to abide by procedural rules that are different from those that would apply in court. Parties can select who will hear their dispute so as to ensure that the arbitrator will have the skills and experience necessary to resolve a dispute involving complex accounting issues, for example, or other specialized areas of knowledge. However, parties are required to pay the fees of their arbitrators, which can be substantial.
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