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Including Remote Arbitration Clauses in Commercial Contracts
June 28, 2021
The pandemic forced many businesses to adapt to remote work. For arbitration practitioners, that meant using videoconferencing technology to conduct arbitration hearings. Although remote arbitration has long been a feature of international arbitration, domestic arbitration practitioners had to use it, too.
With vaccine distribution moving apace, many practitioners are eager to get back to the comfort of in-person hearings. Others, however, have found that remote arbitration is a viable alternative for resolving disputes and has benefits of witness convenience, decreased travel and decreased costs. As the pandemic ends, contracting parties should consider affirmatively including remote arbitration as an option for resolving disputes and, in some cases, requiring its use.
MAJOR BODIES PERMIT REMOTE ARBITRATION
At its simplest, parties can require that the arbitration be administered by an entity that explicitly permits the use of remote arbitration hearings. Many major arbitration administrative bodies — such as the American Arbitration Association, International Chamber of Commerce and London Court of International Arbitration — permit arbitrators and parties to conduct hearings via video conference.
If parties want to take a more affirmative approach, then the option should be explicitly mentioned in the arbitration clause. It can be as simple as including the following sentence: “The arbitration hearing(s) may be conducted in-person or remotely via appropriate videoconferencing technology.” By including this sentence, the contracting parties tell future interpreters of the contract that they considered using remote arbitration to resolve disputes. This may comfort arbitrators who want to order a remote hearing down the road.
Parties have further options to consider. One is to have an affirmative opt-in requirement in the arbitration clause, with such language as the following: “The party demanding arbitration must indicate in its demand whether the arbitration will be conducted in-person or remotely using appropriate videoconferencing technology. If the party seeking arbitration chooses remote arbitration, the responding party shall indicate in its response whether it accepts this selection. If the responding party does not accept the selection of remote arbitration, then the arbitration shall be conducted in-person.” This ensures early consideration of whether remote arbitration might be appropriate for the dispute.
Alternatively, the parties can structure the arbitration clause as an opt-out, for example, “The arbitration hearing shall be conducted through the use of videoconferencing technology unless both parties agree that an in-person hearing is appropriate given the nature of the dispute.” The remote arbitration then becomes the default option. The parties would later have to determine whether the dispute warrants holding a full in-person arbitration.
One additional alternative structure that parties should consider is setting a monetary threshold in which all disputes below the threshold shall be arbitrated remotely, while disputes above the monetary threshold shall be conducted in-person, absent extenuating circumstances (such as a global pandemic).
Reduced costs are sorely needed when legitimate disputes with low monetary stakes arise. Parties could use the following language in their arbitration clause: “For any claim to be resolved by arbitration less than [an agreed upon monetary threshold], the parties shall conduct the arbitration remotely using secure videoconferencing in which all parties, counsel, witnesses and arbitrator(s) shall appear remotely for the arbitration proceedings.”
Key to any of these approaches are the parties reaching agreement on the structure of the arbitration and ensuring sufficient flexibility if a remote hearing become necessary. Arbitration derives its power from the parties’ agreement, and these procedural choices are no different.
If parties do utilize remote arbitration, there are additional considerations for ensuring a smooth experience. First, they should agree that no party will argue that using remote arbitration is a basis for objecting to any arbitration award. Although it is doubtful that a court would vacate an award simply because the hearing was done remotely (at least in the United States), it is better to take that option off the table instead of later having an expensive award confirmation fight. The following language should suffice: “In the event remote videoconferencing is used for all or part of the arbitration, the parties agree that the use of videoconferencing technology shall not serve as a basis for any objection or challenge to the award in any action in a state or federal court of competent jurisdiction.”
Second, parties should discuss whether exhibits will be provided to witnesses in advance of an examination — for instance, by sending paper copies of exhibits in advance with an “e-bundle” of exhibits sent as a back-up. Navigating exhibits can be challenging while examining a witness remotely. Under appropriate circumstances, it may make sense for witnesses to have a paper set of exhibits to use during their examination.
Third, given the proliferation of various videoconferencing platforms, it is best for the parties to have a set of minimum standards for the platform to be used for arbitration. We suggest the following language to ensure appropriate functionality and security: “Any remote arbitration proceeding shall utilize appropriate videoconferencing software with sufficient security settings to protect the confidentiality of the arbitration and the ability to share the computer screen so that exhibits and other documents may be displayed.”
Parties agreeing to contracts should ensure that remote arbitration remains an option for resolving their disputes to help control costs. Using the arbitration clause to shape how that remote arbitration is going to be conducted is critical to avoiding unnecessary disputes down the road. The drafting tips included here will help parties accomplish that goal.
Michael R. Huttenlocher is a partner in the New York office of McDermott Will & Emery. He focuses his practice on all aspects of complex commercial litigation and international arbitration, including contract disputes, business torts, merger and acquisitions, shareholder appraisal actions, the federal securities laws and white-collar criminal matters.
Lisa M. Richman is a partner at McDermott Will & Emery, head of the Washington, D.C. office and Global Co-Chair of the firm’s International Arbitration & Dispute Resolution Practice Group. She focuses her practice on international and domestic dispute resolution matters, with a particular emphasis on international commercial arbitration and public international law.
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