The arbitration agreement serves the critical function of creating a framework for the parties’ own private dispute resolution system outside of national courts. To ensure proper functioning of the system, the agreement should be drafted with great care. A well-drafted arbitration clause has a significant impact on how well the parties resolve the dispute – how efficiently, how fairly, and how successfully. Unfortunately, in negotiating and drafting a contract, attorneys and parties too often do not focus on drafting the arbitration clause. This can result in a “pathological clause” – one that is defective in some way. It may be so defective that it invalidates the arbitration agreement. At the very least, the defect may create a basis for extensive disputes over the meaning of the clause and over how the arbitration will proceed.

Many kinds of defects can render a clause pathological. For example, the clause may be ambiguous or equivocal, or it may contain mistaken information. The clause may use the wrong name for an arbitral institution or its rules, resulting in the choice of a nonexistent institution. Clauses may provide for choosing a specific arbitrator, who may be deceased by the time an arbitration commences. Parties may state in one clause that disputes will be resolved by arbitration, and in another clause in the same contract may state that a particular court will have exclusive jurisdiction of any dispute. Even if not pathological, the clause may not provide a process that is efficient or beneficial to the parties.