Arbitration Clauses

Texas law has long held that arbitration is a creature of contract. Texas courts, perhaps more so than in other jurisdictions, will seek to honor the intent of the parties as expressed in their written agreements, and recognize the significant autonomy parties possess to craft the particular arbitration proceedings that will apply to their disputes. As a result, the drafting of an arbitration clause is second in importance only to the selection of the arbitrators in ensuring that a proceeding meets the goals of arbitration of a fair, expeditious, and cost-effective manner of resolving disputes. This short summary of the considerations for arbitration clauses in Texas should be considered only a starting point. Considerations of whether or not to arbitrate, carve-outs for particular types of claims, considerations for parent, subsidiary, or affiliate parties, multi-party proceedings, stair-step dispute resolution clauses, venue and enforceability considerations are all nuanced analyses that are beyond the scope of this summary. For most disputes, however, a simple broad-form arbitration clause incorporating arbitral rules with which the parties are familiar and comfortable, forms the bedrock of the agreement to which additional provisions may be added and tailored to suit.

Selecting Arbitral Rules/Administrative Institutions

Most parties are generally familiar with some of the more popular administrative institutions such as the American Arbitration Association (AAA), International Institute for Conflict Prevention & Resolution (CPR), or JAMS (formerly Judicial Arbitration and Mediation Services, Inc.), and FedArb, which both publish rules according to which parties may agree to arbitrate and administrate the proceedings. The selection of such rules provides a shortcut both for the procedural aspects of the proceeding and the clause to invoke them. For example, to invoke the AAA commercial rules, a party may include the following Standard Arbitration Clause found in the AAA rules:

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.

An advantage of standard clauses is that they are already well-recognized by Texas courts as giving rise to an enforceable agreement to arbitrate and leaves little room for procedural disputes regarding the nature of the agreement to arbitrate. The broad form of the clause, encompassing “any controversy or claim arising out of or related to” the agreement, has been interpreted by Texas Courts as encompassing even tort claims. As one court remarked “absent any express provision excluding a particular grievance from arbitration, only the most forceful evidence of purpose to exclude the claim from arbitration can prevail….”

In addition, by agreeing to an institution’s arbitral rules, the parties are deemed to have incorporated those rules into their agreement. The rules thus provide a baseline that resolves some otherwise potentially tricky issues of contract interpretation. For example, Texas courts have now generally held that the general incorporation of the AAA rules constitutes clear and unmistakable evidence that the parties intended the arbitrator to determine questions of arbitrability.

Governing Law

In addition to specifying arbitration as a procedural dispute resolution mechanism, parties should specify the substantive law that will govern the interpretation of the agreement as well as in the event of any dispute. This may appear either in the arbitration clause or in a separate governing law clause. However, duplicative (or worse, contradictory) clauses, should be carefully avoided. For example, the contract may include:

All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas, without regard to the choice of law principles thereof.

Selection and Number of Arbitrators

The parties should address the nature of and method of selecting the arbitral tribunal, whether a sole arbitrator or a panel of multiple arbitrators. Tradition holds that panels bring a variety of experiences and expertise while a sole arbitrator is cheaper and able to more the proceedings along in a more expeditious fashion. In some cases, the parties may be able to agree on a sole arbitrator after a dispute has arisen. Often, it makes sense to the parties to condition the use of a panel to disputes over a certain threshold for the amount in controversy:

In the event that any party’s claim exceeds $1 million, exclusive of interest and attorneys’ fees, the dispute shall be heard and determined by three arbitrators.

The more common selection mechanism in complex commercial disputes is for each party to appoint an arbitrator who each then appoint a third arbitrator or chairperson. For example:

There shall be one arbitrator agreed to by the parties within twenty (20) days of receipt by respondent[s] of the request for arbitration or in default thereof appointed by the AAA in accordance with its Commercial Rules.


There shall be three arbitrators. The parties agree that one arbitrator shall be appointed by each party within twenty (20) days of receipt by respondent[s] of the Request for Arbitration or in default thereof appointed by the AAA in accordance with its Commercial Rules, and the third presiding arbitrator shall be appointed by agreement of the two party-appointed arbitrators within fourteen (14) days of the appointment of the second arbitrator or, in default of such agreement, by the AAA.

Parties can even specify a specific individual as arbitrator, though this is an historic practice that is much less common today:

In the event that arbitration is necessary, Luke J. Gilman shall act as the arbitrator.

Qualifications for Arbitrators

One of the principal advantages of arbitration is the ability of the parties to select decision-makers who have special training or expertise in the subject matter of the dispute. While this is principally accomplished by carefully identifying and selecting potential candidates once the dispute arises, parties are free to specify certain qualifications in the clause itself. For example, the arbitration clause could provide:

The arbitrator shall be a certified public accountant.


The arbitrator shall be a a retired judge of a Texas District Court, Texas Court of Appeals or Texas Supreme Court.


The arbitration proceedings shall be conducted before a panel of three neutral arbitrators, all of whom shall be members of the bar of the state
of Texas, actively engaged in the practice of law for at least 10 years.


The arbitrators will be selected from a panel of persons having experience with and knowledge of electronic computers and the computer business, and at least one of the arbitrators selected will be an attorney.

See AAA, Drafting Dispute Resolution Clauses (2013).

Location for the Arbitration

The parties may want to specify the place of the arbitration. Not only does specifying a locale potentially minimize inconvenience to the parties and witnesses, it also implies a choice of applicable procedural law in the event not addressed in the arbitration clause or the rules specified. It also impacts issues of jurisdiction for ancillary proceedings, arbitrability, and enforcement. For example, the arbitration clause may include:

The place of arbitration shall be Houston, Texas.

Limits on Discovery

Parties are free to limit or expand the usual scope of discovery. The ability to conduct court-style discovery should not be assumed in domestic arbitration in Texas and is extremely limited in international arbitration. Discovery is typically where the oft-stated policy goals of arbitration of an expeditious and cost-effective resolution of disputes is thought to have its expression. For example:

The arbitrator shall require exchange by the parties of documents relevant to the issues raised by any claim, defense or counterclaim or on which the producing party may rely in support of or in opposition to any claim, defense or counterclaim, with due regard for eliminating undue burden and expense and the expedited and lower cost nature of arbitration. At the request of a party, the arbitrator may at his or her discretion order the deposition of witnesses. Depositions shall be limited to a maximum of three depositions per party, each of a maximum of four hours duration, unless the arbitrator otherwise determines.

Limits on Damages

The parties may wish to limit or eliminate certain types of damages recoverable in the arbitration. This may be accomplished in the arbitration clause or in a separate limitation of l liability clause:

The arbitrator is not authorized to award punitive or other damages not measured by the prevailing party’s actual damages.

Costs of Arbitration and Attorneys Fees

Texas law, following the American Rule on attorneys fees, typically provides that each party will bear its own costs and attorneys fees unless otherwise provided. Notably, by statute, Texas law provides: “[a] person may recover reasonable attorney’s fees from an individual or corporation, in addition to the amount of a valid claim and costs, if the claim is for: …an oral or written contract.” Tex. Civ. Prac. & Rem. Code § 38.001. Thus, parties may wish to specify whether an award of attorneys fees and costs shall be required or prohibited in an award or should be left to the discretion of the tribunal.

Each party shall bear its own costs, fees and expenses of arbitration.


If the arbitrator determines that a party has generally prevailed in the arbitration proceeding, then the arbitrator shall award to that party its reasonable out-of-pocket expenses related to the arbitration, including filing fees, arbitrator compensation, attorney’s fees and legal costs.

Injunctive and other Interim Relief

A common procedural issue that arises following a dispute is whether a party may seek injunctive relief in a court of competent jurisdiction or is required to direct such a request to an arbitrator. Many arbitral institutions now have mechanisms to seek interim relief. In the event the parties wish to reserve the right to seek injunctive relief from a court, they should include such a carve out.

Notwithstanding the foregoing, either Party may request preliminary injunctive and/or equitable relief from a court of competent jurisdiction at any time before an arbitrator has been selected in order to protect the rights or property of such Party pending the resolution of the dispute as provided hereunder.

Reasoned Award

There is no requirement under the Texas Arbitration Act or the Federal Arbitration Act that an arbitrator explain the rationale for an award. The absence of a reasoned award may make judicial review more difficult if not impossible under certain grounds, thereby enhancing the finality of the award. On the other hand, reasoned awards are now expected in complex commercial arbitration. Key stakeholders may feel a reasoned award is important for operational reasons or simply to explain the resolution to those who did not participate in the hearing itself.

The arbitrators shall render a reasoned award, and judgment upon the award may be entered by any court having jurisdiction thereof.

Expanded Right of Appeal–a Nafta Traders Clause

In Nafta Traders, Inc. v. Quinn, the Texas Supreme Court held that under the Texas Arbitration Act (TAA), parties are free to agree to expanded judicial review of arbitration awards. In contrast, the U.S. Supreme Court in Hall v. Mattel, held that the Federal Arbitration Act (FAA) prohibits parties from expanding the judicial review of arbitration awards. As a result, in a dispute subject to the TAA, the parties can agree to expand judicial review beyond the strict statutory grounds recognized in the TAA through a clause such as the following:

“In the event there is a dispute arising out of your employment relationship with the Company or its termination which the parties are unable to resolve through direct discussion or the Complaint Resolution Procedure that would involve a litigable claim, regardless of the kind or type of dispute (excluding insured workers’ compensation claims [other than wrongful discharge claims], claims for unemployment insurance, administrative claims before the National Labor Relations Board, the Equal Employment Opportunity Commission or any parallel state or local agency), the parties agree to submit such dispute to binding arbitration in lieu of pursuing a trial in a court of law.

“The arbitration will be conducted by the American Arbitration Association or other mutually agreeable arbitration service. The arbitrator will be selected by mutual agreement from a list of five, or through alternative strikes from a second list of five. In all other respects, the arbitration process will be conducted in accordance with the American Arbitration Association Employment Arbitration rules with each party’s expenses therefrom to be borne by that party unless otherwise determined by the arbitrator. The arbitrator shall be required to state in a written opinion the facts and conclusions of law relied upon to support the decision rendered. The arbitrator does not have authority (i) to render a decision which contains a reversible error of state or federal law, or (ii) to apply a cause of action or remedy not expressly provided for under existing state or federal law. All proceedings shall be conducted in the City of Dallas, State of Texas. The duty to arbitrate described above shall survive the termination of the employee’s employment with the Company. The provisions of the Employee Handbook constitute a knowing and voluntary waiver of the parties’ rights to a jury trial.”

Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 88 n.7 (Tex. 2011).