Gaming Counsel Toolkit: Seven Requirements of Arbitration Clauses in Poker (& Other) Agreements

by , Jan 4, 2011 | 7:08 am

Much of a good lawyer’s work comes down to listening (more than talking), reading, and writing. This is no different for gaming attorneys. I spend a large part of my time reading and writing. Gaming generally describes the type of clients I have and some of the more specialized issues that come up, but most of the drafting issues that I encounter aren’t unique to gaming; many attorneys will come across them regularly, too.

Take, for example, the arbitration clause. Very generally, arbitration is the non-judicial resolution of a dispute by an appointed person. It’s not mediation, where the parties to the dispute have to agree on the settlement; an arbitrator appointed to settle a dispute concludes it independent of the parties’ agreement on the terms of settlement. Arbitration can offer a great deal of autonomy, flexibility, and privacy for parties to a dispute. Large-scale arbitrations are not cheap, but they’re seen as highly efficient alternatives to litigation.

Gaming clients also perceive the benefits associated with arbitration. My clients include poker sites, other skill games operators, software deveopers, marketing agencies, and professional players. All of them like the confidentiality that can be built into dispute resolution by arbitration, but they really appreciate the expertise and specialized knowledge that arbitrators can bring to complex gaming matters instead of putting things before a generalist judge. Even judges on the Commercial List here in Toronto, while specialized in discrete areas of corporate and commercial private law, don’t have a deep knowledge of the domestic or international gaming sectors. (To be fair, the public and policy-makers don’t expect them to have such knowledge.)

Accordingly, arbitration has become and remains an important part of many written agreements. In fact, arbitration has become one of the standard boilerplate clauses that lawyers routinely drop into a contract. As is often the case with boilerplate, however, clauses are inserted without focusing on their particular meaning in the context of the commercial relationship between the parties. Sometimes lawyers put in language that’s inappropriate to the occasion or that they themselves do not fully understand. Where they are required, arbitration clauses are often poorly drafted and don’t fit with what the parties intend.

Some people like their arbitral clauses expansive in an effort to deal with any contingency. This can be appropriate, depending on the parties and the nature of the agreement. However, sometimes one comes across arbitration clauses that are disproportionately long or convoluted; there are relatively short written agreements out there prepared by otherwise able counsel that have arbitral provisions taking up 15% of the document. Where possible, I like to keep my arbitration clauses short and clear. Many of the framing issues in arbitration can often be worked out when and if arbitral rights are invoked, so they need not consume page after page of contingencies in an agreement. Many arbitrators also agree that, when it comes to arbitral clauses, less is more. That is, tinkering with short, tight clauses will get you into more trouble than leaving them alone.

At a minimum, a properly-drafted arbitration clause must address the following seven items:

  1. The Rules of Arbitration – The parties can set out a complete set of rules to govern the arbitral proceedings or they can use a ‘ready-made’ set that is available from any one of several international or domestic bodies. Rules can be adopted with variances by the parties, but there is enough variety in the arbitral marketplace that a set of complete rules (without modifications) should be available that are satisfactory to all parties. Examples of robust and useful arbitration rules that are available include the UNCITRAL Arbitration Rules, the London Court of International Arbitration (LCIR) Rules, the various specialized rules of the American Arbitration Association (AAA), and the ADR Institute of Canada National Arbitration Rules.
  2. Appointing Authority – This is the body that appoints the arbitrator – if the parties do not designate one – and will often be the institution that conducts the arbitration itself according to the rules specified. If the parties select their own individual arbitrator (assuming one arbitrator only), they then need to turn their minds to providing for the replacement of that arbitrator if s/he is unavailable or refuses to act. Leaving this decision to a reliable appointing body resolves this issue. Well-known and respected appointing authorities include the LCIR, the International Centre for Dispute Resolution (the AAA’s international affiliate), and the ADR Institute of Canada.
  3. Number of Arbitrators – The number of arbitrators will affect the costs of the arbitration. A panel of three, for example, will cost more but allow for greater expertise. In all but the most potentially large and complicated international arbitrations, I like one arbitrator as the default, and I generally like this arbitrator to be chosen by the appointing body (see 2, above).
  4. Legal Place of Arbitration – The seat of arbitration is the legal location or juridical place of arbitration, which may be different from the place(s) at which the arbitral tribunal meets or hears evidence. The seat fixes the lex arbitri, or the law of the place where the arbitration is to be held. This can raise complex questions of jurisdiction and attornment. Irrespective of the governing law of the commercial agreement, the law applicable to the arbitration will generally be the lex arbitri. Also, as any arbitral award is often deemed to be made at the place of arbitration, enforcement issues can become important. This issue can become even more important and complex in Internet poker- and other online gaming-related agreements where the performance of the underlying contractual obligations may be illegal in the jurisdiction of the legal place of the arbitration.
  5. Language of the Arbitration – Parties should specify the language to be used in the arbitral proceedings or the tribunal will decide the language.
  6. Scope of Arbitration – The parties should consider whether, like a time is of the essence clause, arbitration can be invoked with respect to all provisions and schedules of the agreement or whether it is to be limited to particular items in the contract.
  7. Appeal Rights – Will the arbitration be subject to rights of appeal in limited circumstances or will the arbitral decision constitute the final resolution or settlement of all questions submitted for determination?

Often, these basic elements are enough to address the parties’ reasonable concerns, although I would caution that that’s not always the case.

The single biggest problem I come across with arbitral provisions isn’t in the clause itself, but in the rest of the agreement. Often, an agreement will contain language requiring the parties to, for example, “reasonably” discuss a dispute with a view to settlement, or to act “in good faith” with respect to certain contractual undertakings. There are valid reasons for inserting language like this, but it is anathema to a completely effective arbitral provision. This kind of subjective language provides a ready-made basis for jurisdictional challenges to invoking the arbitration clause. That is, if one party seeks to proceed to arbitration, the other may claim that there have been insufficient “good faith” efforts (for example) to resolve the dispute prior to arbitration and may turn to the courts under the governing law and venue clause of the contract to foreclose arbitration. This can create a dysfunctional arbitration clause where the parties cannot get their differences resolved efficiently and may have to litigate in order to end the stalemate, which may defeat the parties’ original commercial intent.

As gaming matters become more complex, parties will rightly and increasingly demand alternatives to expensive litigation if disputes emerge, including arbitration. It is incumbent upon counsel to be familiar with the key components, benefits, and potential pitfalls associated with arbitration in order to properly advise and effectively partner with their clients in the broader gaming sector.


3 Comments to “Gaming Counsel Toolkit: Seven Requirements of Arbitration Clauses in Poker (& Other) Agreements”


  1. Grange95
    says:

    Nice summary of the arbitration process. I spent about a year and a half arbitrating a reinsurance dispute. The process was just as involved and expensive as litigating in federal court. The decision was half a page long, and offered no insight into the panel’s decision-making process. My client was left with the distinct impression that the other side prevailed in large part because they are a big player which often employs these arbitrators. I’m not certain having a judge or a jury decide the case would’ve made any difference to the outcome, but the arbitration process is not without flaws.


  2. Stu Hoegner
    says:

    I agree that arbitration is not a panacea for parties in a dispute. As I hope I acknowledged in the blog, arbitrtaion can be very expensive. Also, there are other ADR measures that can be more cost-effective and efficient (e.g., mediation). However, in the right circumstances, arbitration has a role to play, especially in the gaming sector. If nothing else, a discussion about the pros and cons of an arbitral clause when establishing the relationship between the parties is very valuable.


  3. Grange95
    says:

    @ Stu:

    I didn’t mean to imply any criticism of your discussion, I think you did a solid job of laying out the case for arbitration and the thought that should go into drafting arbitral clauses. I think arbitration is best suited for complex commercial contracts where an arbitrator’s familiarity with the relevant industry is an asset to resolution of the dispute, or where an expedited resolution of a dispute is of the essence. However, I always laugh when folks tell me they want arbitration because it will be cheaper or less complicated than regular litigation.