Customized Procedure in Theory and Reality
58 Pages Posted: 9 Sep 2015
Date Written: September 8, 2015
Contract theory has long posited that parties can maximize contract value by specifying the procedural rules that will apply if there is a dispute. Beyond choosing a litigation or arbitration forum, parties can alter pleading standards, adjust rules of evidence and discovery, and customize nearly every aspect of adjudication procedure. In time, this theoretical insight became a matter of empirical faith. A few recent studies, however, find little evidence that parties exercise their supposed procedural autonomy.
This article provides a comprehensive picture of dispute resolution practices in a sample of commercial contracts. Parties do exercise autonomy in structuring the rules of adjudication, but they do so within a limited domain. Contracts almost always specify the governing law and routinely designate a litigation or arbitration forum, and a substantial minority allocate responsibility for attorney fees. In arbitration, parties go further, frequently allocating costs, imposing expertise requirements, and shaping decision-making dynamics (as by requiring multiple arbitrators). In neither forum, however, do parties expressly modify governing rules of pre-trial or trial/arbitration procedure. These findings imply that it is premature to debate the normative implications of party-controlled procedure, for contracts rarely include the kinds of clauses that many find problematic. The more immediate question is why parties do not exercise their supposed procedural autonomy.
Keywords: contracts, dispute resolution, procedure
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