Over the past few decades, arbitration has become an alternative dispute resolution method for resolving commercial conflicts. It is a private, adaptable procedure that allows parties to settle their conflicts outside of the conventional judicial system.
However, many parties are unaware of the significance of the wording of an arbitration clause in the contract for the smooth operation of arbitration. Nonetheless, it's possible to see frequent instances when faulty phrasing causes arbitration clauses to be subject to unwanted controversies and procedural disputes.
The arbitration provision in the applicable contract must be properly written for the arbitration procedure to be effective. Merely including an arbitration clause in a contract does not necessarily achieve the intended objective. An arbitration clause must be concise, unambiguous, and contain all essential elements to render it enforceable and prevent superfluous complexities in the event of a dispute. This blog will offer some suggestions on how to create appropriate, straightforward, and explicit arbitration clauses.
- While drafting an arbitration clause, it's paramount to clearly define the scope of the clause. This means determining which kinds of conflicts will be resolved through arbitration, such as all disputes or only specific types. It's important to be as specific as possible to avoid disagreements later on. Furthermore, it is crucial to include the appropriate group of parties in the arbitration agreement. Arbitration is a voluntary dispute resolution procedure so only the product of consensus and agreement because awards generally cannot be enforced against third parties who have no relation to the dispute.
- Another important component to consider is the choice of an arbitration institution. This includes the name of the organization overseeing the arbitration and any applicable rules, such as those set by the International Chamber of Commerce (ICC), Singapore International Arbitration Centre(SIAC) or The London Court of International Arbitration (LCIA), Tashkent International Arbitration Centre (TIAC) etc. The selected institution will have a significant impact on the arbitration process, so it should be carefully evaluated. The advantages of institution-induced arbitration proceedings are numerous since they play a significant part in the entire process of administering conflicts from beginning to end by offering strategic support at each stage of the adjudication process. Institution-induced procedures offer a well-established and predictable process, reducing unnecessary time and cost.
- The number of arbitrators to be chosen is also essential to determine in the clause. Parties typically have a choice between a panel of three arbitrators and a single arbitrator, depending on their preferences and the complexity of the dispute.
- The appointment of arbitrators is another crucial component that should be addressed in the clause. This involves outlining a procedure for selecting arbitrators, such as nominating one or more arbitrators and having them choose a third arbitrator, or selecting a neutral organization to choose the arbitrators.
- The place of arbitration is another essential element to consider, as it affects the applicable law, procedural rules, and language used throughout the arbitration. The location also impacts the arbitration's expenses and logistics.
- The applicable governing law should be specified in the arbitration provision, such as using the law of a specific jurisdiction or a neutral governing law for a particular industry. The chosen law will significantly impact the outcome of the arbitration.
- Parties may choose to include a confidentiality clause in the arbitration provision to keep proceedings and documents confidential, particularly in sensitive commercial disputes.
- When drafting an arbitration clause, parties should specify the time limit within which an arbitration must be initiated. This time limit is usually referred to as the "limitation period". If arbitration is not initiated within the limitation period, then the dispute may be time-barred, and the parties may lose their right to have the dispute resolved through arbitration. The limitation period should be carefully evaluated and determined based on the applicable law and the nature of the dispute.
- The method of serving notices is an important consideration while drafting an arbitration clause. The parties should agree on the method of serving notices to each other during the arbitration process. Notices should be served in writing and delivered by hand, registered post, or email. The parties may also agree to use a specific service provider for serving notices.
- The language used in the arbitration agreement is another crucial factor that must be taken into account. Parties should choose a language that is mutually understood by both parties and any arbitrator appointed. It is also essential to ensure that the language used in the arbitration agreement is consistent with the language used in the contract. In international arbitration, the choice of language may also affect the cost and time of the arbitration.
- It is significant to mention that the arbitrator's decision will be final and enforceable against the contract's signatories.
- In addition, the parties should review and update the arbitration clause periodically to ensure that it remains relevant and effective.
Overall, the technique of drafting an arbitration clause can be complicated and requires careful consideration of various factors. The parties should consult with legal experts and arbitrators to confirm that the arbitration clause is drafted clearly and concisely and includes all essential elements necessary for an effective arbitration process.
In conclusion, an effective arbitration clause is a critical component of a commercial contract. It allows parties to resolve disputes in a private, efficient, and cost-effective manner. When drafting an arbitration clause, parties should consider a range of factors, including the scope of the clause, the choice of an arbitration institution, the number and appointment of arbitrators, the place of arbitration, the language of the arbitration, the applicable governing law, the time limit for initiating the arbitration, the allocation of costs, the rules governing the conduct of the arbitration, and the availability of interim measures. By taking these factors into account and seeking professional advice, parties can ensure that their arbitration clause is effective and enforceable.
