Commercial contracts frequently include arbitration clauses that are generically written to apply to any dispute. This strategy often backfires by making it more difficult, expensive, and time-consuming to settle legal issues. These dangers may be reduced by the use of a well-drafted arbitration agreement that addresses the concerns raised in this article.
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Arbitration Agreement Scope
The scope defines the situations under which arbitration can be invoked. Inadequately constructed scopes are a frequent cause of litigation, potentially removing the court’s authority to hear some or all of the case.
There are three essential factors to think about:
- Various common words, such as “arising out of,” “under,” and “in conjunction with,” have varying and often overlapping meanings in the English language.
- Separate sections: It’s best to avoid trying to divide up disagreements of a given sort if at all feasible.
- Parties: In order for the arbitration agreement to be valid, all relevant parties must be signatories.
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Location of the Arbitration Hearing:
The arbitration’s procedural legislation will be based on the law of the location where it will take place. It is crucial because it decides whether or not any interim remedies or rights related to the execution of the award are available. The seat of arbitration is distinct from the venue of arbitration (where the arbitration will actually take place) and the controlling law of the arbitration agreement.
Although most parties would choose a ‘neutral’ jurisdiction as the seat, this is not the only factor to take into account. The success of an arbitration and the validity of a judgement are significantly impacted by a country’s arbitration legislation.
Depending on the nature of the international agreement, the parties’ locations, the applicable legislation, and the location of the arbitration hearing might all be in different countries. Disputes might drag on for a long time if the controlling law of the arbitration agreement isn’t specified.
Despite this fact, many arbitration agreements fail to identify a controlling law. Doing so is something we highly advise.
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Optional Norms:
The choice of the rules of a recognised arbitral organisation, such as the ICC or LCIA, should govern the arbitration proceedings is one of the most essential considerations to be made when establishing an arbitration agreement. The primary advantages of resorting to such an organisation are that, in exchange for a fee, it will play a pivotal role in administering the dispute, and that the system it employs will be well-established and predictable.
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Language:
Especially in cases when parties are from different nations and do not share a common language, it is important that the arbitration provision specify the language to be used throughout the arbitration process.
All submissions and evidence submitted throughout the proceedings must be presented in the chosen language, therefore this decision is crucial. It may be possible to save money on translation and interpretation services if the parties choose the language they use most frequently in their communications.
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Quantity and Selection of Arbitrators:
Typically, three arbitrators should be appointed to a tribunal where the stakes are high and the issues complicated. Conversely, it may be more suitable and cost-effective to provide for a lone arbitrator if the dispute is expected to be modest in value and straightforward.
It is important for parties to a multi-party dispute to agree on a mechanism for appointing an arbitrator if it is impractical for each side to choose their own. For instance, one option is for parties to agree on selecting authorities.
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Characteristics of an Arbitrator:
In the process of arbitration, the parties can mutually agree on the qualifications of the arbitrators who will resolve their dispute.
A lack of specificity usually allows the parties to choose the best qualified arbitrators at the time a dispute occurs. However, there are some drafting recommendations for when parties seek to define qualifying requirements (such as specific industry-sector experience or nationality).
It is important that (1) the criteria chosen do not unintentionally include or exclude a class of potential arbitrators; and (2) the class of potential arbitrators is not unduly narrow, as this could render the arbitration agreement inoperable (for the same reason, parties should avoid naming specific individuals).
For purposes of future enforcement, it is recommended that the appointed arbitrator acquire written confirmation upon appointment that the contractual prerequisites (where stated) are considered met.
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Merging and combining:
When conflicts emerge between parties bound by several contracts, it is possible that separate tribunals will be constituted to hear arbitrations involving the same or comparable facts. Because of this, there may be delays and additional expenses as well as confusion over which options to make.
Consolidation (the merging of separate arbitrations arising out of the same or interrelated contracts into a single set of proceedings) and joinder (the joining of separate arbitrations arising out of the same or interrelated contracts) are essential tools for dealing with disputes involving multiple contracts (i.e. the addition of a third party to an existing arbitration).
When considering consolidation or joinder, the parties should keep in mind that there may be additional restrictions imposed by institutional norms.
The most important lessons:
Each arbitration agreement is, in the end, unique. If the parties want to make sure their arbitration agreement will hold up in court, they should consult an attorney. Sara Advocates and Legal Consultants will help you forge the arbitration agreement of your choice. You may want to follow the advice given to make sure your arbitration agreement doesn’t cause more problems than it solves.
