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Drafting an Arbitration Agreement

As we have mentioned above, the arbitration agreement will normally take the form of a dispute resolution clause within a written contract. We have drawn from our experience and put together five ‘golden rules’ for drafting the arbitration agreement. In any given deal, there may be particular issues or complexities, but the following will be of wide application.

Rule 1: keep it simple

A properly-drafted arbitration agreement is vital. An arbitration agreement does not need to be complicated or elaborate. The precedent clauses published by the various arbitral institutions are typically concise and of general applicability so often no, or only minor, amendments are required.

Rule 2: ensure the basics are covered

Below we outline the basics which need to be covered in the arbitration agreement:

The ‘seat’ or ‘legal place’ of the arbitration. As we have mentioned above, the choice of seat defines what procedural law will apply to your arbitration. It is a critical choice – see Rule 3 (‘choose a safe ‘seat’ for your arbitration’).
The arbitration rules to be applied. As we have mentioned above, the procedural rules govern the conduct of the arbitration in conjunction with the law of the ‘seat’ of the arbitration. Parties frequently opt for internationally-recognised arbitration rules produced by a well-known arbitral institution (for example, the LCIA Arbitration Rules produced by the LCIA) – see Rule 4 below (‘choose between institutional and ‘ad hoc‘ arbitration’).
The language of the arbitration. The parties should specify the language to be used in the arbitration proceedings (for example, English).
Number of arbitrators. The parties should specify how many arbitrators are to be appointed – it is usually one or three (see Overview and Benefits of International Arbitration). Where you have chosen arbitration rules, they will almost certainly set out a default mechanism for appointment (see Arbitration in Practice and the Selection and Appointment of Arbitrator(s) for examples on the default position under some of the procedural rule s). However, parties often agree on their own mechanism in the contract.
The governing law of the contract. The parties must state the governing law of the contract. This is often not in the arbitration agreement clause itself but in a separate clause. If you stipulate that a contract will be governed by, for example, English law then, whatever the seat of the arbitration, that is the law that will be applied to the merits of any dispute (see Overview and Benefits of International Arbitration (see Overview and Benefits of International Arbitration).

Rule 3: choose a safe ‘seat’ for your arbitration

As noted above, the choice of ‘legal place’ or ‘seat’ for your arbitration is key. Parties should ask their contract negotiators to inform them immediately if anybody tries to change their proposed seat.

As we have mentioned above, a common misconception is that the seat determines where you will have any hearing. It does not. If your seat is Paris, you may choose to have your hearing in Paris. However, in reality you could choose to have hearings in any location (or remotely).

The seat is critically important for other reasons, including:

The seat determines the procedural law underpinning the arbitration. In effect it decides which country’s arbitration statute or equivalent (and related laws) will apply to your arbitration. Arbitration statutes typically set out the powers of the tribunal and the local courts in respect of the arbitration. In arbitration-friendly jurisdictions, the courts will not be allowed to interfere in arbitral proceedings. However, they will be able to support (e.g. by ordering interim relief where the tribunal is unable to do so). By contrast, some jurisdictions may have legislation which enables local courts potentially to intervene in proceedings and even claim jurisdiction themselves. These are best avoided.
The seat may impact on the eventual enforcement of any arbitral award. Many of the 170+ signatories to the New York Convention will only enforce awards made in other signatory states. Parties should make sure that the seat is a signatory to the New York Convention.

Remember: choose a ‘safe seat’ in an arbitration-friendly jurisdiction. Good options generally include London, New York, Paris, Stockholm, Geneva, the DIFC in Dubai, Singapore and Hong Kong.

Rule 4: choose between institutional and ‘ad hoc‘ arbitration

One of the fundamental choices will be between institutional and ‘ad hoc‘ arbitration (see above).

In an institutional arbitration, an arbitral organisation (such as the LCIA in England, the ICC in Paris or the American Arbitration Association in the US) will – for a fee – provide administrative back-up in the form of a secretariat for the arbitration.

These institutions are truly international and can be used in disputes worldwide. For example, 96% of the cases referred to the LCIA in 2023 concerned at least one party coming from a country other than the UK, and the LCIA rules can be chosen for disputes with a seat outside of England. Equally, you could decide on a seat in England and pick, for example, the AAA commercial rules or the ICDR international rules (the international division of the AAA).

In an ‘ad hoc‘ international arbitration, the administration of the arbitration will fall to the arbitrator (who may appoint a ‘secretary’ to help in this regard). For ‘ad hoc‘ international arbitrations, parties often choose the internationally-recognised UNCITRAL rules.

Remember:

In practice, both institutional and ‘ad hoc‘ arbitration can work equally efficiently. Delays are often down to the parties rather than the ‘type’ of arbitration.
Whatever the parties decide, the rules chosen should be stipulated in the arbitration agreement clause.

Rule 5: seek expert assistance if things get complex

Arbitration agreements can be simple, but there are all types of situations where things could become more complicated. For example:

There are multiple parties and/or related contracts, and one party is asking for ‘joinder’ and/or consolidation provisions.
A party wants a ‘sole option clause’, i.e., a provision that it alone can choose whether to go to arbitration or to a local court if a dispute arises.
A party is contracting with a state party and is concerned that the state party may rely on ‘state immunity’ if there were a dispute.

These matters can all be dealt with, although they fall outside the scope of this Toolkit. We would be happy to discuss these or other matters with you.

Example

What follows is an example of a basic clause without ‘whistles and bells’, that you would find in many contracts the world over:

“Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Rules of [specify the arbitral institution], which Rules are deemed to be incorporated by reference into this clause.

The number of arbitrators shall be [one] / [three].

The seat of the arbitration shall be [London, England].

The language to be used in the arbitration proceedings shall be [English].”

Conclusion

Arbitration agreements do not need to be elaborate. As mentioned above, parties must consider the content of the arbitration agreement before commencing arbitration. It is, therefore, imperative that the arbitration agreement has been drafted adequately in the first place in order effectively to protect the parties in the event of a dispute.


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Drafting an Arbitration Agreement

The golden rules for drafting an arbitration agreement