10 things to bear in mind when drafting an arbitration clause

An arbitration agreement can be subject to English law even where the substantive law of the main contract is a foreign law | BDM Blog | BDM Law

  1. Scope – should be as wide as possible. As a rule of thumb it should cover “any and all disputes and/or differences between the parties arising under, out of or in connection with the contract”
  2. Procedure? – do you want to adopt institutional rules or have an ad hoc procedure under the English Arbitration Acts? Institutional rules can be helpful as they set out some framework for the arbitration procedure. Ad hoc falls back on the Arbitration Acts. In some cases, the parties may even specify the procedure to be followed in the clause itself. Bear in mind that some institutional arbitrations are managed by a central body or secretariat which can involve payment of substantial advance fees.
  3. Seat – not what you sit on nor where the hearings take place but the legal place of the arbitration. Unless otherwise stated the seat determines the procedural law that will apply to the arbitration proceedings and any appeal procedures. When choosing the seat it is important to make sure that it is in a country that has ratified the 1958 New York Convention. In this way you will be able to enforce any Award in another convention state.
  4. Venue – the place where any hearings are to take place. In practice this can be anywhere at all.  It has no effect on the seat
  5. Governing law –  determines which law applies when it comes to any disputes arising under the contract. If there is no governing law then there can be a dispute as to which law should apply to determine the disputes which can be expensive and costly to resolve.
  6. How to constitute the Tribunal? –it can be frustrating if the clause does not state clearly how one in fact starts proceedings so as to interrupt a possible time bar. If the seat of the arbitration is in England then the Arbitration Acts provide a fall back but it is better to specify the procedure for starting proceedings and constituting the Tribunal. Parties can also specify the number of arbitrators (normally one or three) and time limits for their appointment.
  7. Specialist arbitrators? – if you don’t specify any criteria then this opens the door for parties to potentially appoint arbitrators who may have no specific experience of the issues that may arise in the contract. If the parties want commercial arbitrators (i.e. non lawyers) then they should specify this. Likewise, they can specify that the arbitrator should have a shipping or trade background or be members of a trade body. Make sure however that the criteria are not too narrow or you may find that there is a shortage of potential appointees!
  8. Language – if you specify the language to be used then this will save costs on translations. This is particularly relevant where the parties come from countries with different languages. If the language is not specified then the arbitrators may choose which language should apply.
  9. Appeal – if the parties wish to exclude the right of appeal they must expressly state so in the clause. Bear in mind that under English law, the right to appeal is very limited but it does protect the parties from an obvious factual mistake or an error of law. Many parties choose to arbitrate in England because of the appeal mechanism in the Arbitration Acts and the availability of the English Courts. Choosing to exclude the right of appeal is a big decision and re-emphasises the importance of getting the right Tribunal to hear the case in the first instance.
  10. Hybrids? – it is sometimes possible to have hybrid clauses i.e. English High Court jurisdiction but with an option for one party to arbitrate. These need to be clearly drafted to avoid uncertainty. Where there is an option it should state exactly how the option is to be validly exercised and the procedure from there. Hybrids can cause difficulties in time bar situations so it is important to take early action to ensure that there are no time bar issues.

To sum up, care should be taken when drafting arbitration clauses. There are plenty of precedents around to give guidance and these can be amended accordingly. The above is simply a check list of points to consider.

At BDM we handle hundreds of arbitrations and we are often asked to help when it comes to drafting arbitration clauses. We have the benefit of knowing what can go wrong and we use that experience to help our clients to avoid pitfalls.

BDM is a specialist shipping law firm offering high quality legal advice and representation at a reasonable price. Please follow us on social media by clicking below.

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