Where everything begins: the dispute resolution clause.
You may say the arbitration starts with the Notice of Arbitration.
This is true from a purely procedural point of view.
But actually, the arbitration begins when you are starting to think about how to solve a future, potential dispute: to wit, when you are drafting the dispute resolution clause.
The choices you make in drafting (and agreeing) a dispute resolution clause will have an impact on the future proceedings and – maybe – on the outcome of the case; either on the legal outcome or the practical one (for example, whether you can easily enforce your award).
For these reasons, when entering a contract, you should carefully draft the dispute resolution clause picking up the most suitable tool for that particular commercial relationship.
Drafting properly the dispute resolution clause (as well as the governing law clause) is an art, and it is too wide to be addressed “in a drop”.
But we can begin with some useful tips:
- Be careful with the so-called "double tier” clauses; there is nothing wrong with going to mediation (or a negotiation round) before arbitration, but the timeline should be clearly stated to avoid any dilatory tactic
- Is the subject matter of the potential dispute arbitrable under the law of the seat?
- Consider also the governing law of the contract; typically, three areas that can be governed by the substantive law or the procedural one: limitation period, interest and evidence; be sure that – in choosing the seat – there are no gaps or overlaps
- Do not select a seat or an arbitral institution only because is “trendy”, but think also about the logistics (for example it is good to choose a neutral seat in an arbitration between a Chinese company and a Thai one, but it is sound to choose Singapore or Hong Kong not New York or Geneva) or the attitude of the relevant State Court (is it arbitration friendly? Can it deal with your application promptly?)
- If you prefer an institutional arbitration, start from the model clause provided by the institution, and adapt it to your agreement; it is better than drafting your arbitration clause from scratch and you minimize the risks of a void clause
- Be clear and precise: how many arbitrators? Which language? Check the correct name of the institution
- Avoid uncertainty: state expressly the governing law of the dispute resolution clause (in some countries there is a presumption towards the law of the seat, in other countries the governing law of the contract is considered as implicitly governing the arbitration clause)
- Do not exaggerate: if you provide for an arbitrator (to say) of Swedish nationality, female, of age between 50 and 65, with previous experience of at least 30 arbitration and a degree in applied metallurgy, maybe you can find none available and your arbitration clause is incapable to be performed
- Look ahead: if you wish – or you are considering – to have the backing of a Third-Party Funder, it is better to select a seat where it is legal to do so (like Singapore); if you want to submit a potential IPR dispute to arbitration, you should choose a seat where it is possible (like Hong Kong), and so on
- Last, but not least: even though the New York Convention on the Recognition and Enforcement of Foreign Arbitral Award is widespread, there are some countries which are not signatory parties: it is not wise to choose one of them
To wrap up, in drafting an arbitration clause, you have to take care of a lot of aspects and potential issues. Forecast the worst, and hope for the best.
Follow our next drop of arbitration to know how to draft a notice of arbitration and select the arbitrator.
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