Drafting Arbitration Clause

[Source: American Arbitration Association Rules on Arbitration]

What is Drafting?

Drafting is a specif ic type of legal writing dealing with legislation,

instruments, or other legal documents that are to be construed by
others. Statutes, rules, regulations, contracts and wills are
examples of legal drafting.
Legal Drafting generally implies:
• Drafting of a deed, instrument or a document,
• A written instrument containing an agreement between parties,
• Intended to regulate the relationship between those parties.
Pre-requisites of Legal Drafting

• Drafting is not writing a prose or poetry. It is a very formal piece

of write-up reflecting the intended needs.
• A proper understanding of drafting cannot be realized unless
the nexus between the law, facts, and the language is fully
understood and accepted.
• Draft should be free from ambiguity and doubtful connotation.
• Whether parties really want Arbitration?
• Whether Animus Arbitrandi on the part of parties exist?
• The Process of drafting, firstly involves thinking & secondly composing
• It has three stages:
1. The Planning Stage
2. The Writing Stage
3. The Revision Stage
Drafting should be : (a) Direct (b) Simple (c) Brief (d) Lucid
(e) should clearly reflect the needs.
Drafting Arbitration Clause
Drafting clear, unambiguous clauses contributes to the efficiency
of the ADR process. For example, arbitration agreements require
a clear intent to arbitrate. It is not enough to state that “disputes
arising under the agreement shall be settled by arbitration.” While
that language indicates the parties’ intention to arbitrate and may
authorize a court to enforce the clause, it leaves many issues
unresolved. Issues such as WHEN, WHERE, HOW & BEFORE
whom a dispute will be arbitrated are frequent source of
disagreements, and if such issues are not carefully covered and
drafted then there remains no way to resolve them except to go to
court.
Common Elements of Arb. Clause
• The clause might cover all disputes that may arise, or only certain
types.
• It could specify only arbitration – which yields a binding decision – or
also provide an opportunity for non-binding negotiation or mediation.
• It should state whether a panel of one or three arbitrator(s) is to be
selected, and to include the place where the arbitration will occur.
• If the contract includes a general choice of law clause, it will govern
the arbitration proceeding. Its consequences should be carefully
thought through.
• It must incorporate the language to be used in the arbitration.
• The arbitration clause should be signed by all the parties.
Use of Standard Arb. Clause
• It clearly indicates that parties in their Arb Clause agree to have
their dispute arbitrated by Institutional Arbitration by applying
the designated standard Rules of Arbitration.
• This eliminates the need to spell out dozens of procedural
matters in the parties’ agreement. It provides for the selection
of a specialized, impartial panel. Arbitrators are selected by the
parties from a screened and trained pool of available experts.
• Despite the Standard Clause, parties are free to customize the
basic arbitration procedures to meet their particular needs.
Various Aspects to be Kept in Mind
while Drafting Arbitration Clause
1. Specifying a Method of Selection and
the Number of Arbitrators
• It must clearly reflect the needs of the parties
• Why would you want to have sole or a panel of three arbitrators?
(you may want high stake claim to be arbitrated by 3 arbitrators)
• Do you want to name the arbitrator?
• Why would you not like to name the arbitrator?
The appointment process can be hugely time taking process. So
often times you would want to incorporate an expeditious
appointment process, say for example within 10 or 15 days.
2. Arbitrator Qualifications

• Why would you want to prescribe qualifications for arbitrators?

• Do you need arbitrator to be a lawyer, or a retired judge,
accountant, architect or a cyber expert?
• Example:
The arbitration proceedings shall be conducted before a panel of
three neutral arbitrators, all of whom shall be members of the
Delhi State Bar Council, actively engaged in the practice of law for
at least 10 years.
Arbitrator’s Nationality
Most importantly, parties might wish to specify that the arbitrator
should or should not be a national or citizen of a particular
country. The following examples can be added to the arbitration
clause to deal with this concern.
• The arbitrator shall be a national of [country].
• The arbitrator shall not be a national of either [country A] or
[country B].
• The arbitrator shall not be of the nationality of either of the
parties.
3. Place of Arbitration (very vital)
• Think why would you insert the name of a place in the arbitration
clause?
• In complex disputes involving many parties belonging to
different countries, often this is the most problem creating issue.
• The choice of the proper place to arbitrate is most important
because the place of arbitration implies generally a choice of
the applicable procedural law, which in turn affects questions of
arbitrability, procedure, court intervention and enforcement.
• Seat of Arbitration is different from place of meeting for
arbitration.
Place of Arbitration
In specifying a place, parties should consider
(1) the convenience of the location (e.g., availability of witnesses,
local counsel, transportation, hotels, meeting facilities, court
reporters, etc.);
(2) the available pool of qualified arbitrators within the
geographical area;
(3) the applicable procedural and substantive law.
Of particular importance in international cases is the applicability
of a convention providing for recognition and enforcement of
arbitral agreements and awards and the arbitration regime at the
chosen site. An example of locale provisions that might appear in
an arbitration clause follows.
3. Language
Seat of Arbitration does not automatically mean “language also
chosen of the seat of arbitration”
In matters involving multilingual parties, the arbitration agreement
often specifies the language in which the arbitration will be conducted.
Preferred language is English. You will choose any other language only
after carefully considering the availability of arbitrators/counsels in
that language.
Examples:
• The language(s) of the arbitration shall be [specify].
• The arbitration shall be conducted in the language in which the
contract was written.
• Such arbitration clauses could also deal with selection and cost
allocation of an interpreter.
4. Governing Law (often contentious)
It is common for parties to specify the law that will govern the
contract and/or the arbitration proceedings. Some examples follow.
“This agreement shall be governed by and interpreted in
accordance with the laws of the United Kingdom. The parties
acknowledge that this agreement involves cross border activities
and transactions . The UK Arbitration Act, 1996 shall govern the
interpretation, enforcement, and proceedings pursuant to the
arbitration clause in this agreement.”
Or,
“This contract shall be governed by the laws of …….. “
5. Conditions Precedent to Arbitration
It means before arbitration is resorted to some requirements must
be satisfied. Parties must be clear as to what are those typical
requirements? But be clear that such pre-arbitration requirements
may be time consuming. It is also linked to Limitation Law.
Examples:
• written notification of claims within a fixed period of time.
• submission of claims to an architect or engineer before arbitration
is resorted to.
• Use of negotiation or mediation before arbitration is sought to be
constituted
6. Provision for Emergency Preliminary
Relief

If the parties foresee the possibility of needing emergency relief

akin to a temporary restraining order, they might specify an
arbitrator by name for that purpose in their arbitration clause or
authorize the ICADR to name a preliminary relief arbitrator to
ensure an arbitrator is in place in sufficient time to address
appropriate issues.
7. Document Discovery
Under some institutional rules, arbitrators are authorized to direct
a prehearing exchange of documents. The parties typically
discuss such an exchange and seek to agree on its scope. In
most (but not all) instances, arbitrators will order prompt
production of limited numbers of documents which are directly
relevant to the issues involved. In some instances, parties might
want to ensure that such production will in fact occur and thus
provide for it in their arbitration clause. In doing so, however, they
should be mindful of what scope of document production they
desire. This may be difficult to decide at the outset. If the parties
address discovery in the clause, they might include time
limitations as to when all discovery should be completed and
might specify that the arbitrator shall resolve outstanding
discovery issues
8. Duration of Arbitration Proceeding
Parties sometimes underscore their wish for an expedited result
by providing in the arbitration clause, for example, that there will
be an award within a specified number of months of the notice of
intention to arbitrate and that the arbitrator(s) must agree to the
time constraints before accepting appointment. Before adopting
such language, however, the parties should consider whether the
deadline is realistic and what would happen if the deadline were
not met under circumstances where the parties had not mutually
agreed to extend it (e.g., whether the award would be
enforceable). It thus may be helpful to allow the arbitrator to
extend time limits in appropriate circumstances
Example:

“The award shall be made within nine months of the filing of the
notice of intention to arbitrate (demand), and the arbitrator(s)
shall agree to comply with this schedule before accepting
appointment. However, this time limit may be extended by
agreement of the parties or by the arbitrator(s) if necessary.”
9. Arbitration within Monetary Limits
Depending what parties want, they may wish to incorporate in the
arbitration clause the upper-most range of amount to be awarded
by the arbitrators.
“Any award of the arbitrator in favor of [specify party] and against
[specify party] shall be at least [specify a amount] but shall not
exceed [specify a amount]. [Specify a party] expressly waives any
claim in excess of [specify a amount] and agrees that its recovery
shall not exceed that amount. Any such award shall be in
satisfaction of all claims by [specify a party] against [specify a
party].”
10. Fees, Expenses etc.
• Fees and expenses of the arbitration, including attorneys’ fees,
can be dealt with in the arbitration clause. It should be allocated
equally between the parties, except for Lawyer’s fees.
“Each party shall bear its own costs and expenses and an equal
share of the arbitrators’ and administrative fees of arbitration”

• For lawyer’s fees a separate clause may be negotiated

“The prevailing party shall be entitled to an award of reasonable
attorney fees”
11. Confidentiality
While the Institution Administering Arbitration and arbitrators
adhere to certain standards concerning the privacy or
confidentiality of the hearings (see the AAA-ABA Code of Ethics for
Arbitrators in Commercial Disputes, Canon VI), parties might also wish to
impose limits on themselves as to how much information
regarding the dispute may be disclosed outside the hearing. The
following language might help serve this purpose.
“Except as may be required by law, neither a party nor an
arbitrator may disclose the existence, content, or results of any
arbitration hereunder without the prior written consent of both
parties.”
12. Med-Arb Clause
• It may be inserted as a condition precedent to arbitration.
• It means recourse to mediation first before arbitration
• It helps in narrowing down the issues. That is small issues could
be tided over in mediation, and arbitration is then used for major
hurdles.
• But key thing is to be kept in mind whether you want the same
mediator to continue also as an arbitrator.
Sample Med-Arb Clause
“If a dispute arises from or relates to this contract or the breach
thereof, and if the dispute cannot be settled through direct
discussions, the parties agree to endeavor first to settle the
dispute by mediation administered by the Indian Institute of
Arbitration under its Commercial Mediation Procedures before
resorting to arbitration. Any unresolved controversy or claim
arising from or relating to this contract or breach thereof shall
be settled by arbitration administered by the Indian Institute of
Arbitration in accordance with its Commercial Arbitration Rules.
If all parties to the dispute agree, a mediator involved in the
parties’ mediation may be asked to serve as the arbitrator.”
A Sample Arbitration Clause

"Any dispute arising out of or in connection with this contract,

including any question regarding its existence, validity or
termination, shall be administered by the International Chamber
of Commerce in (city) in accordance with the ICC Rules on
Arbitration in force at the commencement of the arbitration. The
number of arbitrators shall be one. This contract is governed by
Law of England. The language for the arbitration shall be English.”
Happy Drafting the Arbitration Clause!

Thank You!

Dr. Ashish Kumar