10 Issues To Consider When Drafting An International Arbitration Clause

Often, one of the last clauses to be discussed by the parties to an international contract is the dispute resolution clause. While considerable attention is rightfully paid to the substantive clauses of a contract, parties often include a form arbitration clause instead of carefully drafting a clause that is tailored to the situation.

A contract is often drafted, of course, with the intent that it will help the parties avoid a dispute, so it is perhaps not surprising that the parties would spend the least time outlining the procedure they will follow if there is a dispute. At the same time, when disputes arise, the arbitration clause is heavily litigated and every item from the number of arbitrators to whether the parties may be appeal may become the subject of controversy. As such, companies would do well to consider certain issues and draft the clause carefully to save the time and money involved in litigating those issues later.

The parties, of course, may agree to any number of issues that can be resolved by their inclusion in the arbitration clause (some issues related to the procedure, the qualifications of arbitrators, discovery, and the like). However, the following are ten issues that the parties should consider when drafting any arbitration clause:

Institutional or Informal. The parties may rely on an institution to conduct the arbitration and incorporate its rules (for example, AAA, ICC, or the London Court of International Arbitration). Or the parties may establish their own procedure within the clause itself, choosing the number of arbitrators, the procedure, and the rules by which the arbitrators would decide claims. While an informal arbitration may be cost-effective, institutions provide known rules and processes, quality control, and ease; thus parties should carefully consider designing an informal process in the place of an institutional process. Rules. Whether the parties choose an informal procedure or an institutional process, they must decide what rules will govern the proceedings. Where the parties have opted for an institutional proceeding, that institution's rules can simply be incorporated once the parties choose which institution's rules to follow (and in fact, a good starting point for an arbitration clause will be that institution's model clause). If an informal process is chosen, again, the parties must describe the rules in the clause itself—a cumbersome process that should not be undertaken without...