Guillermo Coronado Aguilar

10 Tips for Writing Effective Arbitration Clauses

Writing an arbitration clause is easy. But things can get tricky. As a type of midnight clause, there is a possibility that everyone is worn out and doesn’t want to go through the hassle of reviewing and writing the last clause. Such a last clause may be the dispute resolution clause, which is typically in the final part of the contract.

Here are 10 tips for writing a successful arbitration clause.

  1. Less is more. Less creativity and imagination is beneficial. This means you don’t need to get creative in drafting your arbitration clause. Numerous global institutions provide proven arbitration model clauses, which can serve as a solid foundation.
  2. More is more. The greater the number of arbitrators, the greater the expense of your possible dispute. This rule applies if the signed contract is neither complex nor involves high quantities. If the contract is not that complex, think of a sole arbitrator; the arbitration procedure will be less expensive since you only need to pay for one arbitrator. Remember, one is a lot, and three is complexity.
  3. More is beneficial. In contrast with the above tip, if your contract is of high complexity and high quantities, think of having a three member tribunal.
  4. Agree to arbitration. The parties must agree to arbitrate all disputes related to the contract. And that the disputes are finally resolved by arbitration.
  5. Don’t hair split. Draft your arbitral clause so it covers all present and future disputes relating to or in connection with your contract. If you seek to exclude some matters, you might get into the muddy waters of what things are in and out from the jurisdiction of the tribunal.
  6. Select your institutional rules. The selection of an institution is of primordial importance. They will help and assist in all matters relating to your arbitration proceeding. However, this comes with a cost, some institutions will charge in US dollars, HK dollars, pounds, pesos, francs, euros, etc… Please ensure that the selected institution aligns with your client’s needs and payment capacity.
  7. Language. Please ensure that you select the language of the arbitral proceedings. The drafters should be aware of the language of the contract and the language the parties will use in its execution.
  8. Select your seat. The seat of the arbitration is where the arbitral tribunal is located (juridically speaking not factually speaking) and where the award’s jurisdiction will be rendered. This will trigger which national courts will be responsible for assisting the arbitral tribunal as well as the courts in charge for the annulment of the award.
  9. Make sure it is arbitrable. Before writing your arbitration clause, make sure that the subject matter can be or is allowed to be resolved through arbitration under the legislation applicable to the contract.
  10. Avoid ad hominem. Never, ever, ever, ever draft an arbitration clause and state the name of the arbitrator or arbitrators that will compose the arbitral tribunal. This step should be made once there is a dispute; it could be the case that the arbitrators named are already dead. This could jeopardize the arbitration clause, which could increase the time and expenses of your arbitration.

I hope this list helps you in drafting your arbitration clause. Be cautious and understand the requirements of an arbitration clause, as well as the potential impacts that this often-overlooked midnight clause may have on the contract and the parties involved.

Guillermo Coronado Aguilar

Are Arbitration Agreements Mandatory? Key Insights

People unfamiliar with arbitration agreements often wonder if these agreements are mandatory—in other words, if they create any binding obligations.

Generally, arbitration clauses or agreements are indeed mandatory. They create a positive obligation to resolve potential disputes through arbitration and a negative obligation to avoid resolving disputes through national courts.

However, the mandatory nature of these agreements depends on several factors. First, the arbitration agreement must be validly concluded, and the dispute must be arbitrable under national laws. Additionally, the agreement should clearly express the parties’ intent to resolve disputes through arbitration. This may sound like a tautology, but it’s not—the arbitration clause must unambiguously state the parties’ agreement to use arbitration for dispute resolution.

Moreover, arbitration agreements shouldn’t be unconscionable, obtained through fraud or duress, or violate public policy.

While arbitration agreements are often enforceable, their mandatory nature can be challenged. The specifics depend on the jurisdiction, the nature of the dispute, and the circumstances under which the agreement was made. It’s advisable to consult with a legal professional for guidance on specific situations involving arbitration agreements.

Guillermo Coronado Aguilar

Understanding Arbitration Agreements: Are They Binding?

Arbitration agreements are often referred to as “midnight clauses.” They are typically the least reviewed clauses, sometimes signed without much attention, and may come as a surprise years later. Parties might not realize they agreed to arbitration or even understand what arbitration is, leading them to question whether the agreement is binding at all.

Arbitration agreements come in two general forms: arbitration clauses within a contract or standalone agreements. Most commonly, they are included in the dispute resolution clauses of a business transaction.

Are arbitration agreements legally binding? The short answer is a resounding yes. Once signed, an arbitration agreement is legally binding. It obligates parties to resolve disputes arising from the business transaction through arbitration. Furthermore, it prevents parties from resolving their dispute before a national judge. If a party attempts to resort to national courts, the courts should redirect the parties back to arbitration.

Essentially, arbitration agreements are like any other contracts. However, they must meet certain basic requirements for their formation. Some of these elements relate to the fundamental components of an arbitration agreement, while others concern the capacity to enter into agreements.

Regarding capacity, parties entering an arbitration agreement must have the authority to do so. This may seem overly legalistic, but some business representatives might act beyond their powers. This extends to elements of validity, such as the existence of free will, absence of duress, and related aspects.

The primary element is that parties agree to resolve their current and future disputes through arbitration, whether these disputes relate wholly or partly to their business relationship.

The agreement doesn’t necessarily need to be in writing, but there must be evidence that the parties agreed to arbitration. Without this evidence, there is no agreement. This underscores the necessary condition of the agreement’s existence and the flexibility in its form.

While a written agreement isn’t mandatory, evidence of the agreement is crucial. The agreement can be made through electronic means, not limited to traditional paper or fax, but also including more informal communication methods like WhatsApp.

Other noteworthy aspects of arbitration agreements include determining the seat of arbitration, selecting an institution to administer the arbitration, deciding the number of arbitrators, and choosing the language of the arbitration.

If you’d like to read more on various subjects of international arbitration, visit Coronado arbitration.