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

Impact of Mexico’s Judicial Reform on Foreign Investment

The recent overhaul of Mexico’s Federal Judicial System has sparked debates about its potential impact on foreign investment in the country. This reform, initiated by President Andrés Manuel López Obrador’s administration, aims to address corruption and inefficiency within the judicial branch. However, it has also raised concerns among international investors and business communities.

Key aspects of the reform include:

  • Restructuring of the Federal Judiciary Council
  • Changes in the appointment process for judges
  • Implementation of new anti-corruption measures
  • Modifications to the judicial career system

While these changes are intended to strengthen the rule of law in Mexico—at least according to the ruling party, former President López Obrador, and current President Claudia Sheinbaum—some critics argue that they may inadvertently create uncertainty for foreign investors. The reform’s impact on contract enforcement, dispute resolution, and overall legal stability are particularly important considerations for international businesses operating in or considering entry into the Mexican market.

As the implementation of this judicial overhaul progresses, it will be crucial to monitor its effects on four main aspects:

  • Foreign direct investment (FDI) flows: The amount of money entering Mexico serves as a measure of foreign investors’ trust.
  • Investor confidence in the Mexican legal system: While difficult to measure, the World Justice Project provides some indication by assessing the rule of law in each country. However, its methodology might be contested due to its subjective nature.
  • International trade agreements and partnerships: This element is crucial, as Mexico has a wide web of trade agreements with various blocks. Two notable examples are the USMCA, which will be subject to revision, and the Europe-Mexico Trade Agreement.
  • The overall business climate in Mexico: This can be measured by various indexes, such as Moody’s.

Understanding the nuances of this reform and its potential consequences is essential for both policymakers and investors as they navigate Mexico’s evolving legal and economic landscape.

Currently, there’s no clear understanding of how the judicial system overhaul will impact Mexico’s overall economic climate. Some preventive steps include implementing commercial arbitration agreements, not only for international transactions but also for national ones, regardless of whether they have an international component.

Even with the federal judicial system overhaul, it appears that laws guaranteeing the protection of foreign investment in Mexico will remain untouched. Mexico will continue to be a party to ICSID (the International Centre for Settlement of Investment Disputes), along with numerous Bilateral Investment Treaties (BITs) signed with countries worldwide, including the European and North American blocks, as well as other highly industrialized countries like China.

This means that despite changes in Mexico’s federal judicial system, foreign investors will still be protected—not only against changes in laws but also against government actions, whether from the legislative, executive, or even judicial branches.

In a future post, we’ll review how FDI is protected against judicial decisions—a situation that has already occurred due to alleged acts of corruption and profound disregard for the rule of law.