The Arbitration Clause: Drafting Considerations


Despite their critical importance, arbitration clauses are often sloppy cut-and-paste jobs that tempt disaster when the transaction becomes unraveled. To some extent, this is because arbitration is a bit like art. Not because both words begin with the first letter in the alphabet. Rather, in arbitration as in art people often claim to be experts notwithstanding their lack of (or even contempt for) what is involved. Surprisingly or not, the legal and practical intricacies of drafting arbitration clauses regularly receive a lack of attention that would be unthinkable in other areas of the law.

To some extent, carelessness also derives from attitudes toward arbitration held by the business managers themselves. Having accepted the basic terms and conditions of their deal, the parties may see discussion of dispute resolution as tasteless—a bit like talking about divorce at the wedding feast. Moreover, the arbitration clause is often considered a “technicality” which merits little expenditure of time or money.

Some fault lies with the lawyers, however. Many transactional attorneys fail to focus on future litigation postures in the event contacts must be enforced abroad. Even the best lawyer may have little time to consider the difference between international and domestic transactions. Consequently arbitration clauses often end up being no more predictable than New England weather in early spring.

No reason exits for this unsatisfactory state of affairs, except perhaps that learning new things requires an element of humility. An arbitration regime can be designed intelligently by focusing on a few core considerations, as will be discussed.

In some cases, a simple reference to a well-known situs and a respected set of rules will be sufficient. ICC Arbitration in London or LCIA Arbitration in Paris would both work. In few instances will any justification exist for detailed prescriptions on memorials, evidentiary submissions, and hearings. For most contracts, it will be best to take the middle ground, considering the major elements outlined as follows, discarding those not relevant to the particular transaction.

The following checklist suggests points of departure for informed reflection on drafting an agreement to arbitrate, taking into account the nature of the dispute and the identity of the parties. There is no magic in the enumeration of issues. Moreover, many fine books are available to guide lawyers further, presenting in-depth treatments of the topic.1 The materials that follow are presented to stimulate the type of thought that can sometimes save clients from disaster and their lawyers from malpractice actions.

A. Items to Consider

Six elements of an arbitration agreement are vital to effective arbitration: (i) an unambiguous commitment to arbitrate; (ii) a workable mechanism for appointment of the arbitral tribunal; (iii) a reasonable standard for fixing the arbitrators’ fees; (iv) establishment of the place of arbitration; (v) determination of the language of the proceedings; and (vi) delineation of the arbitrators’ mission. Other useful components include provisions on interim relief, arbitrator qualifications and authority, as well as expectations on reasoned awards and pre-award attachment. In some cases “last best offer” procedures may be appropriate to define the alternatives open to the arbitrators.

In most cases these matters will be covered by institutional provisions, which are often the safest bet. However, when parties wish to tailor their own clause, consideration of the following items may be helpful.

The commitment to arbitrate

Equivocation about the commitment to arbitrate is the cardinal sin. Ill-advised business managers (who understandably want arbitration only if they win) often add ambiguity to the arbitration clause in an attempt to keep litigation options open, sometimes with comically pathological results.2

Constituting the tribunal

Just as in real estate the three key elements are “location, location, location,” so in arbitration the applicable trinity is “arbitrator, arbitrator, arbitrator.” In designing an arbitration regime, few aspects are more vital than the process for choosing the arbitrators and constituting the tribunal.

International commercial arbitration rules usually provide for either a sole arbitrator or a three-member tribunal. A single arbitrator will normally be cheaper and pose fewer scheduling problems. A three-member tribunal, however, makes for a more rigorous decision-making process. Most people behave differently in groups than they do alone, and arbitrators can generally be expected to be more careful if they must justify their conclusions in deliberations with others. Nevertheless, if smaller amounts are at stake there may be reason to opt for a single arbitrator.

In some instances a “list method” is used, whereby the institutional appointing authority sends each side several names, and invites the parties to strike those who are unacceptable and to rank the remaining candidates in order of preference.3 The parties would be invited to agree upon the persons approved on both lists, failing which the institutional authority would make the appointment.

One approach might be for an appointing authority to name all three arbitrators, promoting maximum independence and neutrality. Such a prospect, however, might not be acceptable to the parties, which may want more direct input into the constitution of the tribunal.

The appointing authority

Few things delight a party wishing to delay an arbitration more than the prospect of disrupting the constitution of the tribunal by failing to nominate an arbitrator or to agree on the presiding arbitrator.4 If arbitration is to work, some appointing authority must be designated to address disagreement in the constitution of the tribunal.5 When a party fails to make a nomination within a specified period, or if the party nominees are unable to select a presiding arbitrator, selection should be entrusted to the appointing authority.

A preliminary list of possible appointing authorities might include the International Court of Justice (ICJ), the Organization for Economic Cooperation and Development (OECD), the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA) and the Permanent Court of Arbitration (PCA).6

Arbitrator qualifications

Two sets of qualifications must be considered in identifying potential arbitrators. The first aims at reducing doubts about the arbitrator’s impartiality. The second relates to substantive and procedural expertise.


Arbitrators in international commercial and investment disputes normally must be independent of the party nominating them. This connotes an absence of inappropriate personal or financial links with a party. For example, without approval of both sides, an arbitrator should not be a partner in a firm that represents a party or its affiliate or serve on the board of a party. Moreover, international arbitrators would normally avoid communications with only one side, except in connection with selection of the presiding arbitrator.

Independence does not mean, however, that arbitrators must be devoid of doctrinal predispositions. For example, a multinational corporation seeking an arbitrator in an expropriation dispute would not be likely to nominate a left-wing political scientist who had written books advocating nationalization without compensation. Having views on a topic is not the same as lacking independence. Otherwise only the ignorant would qualify as arbitrators.

Expertise: Substantive and procedural

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