Drafting an Arbitration Clause That Works When It Matters

Dispute resolution clauses are often the last thing negotiated and the first thing argued over. A well-drafted clause sends the dispute straight to the right forum. A poor one invites a preliminary fight — in court — over where, how, and by whom the dispute should be decided, before the merits are even reached.

The essentials

• A clear reference to arbitration — “shall be finally resolved by arbitration”, not “may be referred”.
• The rules and the institution — for example, the latest version of the Adjudix Code of ADR Procedure, administered by Adjudix.
• The seat — the legal home of the arbitration, which decides which courts supervise it. Name a city, and say it is the seat.
• The number of arbitrators — one for most disputes, three for complex or high-value ones.
• The language of the proceedings.
• The governing law of the contract, especially in cross-border agreements.

Common mistakes

• Naming both courts and arbitration as forums for the same disputes.
• Naming a “venue” without saying which place is the seat.
• An appointment process that gives one party the sole right to appoint the arbitrator — which courts have held to be invalid.
• Referring to an institution or rules that do not exist, or misnaming them.
• Pre-arbitration steps with no time limit, which can be used to delay.
• Clauses in related contracts that point to different forums.

Going further

Good drafting goes beyond the basic clause. A tiered clause can require negotiation and mediation before arbitration, with fixed time limits for each step. A hybrid clause can opt into Med-Arb. The clause can provide for emergency arbitration, fast-track procedure for smaller claims, online hearings, confidentiality obligations, and how costs will be allocated. For groups of related contracts, consistent clauses allow disputes to be consolidated.

Seat, venue, and governing law

Three different questions are often confused. The seat is the legal home of the arbitration and determines which courts have supervisory jurisdiction, including over any challenge to the award. The venue is simply where hearings physically take place, and it can change from hearing to hearing without affecting the seat. The governing law is the law that applies to the contract itself. A clause that says “venue: Mumbai” without naming a seat leaves room for argument; a clause that says “the seat of arbitration shall be Mumbai” does not.

In cross-border contracts, the law governing the arbitration agreement can also differ from the law governing the main contract. Stating it expressly avoids a preliminary dispute that can take months to resolve.

Review before signing

A short review of the dispute resolution clause before a contract is signed costs very little compared with the cost of litigating over a defective one. The checklist is simple: Is the reference to arbitration mandatory? Are the rules and institution correctly named? Is the seat clear? Is the appointment procedure fair to both sides? Do related contracts point to the same forum? If any answer is uncertain, the clause should be fixed now, while the parties are still on good terms.

A model to start from

Adjudix publishes model clauses for arbitration, mediation, and hybrid procedures, each referring disputes to the latest version of the Adjudix Code of ADR Procedure. They are a sound starting point for most contracts. For complex, high-value, or cross-border agreements, the Adjudix Contract & Clause Drafting service tailors the clause — and, where needed, the whole contract — to the transaction.