Quickguides

International Arbitration Clauses

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    Unlike litigation, arbitration must be specifically chosen by parties as a dispute resolution mechanism. This choice can be set out in a separate arbitration agreement once a dispute has arisen or, more commonly, incorporated into the underlying commercial agreement by the inclusion of an arbitration clause. This guide addresses the issues to bear in mind when drafting international arbitration clauses.

    Why choose arbitration?1

    Parties to international commercial disputes often choose arbitration because:

    • they can have the dispute heard in a forum which they perceive to be more neutral than a national court;
    • they can often enforce an arbitral award abroad more easily than they can a court judgment because of the New York Convention;2 
    • they can select arbitrators with expertise in the relevant industry or subject-matter of the underlying commercial contract;
    • arbitration offers greater procedural flexibility compared with court proceedings; and
    • the proceedings are generally private and confidential.

    However, sometimes parties prefer to go to litigation in a national court. This is because:

    • the range of remedies in litigation is usually wider than in arbitration. It is possible to obtain orders affecting third parties which are not party to the agreement to arbitrate, for example, a freezing order which can be served on a third party bank;
    • litigation in some jurisdictions is quicker and cheaper than international arbitration;3 or
    • they wish to seek publicity for a claim or set a precedent.

    How to draft an arbitration clause

    The first step is to consider what the parties want to achieve. Is enforceability or confidentiality the key factor? Or is arbitration the only viable means of dispute resolution, given that there are two or more international parties involved?

    As with all contract clauses, to introduce a "standard" arbitration clause into all contracts can be unhelpful, since there is no such thing as a "standard" contract or a "standard" dispute. Rather, the parties should consider whether there are any matters that the clause ought to address in the particular circumstances. 

    The parties should consider:

    • the nature and value of potential claims (monetary and otherwise);
    • the complexity of potential claims, including whether these are likely to involve technical matters;
    • the speed with which a decision is required (e.g. is there an ongoing contract to be performed?);
    • the location of the relevant parties, and (for the purposes of enforcement) their assets; 
    • the language to be used in the arbitration;
    • whether the resolution of the dispute is likely to require written or oral evidence;
    • multi-party issues: are there more than two parties to the contract or involved in the same project, or are there likely to be several related disputes taking place at once?;
    • whether pre-arbitration ADR such as mediation is desirable;
    • whether there are any particular types of dispute (such as completion account disputes) which would be more suited to expert determination rather than arbitration.

    Some of these issues give rise to distinct drafting points in their own right and others inform decisions on, for example, which arbitral rules should be chosen. Often parties cannot predict accurately the types of dispute that may arise and how their adversaries might react to them. They may have a broad idea, however, and by considering the potential threats parties can tailor the arbitration mechanism to the likely types of dispute. For example, if your counter-party is a state-owned entity from a country in which state-owned entities are known to take every opportunity to delay proceedings, an arbitration administered by a well-known international arbitral institution is likely to be preferable to an ad hoc arbitration.

    Key questions

    Parties must address the following when drafting any arbitration clause:

    • Which arbitral rules should be used? In particular, is ad hoc or institutional arbitration preferable?
    • Where should the legal place or seat of the arbitration be? 
    • How many arbitrators should there be?

    Which arbitral rules should be used?

    All arbitrations must be conducted under arbitral rules. These can be chosen by the arbitrators themselves but it is better for the parties to specify which rules should be used. A basic choice is between arbitration under "institutional" rules and arbitration under ad hoc rules.

    Institutional arbitration

    In choosing institutional arbitration, contracting parties are agreeing to adopt the procedural rules of a particular institution and to have that institution administer and supervise the conduct of any arbitration that is commenced under the arbitration agreement.

    Specifically, this involves the institution, depending on the particular institutional rules, administering the appointment of arbitrators, determining the fees payable to the arbitrator (often by reference to a fixed methodology set out in the institution's rules), overseeing the taking of deposits and making of payments to the arbitrators, assisting in logistics for hearings, and sometimes even scrutinising draft awards to ensure enforceability.

    Ad hoc arbitration

    Ad hoc arbitration, on the other hand, is arbitration which the parties manage themselves. It is conducted under rules adopted for the purpose of the specific arbitration, without the involvement of any arbitral institution. The parties can draw up the arbitral rules themselves, leave the rules to the discretion of the arbitrators or, as is more common, adopt rules specially written for ad hoc arbitration, for example, the UNCITRAL Rules.4 They then proceed to conduct the arbitration in conjunction with the arbitrator directly.

    In other words, the appointment of arbitrators and associated issues are managed by the parties, arbitrators' fees are negotiated directly with the arbitrator and paid directly by the parties, parties must arrange all logistics for the hearing, and there is no supervision of awards. 

    Why institutional arbitration is often favoured

    A survey of international arbitration users found that 79 per cent of the arbitrations they were involved in over the past five years (2010-2015) were institutional arbitrations.5

    There are several reasons for this preference for institutional arbitration. An institution can lend political or moral weight to awards. More practically, because institutional rules are designed to regulate the proceedings comprehensively from beginning to end, the institutions are better suited to cater for contingencies that might arise, even if (as sometimes happens) the respondent fails or refuses to co-operate. By incorporating an institution's rules into the contract, contracting parties also avoid the time and expense of drafting a suitable ad hoc clause.

    As noted above, the institution will also assume administrative responsibility for the arbitration, and take care of fundamental aspects of the arbitration procedure. The fees and expenses of the arbitration are, with varying degrees of certainty, regulated. 

    Ad hoc arbitration lacks the "support net" of an institution and depends for its full effectiveness on a spirit of co-operation between the parties, which is usually lacking by the time disputes have arisen. The potential problems of arbitration more generally, such as the ability to delay proceedings, are more likely to arise in ad hoc arbitration.

    Having said that, the additional layer of bureaucracy imposed by institutional arbitration may cause delay and, inevitably, additional fees are payable. Although the arbitrators' fees are reduced because they have less administration to do, the fees of the institution can add a significant amount to overall costs. This is particularly so where large amounts are in dispute and the fees are calculated by reference to the value of the claims. Users of ad hoc arbitration also value the procedural flexibility it offers, which they feel enhances party autonomy when compared with institutional arbitration.6  Ad hoc arbitration is also favoured in certain sectors, e.g. the shipping and commodities sectors, or by contracting parties who are sophisticated users of arbitration.

    Choosing the arbitral institution

    There are many institutions to choose from. As a general rule, newly formed institutions or institutions without a proven track record should be avoided.

    That aside, there is no magic formula for choosing between them. Increasingly, institutions and institutional rules are offering similar processes with little to distinguish them. Such similarity leads parties to look to more subjective factors in deciding which institution to use: the institution's reputation, previous experience with an institution, the depth and breadth of arbitrators, the quality and consistency of the institution's staff and costs, with some willing to consider lesser known institutions for a more competitive price.For more detail on the differences, see our Quickguide: Which Institution?

    Questions to ask include:

    • What is the reputation and experience of the institution?
    • How international is the institution?
    • Do the rules cater for the specific needs of the parties?
    • How much institutional involvement will there be?
    • Does the institution have access to a pool of high quality arbitrators?
    • What will the fees and costs be and how are they calculated?

    Well-known arbitral institutions

    American Arbitration Association (AAA)

    International Centre for Dispute Resolution (ICDR)

    Hong Kong International Arbitration Centre (HKIAC)

    Arbitration Institute of the Stockholm Chamber of Commerce (SCC)

    International Court of Arbitration of the International Chamber of Commerce (ICC)

    Australian Centre for International Commercial Arbitration (ACICA)

    London Court of International Arbitration (LCIA)

    DIFC-LCIA Arbitration Centre (DIFC-LCIA)

    Singapore International Arbitration Centre (SIAC)

    Copies of the rules and recommended wording for arbitration clauses are published by the above institutions on their websites. These may need supplementing, however.

    Where should the legal place or seat of the arbitration be?

    The legal place of the arbitration is one of the most important matters to specify. This is called the "seat" of the arbitration and it is a legal concept that ties the arbitration into a legal jurisdiction. Usually expressed as a city, the key aspect is the jurisdiction in which the seat is located as it is the procedural law of that jurisdiction that will govern the arbitration. Getting the seat (and therefore choice of procedural law) right is crucial as it can affect:

    • whether the courts of the seat will intervene in the arbitration (and which courts will be able to do so);
    • whether any other rules are imposed, in addition to the institutional or ad hoc rules chosen by the parties;
    • whether the dispute is "arbitrable" in that country, that is, whether the subject-matter is something over which the local courts reserve exclusive jurisdiction (such as matters relating to crime) so that it cannot be submitted to arbitration;
    • the possibility of the arbitral award being challenged or appealed; and
    • the enforceability of the arbitral award. 

    The parties must consider both the legislation enacted in the particular jurisdiction relating to arbitration, and the attitude of the national courts towards arbitration generally in that jurisdiction.

    Legislative framework

    Most countries have legislation governing arbitrations that take place in their territory. This does not replace the arbitral rules chosen by the parties but provides a framework in which those rules operate. Many countries' national laws are based on the UNCITRAL8 Model Law on International Commercial Arbitration. The Model Law is intended to even out disparities between national laws and suggest a common standard for arbitral practice.9

    Generally speaking parties can rely on legislation based upon the Model Law (although some countries have introduced amendments that depart significantly from the Model Law). If the local arbitration law is not based on the Model Law, however, parties should not select the location without first investigating the likely impact of its legislation on any arbitration. For example, local law may require mandatory procedures to be implemented; the courts may be able to intervene excessively during the arbitration; and there may be barriers to enforcement of awards, including allowing multiple avenues for appeal.

    Approach of the courts

    The national law will also give powers to the courts of the seat in relation to certain aspects of the arbitration. Broadly speaking, these include issues such as the ability of the parties to apply to the national courts for support (for example an order to freeze assets or obtain evidence), the ability to challenge decisions of the tribunal and the award, and provisions on enforcement. The national law, and the general attitude of the judiciary in a country, will determine how supportive or interventionist those courts will be. Interventionist jurisdictions, where courts interfere in the arbitral process to the detriment of its autonomy, are to be avoided.

    Enforcement

    Finally, it is important that the country chosen has ratified the New York Convention. This is because some countries which are signatories to the Convention will only allow enforcement of awards which have been made in countries which are also signatories to the Convention. Over 160 countries have ratified the Convention, including most of the world's leading trading nations. For a full list of countries please see the UNCITRAL website.10

    A recent survey found the most popular seats to be as follows: London, Singapore, Hong Kong, Paris, Gevena, New York and Beijing.11

    How many arbitrators should there be?

    The parties can specify the number of arbitrators in the arbitration clause or leave this to be determined under the relevant rules once a dispute has arisen. Usually an arbitration is heard by either one or three arbitrators (indeed some countries stipulate this or require there to be an odd number).

    Sole arbitrators mean less expense and delay. In general, an arbitration conducted by a sole arbitrator is likely to cost, overall, about half as much (or even less) as an arbitration with three arbitrators.

    However, in high value international disputes it is usual to provide for the appointment of a tribunal of three arbitrators. A sole arbitrator is appointed by a third party if the parties to the dispute cannot agree, but if there are three arbitrators each party can nominate one of the arbitrators, which can ensure that at least one of the arbitrators is familiar with the national or legal culture of the country where the relevant party is based. Note that in international arbitration, such an arbitrator is not to act as an advocate of the appointing party in the deliberations of the arbitral tribunal. Some also perceive three arbitrators as being more likely to reach the "right" decision than a sole arbitrator; this is important since there are usually limited grounds to appeal or challenge an arbitral award.

    If you are choosing arbitration because you want your disputes to be decided by someone from the same industry or who has particular expertise, it is sensible to set this out in the arbitration agreement. It is common to see arbitration clauses where the parties agree that an arbitrator should be a member of a particular organisation or should have particular qualifications.

    However, be careful not to define the qualifications too narrowly as there may then be an insufficient pool of arbitrators who are able or willing to accept appointment. In addition, you should never specify a named individual as that person may be unable or unwilling to act when the dispute arises and then the arbitration clause would be unenforceable.

    Different procedural approaches

    Parties rarely stipulate expressly the approach to specific procedural questions in arbitration clauses, but such considerations may have a bearing on the parties' choice of the seat of arbitration, the arbitral rules, and the identity of the nominated arbitrators.

    Different approaches can be adopted to the procedure used at an arbitration. Conventionally, these are categorised as common law and civil law approaches (although this is a generalisation). A good understanding of the differences is important for two reasons. First, the parties' expectations (or those of their advisers) may spring in part from their familiarity with the procedural rules of the courts of their own jurisdiction and so they may prefer to take a similar approach when applying to the tribunal for specific procedural directions. Second, although under most sets of arbitration rules arbitrators have considerable procedural discretion, their starting-point when making procedural directions may be the court procedural rules with which they are most accustomed, albeit tempered where necessary by an appreciation of the claimants' jurisdictional backgrounds.

    A civil law approach might involve:

    • the tribunal adopting a more interventionist approach;
    • a more restrictive approach to document production; and
    • the tribunal playing a greater role in gathering evidence.

    A common law approach is likely to involve:

    • the tribunal being less interventionist;
    • the scope of document production being similar to US or English litigation; and  
    • US or English style cross-examination of witnesses and experts by the parties (rather than by the tribunal).

    The question of document production can be a particularly important issue where there are parties from different backgrounds.

    Depending on their perspective, parties may be concerned that there may be either too little or too much document production. In many instances experienced arbitrators will endeavour to bridge the gap between different legal systems and between the parties' expectations.

    These issues can be dealt with at an early stage of the proceedings. However, if the parties prefer more certainty they may wish to deal with it in the arbitration clause, for example, by specifying that questions of document production will be governed by the International Bar Association's Rules on the Taking of Evidence in International Commercial Arbitration.12  Alternatively, they may prefer to specify that the Prague Rules will apply.13  These are more recent and less tested than the IBA Rules and are generally perceived as taking a more civil law approach towards procedure and, in particular, document production. Either way, ensure you are aware of what you are agreeing to if either are to be adopted.

    Choice of law

    Choice of law clauses are separate from arbitration clauses, since these set out the applicable (or "governing") law regulating the parties' rights and obligations, by which substantive questions are to be judged.14 In contrast, an arbitration clause sets out the mechanism by which a dispute is to be resolved. However, choice of law clauses are often combined with arbitration clauses, so parties may have to consider this when drafting the arbitration clause. Also, in some circumstances, it may be important for parties to appreciate the distinction between the governing law of the contract, the procedural law of the arbitration, and the law applicable to the arbitration clause.

    Governing law of the contract

    Parties should select an appropriate governing law carefully. The governing law of a contract can be pivotal not only to its formation and validity but also to the question of whether disputes arising under or in connection with the contract can be submitted to arbitration, and what remedies can be awarded by the arbitrators. It is always advisable, therefore, to specify the governing law when drafting the contract. Where the parties do not select a governing law, the choice will be made for them by the arbitrators. 

    Procedural law

    The procedural law in an arbitration is different from the governing law of the contract: this is the law by which the arbitration will operate (such as the UNCITRAL Model Law). The procedural law is normally the law relating to arbitration in the seat of the arbitration. It is not advisable to specify in the arbitration clause a different procedural law from the procedural law in the seat of the arbitration and, if possible, align the governing law and the procedural law/seat.

    Law applicable to the arbitration clause

    Under the widely-accepted principle of "separability", an arbitration clause in a contract is considered to be separate from the contract in which it resides. This means that the arbitration clause survives termination of the contract and allows any claims arising out of that termination to be referred to arbitration. It is generally assumed that where no separate choice of law for the arbitration clause is made, the governing law of the contract as a whole is also the governing law of the arbitration clause.

    However, difficulties can arise where the governing law of the contract is different to the seat of the arbitration, e.g. English governing law but the seat is Paris. In those circumstances, disputes can arise as to what the governing law of the arbitration agreement is. In order to avoid such disputes, it is sensible to either include in the arbitration agreement a governing law provision (where you want the governing law of the arbitration agreement to follow the law of the seat), or to extend the contract governing law provision so that it also covers the arbitration agreement (where you want the governing law of the contract to apply).

    Scope and validity of the arbitration clause

    Generally, arbitration clauses will cover all disputes arising out of the relevant contract and courts and arbitral tribunals will not favour arguments that say that certain disputes do not fall within the wording of the clause as a matter of construction. Also, another result of the principle of separability discussed above is that an arbitration clause will remain valid even if the contract in which it is found is alleged to be invalid. Moreover, there are limited grounds to challenge the validity of an arbitration clause itself. The New York Convention provides that the courts of a signatory country must uphold an arbitration clause unless the clause is "null and void, inoperative or incapable of being performed".

    Choice of language

    It is advisable to provide for the language of the arbitration as this will determine the language of the written and oral submissions in any hearing. If not specifically provided for, the tribunal will decide the language.

    Multiple related contracts

    One of the disadvantages of arbitration is that arbitrators, unlike judges, do not have the authority to join additional parties to the arbitration or consolidate related arbitrations without the additional parties' consent. Where there are inter-related contracts, and the parties want any related disputes to be heard together or want the ability to join into the arbitration the various parties to the different contracts, it is possible to cater for that. However, advice on the drafting should always be sought.

    Confidentiality

    If confidentiality is a concern, it is sensible to insert a confidentiality clause as the approach to confidentiality can vary as between different arbitral institutions and different jurisdictions. A clause which specifically addresses the arbitration is advisable, as opposed to relying on more general confidentiality provisions that apply to the underlying contract. Several of the institutions provide standard wording for such clauses.15  Alternatively, choose arbitration rules (such as the SIAC Rules) which have express confidentiality provisions.

    Waive the right to appeal?

    Parties can agree to waive the right to appeal on a point of law in order to ensure that an award is final and binding, to the extent the waiver is permitted by the laws of the relevant state. Certain institutional rules (such as the ICC and LCIA rules) also include this waiver.

    Sample clauses

    Most institutions recommend sample clauses for use when their institutional rules are being adopted. These are revised from time to time and so it is best to check the websites. We list the key institutions and provide links to their sample clauses below.

    Note that the clauses are only sample clauses. They may need to be modified to take into account requirements of national law and the specific requirements of the contracting parties. However, they provide useful examples of a basic arbitration clause and can easily be adapted.


    1. Please note that in some countries there is a difference between "international arbitration" and "domestic arbitration". References here to "arbitration" are to international commercial arbitration (although much of this guide is equally applicable to domestic arbitration).
    2. The 1958 UN Convention on The Recognition and Enforcement of Foreign Arbitral Awards.
    3. Although it may not be if the judgment is appealed.
    4. The United Nations Commission on International Trade Law Arbitration Rules (as revised in 2010). Please note that UNCITRAL is not an arbitral institution and does not administer arbitrations.
    5. 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration by the School of International Arbitration at Queen Mary University of London. The survey is available on the QMUL's website.
    6. According to the 2021 International Arbitration Survey: Adapting Arbitration to a Changing World, available on QMUL's website.
    7. See the 2021 International Arbitration Survey: Adapting Arbitration to a Changing World by the School of International Arbitration at Queen Mary University of London, which recorded the reasons for respondents' preference for certain institutions. The survey can be found on QMUL's website.
    8. The United Nations Commission on International Trade Law (UNCITRAL).
    9. The UNCITRAL Model Law was published in 1985 and revised in 2006. Legislation based on it has been enacted in 97 jurisdictions, including Australia, Canada, Egypt, Germany, Hong Kong, India, Japan, Mexico, Nigeria, Korea, Russia, Singapore, Spain, Scotland, and certain states in the United States (including California and Texas). For a full list please see: www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_status.html.
    10. www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html.
    11. 2021 International Arbitration Survey: Adapting Arbitration to a Changing World.
    12. See http://www.ibanet.org/Document/Default.aspx?DocumentUid=68336C49-4106-46BF-A1C6-A8F0880444DC.
    13. Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules) available on the Prague Rules website: https://praguerules.com.
    14. There are separate Ashurst Quickguides which deal with governing law and jurisdiction clauses. See the Quickguide hub.
    15. The LCIA, for example, provides wording that can be adapted.
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