Arbitration Tips The Arbitration Agreement
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International Artbitration Tips What is an arbitration agreement?
Quite simply and obviously, it is an agreement between two or more parties to have their disputes resolved by arbitration. There are two types of arbitration agreement. An arbitration agreement entered into after a dispute has arisen (this is sometimes called a “submission agreement”) and more commonly an arbitration agreement contained in a wider contract between the parties and often referred to as the “arbitration clause”. The latter is an agreement to refer a dispute to arbitration before any dispute has arisen. Of course, a dispute may never arise, in which case the arbitration agreement will never be used. But if a dispute should arise then the arbitration agreement contained within the wider contract will become operative. It is important therefore to get the arbitration agreement right.
John Abbott Partner john.abbott@laytons.com +44 (0)20 7842 8000
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International Arbitration Tips | What is an arbitration agreement?
The important of the arbitration agreement
What are the requirements for a valid arbitration agreement?
The arbitration agreement performs two essential functions:
There is no prescribed form or format for an arbitration agreement, but there is a requirement for the arbitration
First, it compels the parties to a dispute to arbitrate.
agreement to be in writing.
Before there can be an arbitration, there must be an
Most jurisdictions which are signatories to the New York
agreement to arbitrate. A party to a dispute cannot be
Convention for the Recognition and Enforcement of Foreign
compelled to engage in an arbitration if that party has not
Arbitral Awards 1958 (The New York Convention), require
agreed that there should be an arbitration. If there is no
arbitration agreements to be in writing. The UNCITRAL1
arbitration agreement (or no effective arbitration agreement)
Model Law as amended in 2006, has moved away from a
there can be no arbitration.
requirement for an arbitration agreement to be in writing. However, only a minority of jurisdictions have adopted
Second, it confers jurisdiction on the arbitral tribunal.
the 2006 Model Law completely and the position remains that most jurisdictions require arbitration agreements to
The arbitration agreement confers jurisdiction on the arbitral
be in writing before it will be recognised. Though what is
tribunal to determine a dispute.
generally being regarded as being “in writing” is changing as technology has advances.
If there is no arbitration agreement the arbitral tribunal will have no jurisdiction to deal with the dispute.
More fundamentally, the New York Convention requires an arbitration agreement to be in writing before it can be
Equally, the arbitration agreement may define the extent of
enforced under the convention.
the tribunal’s jurisdiction, for example by limiting the matters that may be referred to arbitration, in which case the tribunal
Therefore, the best advice is to ensure the arbitration
will not be able to deal with any dispute that is not included
agreement is in writing to ensure that: a) it is recognised in the
in the arbitration agreement. The more widely the arbitration
seat of the arbitration and, b) it is capable of being enforced.
agreement is framed the wider the tribunal’s jurisdiction will be.
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United Nations Commission on International Trade Law
International Arbitration Tips | What is an arbitration agreement?
What to include in the arbitration agreement? 1. State clearly the disputes that may be referred to arbitration Is it intended that all disputes between the parties arising out of their contract should be referred to
4. The rules to be applied to the arbitration and whether the arbitration is to be run under the auspices of one of the arbitral bodies such as the ICC or LCIA
arbitration or is the arbitrator’s jurisdiction to be
This is important as it will be clear how the
limited to certain categories of disputes? If it is to be
arbitration is to be commenced and conducted after
any dispute, this should be stated clearly, with words
commencement.
such as: “All disputes arising under this contract of whatsoever nature”.
2. Whose laws are to govern the contract?
5. Specify the number of arbitrators and how they are to appointed It is usual to provide for three or one. Sometimes, the
This will assist the arbitral tribunal as it will know which
contract will say that for disputes under a certain value
country’s laws are to be applied to the interpretation
there will be one arbitrator but for disputes over that
and performance of the contract and the basis for
figure, a three-person tribunal will be appointed. If
assessing damages and interest. If the arbitration
an arbitral body is to be used the rules of that body
agreement does not deal with this, time and money will
will deal with the method of appointing a tribunal,
have to be spent while the tribunal determines which
otherwise, the arbitration agreement itself should state
law jurisdiction’s laws should apply to the contract.
how a tribunal is to be appointed.
3. The seat or place of the arbitration
6. Escalation provisions
The seat or the place of the arbitration will determine
It is becoming more common for dispute resolution
which jurisdiction’s courts will have the supervisory role
provisions in contracts to require the parties to go
over the arbitration. Every arbitration must have a seat.
through several layers of dispute resolution processes
Very often the parties to a contract will have intended
before proceeding to arbitration. This can be effective in
to select a neutral jurisdiction that both parties will be
saving the parties costs and times if there is a resolution
able to trust. If the parties do not select an arbitral seat,
before arbitration becomes necessary. However, in
the Tribunal will have to determine where the seat of
drafting an escalation provision care should be taken
the arbitration is to be. It is better to be clear on this
to ensure that it is capable of operation, otherwise
point from the outset. Care should be taken to select a
the arbitration agreement may pathologically fail.
jurisdiction that actually exists, for example, a contract
Include time limits so that if the steps required within
may say the seat of the arbitration is to be, “The United
the escalation provision are not concluded by the set
Kingdom”, but there is no such jurisdiction. The United
deadline, the parties may proceed to arbitration. It
Kingdom comprises the jurisdictions of England &
is important also to keep in mind the effect such an
Wales, Scotland and Northern Ireland.
escalation clause might have on limitation. Will the claimant still be able to pursue its claim after going through the escalating dispute resolution processes or
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International Arbitration Tips | What is an arbitration agreement?
will the claim become statute barred? It is a good idea to include an escape provision or a standstill provision to prevent a claim falling foul of limitation periods.
7. Language State the language to be used in the arbitral proceedings. If you don’t the tribunal will.
8. Final and binding Do the parties wish to be bound by the tribunal’s award or will there be a right of appeal, such that the law of the seat may permit an appeal. Very often when negotiating the contract, the parties throw in an arbitration provision as an afterthought, often with little thought as to how it will work or what its function actually is. The same care and attention they apply to the main contract should be applied to the arbitration agreement. At worst, if the Arbitration Agreement is poorly drafted it could result in an ineffective arbitration agreement, at best it may waste time and costs for the tribunal to work out exactly what disputes the arbitration agreement is meant to apply to, where the seat of the arbitration should be, and which laws are to be applied to the contract. It is worth spending some time and care on the preparation of the arbitration agreement to avoid the pitfalls that have been mentioned in this article.
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International Arbitration Tips | What is an arbitration agreement?
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Arbitration Tips | Arbitration or litigation?
Arbitration Our team is experienced in resolving disputes through arbitration and committed to providing outcomes-focused, innovative and commercially minded advice to guide our clients through all stages of the arbitration process. We represent clients from across the globe in arbitrations involving a range of sectors including construction, international trade and commodities, investment treaties and shipping. Our experience spans arbitrations convened through the main international institutions such as the ICC, LCIA, LMAA, DIFC and SIAC as well as on an ad-hoc basis.
Our Team John Abbott
Russell Beard
Partner john.abbott@laytons.com +44 (0)20 7842 8000
Partner russell.beard@laytons.com +44 (0)20 7842 8000
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Simon Foster
Partner robert.clark@laytons.com +44 (0)20 7842 8000
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Paddy Kelly
Partner richard.harrison@laytons.com +44 (0)20 7842 8000
Partner paddy.kelly@laytons.com +44 (0)20 7842 8000
Rebekah Parker
Will Slater
Partner rebekah.parker@laytons.com +44 (0)20 7842 8000
Consultant will.slater@laytons.com +44 (0)20 7842 8000
Geraint Thomas
Ben Thorogood
Partner geraint.thomas@laytons.com +44 (0)20 7842 8000
Solicitor ben.thorogood@laytons.com +44 (0)20 7842 8000
Daniel Walter Solicitor daniel.walter@laytons.com +44 (0)20 7842 8000
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This information is offered on the basis that it is a general guide only and not a substitute for legal advice. We cannot accept any responsibility for any liabilities of any kind incurred in reliance on this information.
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