How to draft perfect arbitration clause

Summary

This video explores arbitration clauses, explaining their importance and how to draft them effectively. It covers the benefits of arbitration, such as being less formal, faster, and cheaper than court proceedings. The video highlights essential elements of an arbitration clause, including the scope of the agreement, governing law and jurisdiction, choice between ad hoc and institutional arbitration, language of proceedings, number and qualifications of arbitrators, fees, and time limits for appointment. Practical examples and specific phrasing for each element are provided to guide viewers in creating comprehensive and effective arbitration clauses.

Takeaways

• 🔍 Understanding arbitration clauses is crucial for ensuring disputes are handled appropriately and not outside the scope of arbitration.
• 💼 Arbitration is typically less formal, faster, and less expensive than court proceedings, making it a preferred choice for resolving disputes.
• 📜 Section 7 of the Arbitration and Conciliation Act states that disputes can be referred to arbitration through a clause or a separate agreement, and it must be in writing.
• 📚 The scope of the arbitration agreement should be as broad as possible to avoid disputes being outside the scope of arbitration.
• ⚖️ The governing law and jurisdiction are essential; the seat of arbitration determines the applicable jurisdiction and laws.
• 🌍 The venue of arbitration decides the physical location where arbitration will take place, which can be chosen based on convenience.
• 🏢 Ad hoc arbitration allows parties to determine their own rules and procedures, while institutional arbitration follows the rules of a specific institution.
• 🗣️ The language of arbitration should be specified to ensure clear communication between parties from different regions.
• 👥 The number and qualifications of arbitrators should be clearly defined, including whether a sole arbitrator or a panel will be used.
• 💰 The fees for arbitrators can be specified, particularly in ad hoc arbitrations, to manage costs effectively.
• ⏳ A time limit for the appointment of arbitrators, as specified in Section 21 of the Arbitration and Conciliation Act, ensures timely resolution of disputes.
• 📝 An effective arbitration clause includes scope, governing law, jurisdiction, venue, language, number of arbitrators, their qualifications, fees, and time limits.

Q & A

What is an arbitration clause?

An arbitration clause is a part of a contract that stipulates that any disputes arising from the contract will be resolved through arbitration instead of court litigation.

Why is it important to have an effectively drafted arbitration clause?

An effectively drafted arbitration clause ensures that disputes are resolved through arbitration as intended, preventing the possibility of being subject to a jurisdictional court that may be unfamiliar or inconvenient.

What are the advantages of opting for arbitration over going to court?

Arbitration is usually less formal, faster, and less expensive than court proceedings. It is particularly beneficial for complex disputes that would require extensive court time.

What does Section 7 of the Arbitration and Conciliation Act state?

Section 7 of the Arbitration and Conciliation Act states that parties may refer all or certain disputes to arbitration, and this can be done through a clause in a contract or a separate agreement, provided it is in writing.

What should be included in the scope of an arbitration clause?

The scope should define the widest possible range of disputes to ensure that the arbitration covers all potential issues, including validity, termination, or breach of the contract.

Why is specifying the seat of arbitration important?

The seat of arbitration determines the legal jurisdiction and the court's authority over the arbitration process, which impacts the laws and procedural rules that will apply.

What is the difference between ad hoc arbitration and institutional arbitration?

In ad hoc arbitration, the parties set their own rules for the arbitration process. In institutional arbitration, an established institution, such as the Mumbai Center for International Arbitration, governs the arbitration according to its rules.

How should the language of arbitration be specified in a clause?

The language of arbitration should be explicitly stated to avoid any confusion or disadvantage to any party, e.g., 'The arbitral proceedings shall be conducted in English.'

How can parties decide on the number of arbitrators?

Parties can specify either a sole arbitrator or a panel of an odd number of arbitrators in the clause, ensuring clarity on how the arbitration will be conducted.

What other important aspects should be included in an arbitration clause?

The clause should include the qualifications of the arbitrator, the arbitrator's fees, and a time limit for the appointment of the arbitrator, ensuring all procedural aspects are clear and agreed upon.