How to draft perfect arbitration clause
Summary
TLDRThis 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
- π Understanding arbitration clauses is crucial for ensuring disputes are handled appropriately and not outside the scope of arbitration.
- πΌ Arbitration is typically less formal, faster, and less expensive than court proceedings, making it a preferred choice for resolving disputes.
- π 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.
- π The scope of the arbitration agreement should be as broad as possible to avoid disputes being outside the scope of arbitration.
- βοΈ The governing law and jurisdiction are essential; the seat of arbitration determines the applicable jurisdiction and laws.
- π The venue of arbitration decides the physical location where arbitration will take place, which can be chosen based on convenience.
- π’ Ad hoc arbitration allows parties to determine their own rules and procedures, while institutional arbitration follows the rules of a specific institution.
- π£οΈ The language of arbitration should be specified to ensure clear communication between parties from different regions.
- π₯ The number and qualifications of arbitrators should be clearly defined, including whether a sole arbitrator or a panel will be used.
- π° The fees for arbitrators can be specified, particularly in ad hoc arbitrations, to manage costs effectively.
- β³ A time limit for the appointment of arbitrators, as specified in Section 21 of the Arbitration and Conciliation Act, ensures timely resolution of disputes.
- π 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.
Outlines
π Understanding Arbitration Clauses
This paragraph introduces the topic of arbitration clauses, emphasizing their importance. It explains the risks of poorly drafted clauses and highlights the benefits of arbitration over traditional court proceedings, such as reduced formality, faster resolution, and lower costs. The paragraph also briefly mentions the relevance of the Arbitration and Conciliation Act, specifically Section 7, which requires arbitration clauses to be in writing and can encompass all or specific disputes.
ποΈ Drafting Effective Arbitration Clauses
This paragraph provides detailed guidelines on drafting effective arbitration clauses. It emphasizes the importance of defining the scope of the agreement to avoid disputes falling outside the arbitration's purview. It includes an example clause and discusses the importance of specifying the governing law and jurisdiction, as well as the seat and venue of arbitration, to avoid ending up in an unfamiliar court. The paragraph also introduces the concept of adhoc versus institutional arbitration, with examples and suggestions on how to write these clauses.
Mindmap
Keywords
π‘Arbitration Clause
π‘Scope of Agreement
π‘Governing Law and Jurisdiction
π‘Adhoc Arbitration
π‘Institutional Arbitration
π‘Language of Arbitration
π‘Number of Arbitrators
π‘Qualifications of Arbitrator
π‘Fees of Arbitrator
π‘Time Limit for Appointment of Arbitrator
Highlights
Arbitration clauses are crucial in determining whether a dispute will be resolved through arbitration or end up in a jurisdictional court.
Arbitration is generally less formal, faster, and less expensive than going to court, especially for complex disputes.
Section 7 of the Arbitration and Conciliation Act allows parties to refer disputes to arbitration either through a clause or a separate agreement, provided it is in writing.
Defining the scope of the arbitration agreement as broadly as possible helps avoid disputes being set aside due to being outside the scope.
A sample scope clause: 'Any disputes or differences arising from or in connection with this contract, including the adjudication of its validity, termination, or breach, shall be referred to and resolved by arbitration.'
The seat of arbitration determines the jurisdiction and laws applicable, making it critical to specify to avoid unexpected legal complications.
A sample governing law and jurisdiction clause: 'The seat and the venue of arbitration shall be [specified location], and the proceedings shall be governed by the laws of [specified jurisdiction].'
Choosing between adhoc and institutional arbitration involves deciding whether parties set their own rules or follow the rules of an arbitration institution.
Institutional arbitration, like that provided by the Bombay Center for International Arbitration, offers structured procedures and predetermined fees.
Specifying the language of arbitration is crucial to prevent disadvantages to parties unfamiliar with the local language where arbitration occurs.
A sample language clause: 'The arbitral proceedings shall be conducted in English.'
The number of arbitrators can be specified, with options including a sole arbitrator or a panel of arbitrators.
Qualifications of the arbitrator can be stipulated to ensure they have relevant expertise in the dispute's subject matter.
Fees for arbitrators can be capped in adhoc arbitrations to control costs.
Time limits for the appointment of arbitrators can be set, aligning with Section 21 of the Arbitration and Conciliation Act, which allows for customization in the arbitration clause.
A comprehensive example clause includes elements like dispute scope, seat and venue, governing law, arbitration language, number of arbitrators, and other relevant terms.
Transcripts
today we are diving into the world of
arbitration clauses if you've ever
wondered what an arbitration Clause is
and why it is important you're just in
the right place whether you're a
business owner a lawyer a law student or
someone who's just curious about the
legal side of things we've got you cover
in this video today I will be explaining
how you can draft an effective
arbitration CLA now you must be
wondering why it is important for us to
discuss this well drafting and effective
arbitration Clause is the most essential
part of any arbitration as sometimes due
to badly drafted arbitration clauses
your dispute may end up being outside
the scope of arbitration itself and you
may be thrown out into a jurisdictional
court which you have no idea of but
question is why should you opt for
arbitration in the first place well let
me tell you the pros arbitration is
usually less formal in nature
arbitration is also faster than going to
court and it is not expensive the cost
of arbitration can actually be lower
than going to court especially if the
dispute is complex and it would require
extensive code time coming to the act
now what does the arbitration and
conciliation act say about drafting a
clause let me tell you so section seven
of the arbitration and conciliation act
says that the parties May refer all or
even certain disputes to arbitration and
arbitration can also be in the form of a
clause or in form of a separate
agreement altoe and the most important
thing is that it should be in writing
now for you to be able to draft an
effective Clause you should know the
essentials which should definitely be
present in your Clause to make it
effective let us understand them one by
one so the first thing that you need to
focus on is the scope of the agreement
ideally widest possible scope should be
defined one of the main reasons as to
why awards are set aside is because the
matter itself is outside of the scope of
arbitration now you may say that why
don't you show us how you should draft
it so let's do one by one and I will
show you in Parts how you can do it
let's check out how the Clause of scope
should look like while defining scope
you should use this language any
disputes or difference arising from or
in connection with this contract
including the adjudication of its
validity termination or breach of
contract shall be referred to and
resolved by arbitration that's number
one the second thing to focus on is the
governing law and jurisdiction keep in
mind that the seat is the center of
gravity of arbitration seat basically
decides the jurisdiction of the Court
you basically allow laws of that
jurisdiction to follow you whether you
choose France Germany or even India the
law will follow you there what is the
consequence of not mentioning the seat
of arbitration you may end up in a court
or a jurisdiction that you know nothing
about and you would usually find parties
negotiating about the seat of
arbitration mostly another term that has
been coined by the gos is the venue of
arbitration the venue simply decides
where the parties would sit and
arbitrate it could be Kolkata Amad or
anywhere in the country how do you write
that Clause let me show you the
governing law and jurisdiction Clause
looks like this the seat and the venue
of arbitration shall be so and so you
can decide whether it has to be Bombay B
bore Delhi or whatever you like and the
proceedings shall be governed by the
laws of India now once you have
mentioned the scope seat and venue and
the governing law the next thing that
you need to consider is whether you want
an adhoc arbitration or an Institutional
arbitration let's discuss them adoc
arbitration is where the parties
determine the rules of arbitration
themsel in this procedure the parties
can decide the procedure on submission
of statement of claims the manner in
which they will submit evid evidence and
other aspects of the matter these are of
course subject to the arbitration and
conciliation act and the laws of India
let's discuss institutional arbitration
now this is where the parties may choose
to follow the rules of a specific
institution and the entire arbitration
in that case is regulated by the
institution itself Bombay Center for
international arbitration is one example
now the arbitrator the fees in fact the
procedure is all decided by the
tribunals how can you write this in your
sample Clause let me show you you can
simply write the party shall follow the
institutional rules of let's say the
Mumbai Center for international
arbitration and you can put that up here
as simple as that another thing to
specify is the language of arbitration
now assume if one party is in Kolkata
and other is in Bombay the proceedings
if initiated in mombay could be carried
out in marati and would land the other
party in trouble therefore you need to
be very specific about which language
you need to choose how can you write
this in your sample Clause let me show
you it's a very simple line it says the
arbitral proceedings shall be conducted
in English you can choose whichever
language is convenient to your cents
another thing to focus on while drafting
this Clause is the number of arbitrators
you could either mention that the
parties will refer it to a sole
arbitrator or refer it to the panel of
odd number of arbitrators how do you
write this this is how you can write it
the arbitration shall be conducted by a
sole arbitrator in this case we've
chosen a sole arbitrator
who shall be mutually decided by the
party now other important aspects that
should be present in a clause are the
qualifications of the arbitrator in the
situation if there is a dispute let's
say about a quality or a quantity or a
technical dispute you can have someone
specialize in the industry and specify
that the arbitrator shall at least be an
engineer or an architect or a lawyer or
somebody who has knowledge in that
particular field any other person would
not be able to do justice to your your
case you can also include the fees of
the arbitrator institutional courts or
appointed arbitrators may have specified
fees however in adhoc arbitrations you
can set a fee cap that needs to be paid
to the arbitrator and lastly you can
also tell about the time limit for
appointment of arbitrator section 21 of
the arbitration and conciliation act
says that after the notice of
arbitration the party needs to respond
within 30 days you free to change this
if you wish to once you mention it in
the clause
once you include all of the factors that
we have just discussed there you have it
one effective arbitration Clause let me
show you how the complete Clause looks
like by way of an example consider this
situation Pig suppliers private limited
is having its registered office at
Mumbai and it's going to supply 100 tons
of cement to ABC Construction private
limited which has its registered office
at Delhi every month they have entered
into a material supply agreement for
this purpose and this is for supply of
cement
they choose arbitration as the alterate
dispute resolution mechanism now if you
are required to formulate a clause for
these parties how would it look like
this is how any disputes or differences
arising from or in connection with this
contract shall be refer to and resolved
by the so arbitrator the seat and venue
of the arbitration shall be you can say
bomb and the courts of Bombay will have
exclusive jurisdiction the arbitral
proceedings shall be conducted in
English and the award shall be final and
fining on both the parties there you
have it an effective arbitration Clause
including all the essential elements
that we just discussed I hope you like
it let me know in the comments if this
helps you and share it share it with a
lawyer share it with a friend who wants
to draft or is struggling to draft an
arbitration Clause let me know in the
comments how it went for you and if you
want more such videos see you in the
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