Australia: Drafting an effective international arbitration agreement – tricks and traps

Last Updated: 29 July 2016
Article by Toby Boys and Lucy Munt
Most Read Contributor in Australia, September 2017


Arbitration is an effective process to resolve disputes that arise in international transactions. If properly managed, arbitration is a time and cost efficient method of dispute resolution that culminates in a binding and internationally enforceable decision. But unlike national courts which exercise the coercive power the state, an arbitral tribunal derives its power from the consent of the parties as found in the arbitration agreement. Therefore, the success of an arbitration, and by extension the protection of parties' legal interests, rests largely upon the wording of the arbitration agreement.

Many arbitration bodies provide excellent model clauses or example arbitration agreements. But they are not well suited to every transaction and every type of dispute. This article will provide an overview of international arbitration before discussing some of the most important 'tricks and traps' parties and their lawyers need to be aware of when negotiating an arbitration agreement.

The benefits of international arbitration

There are many and varied benefits to arbitration as opposed to litigation in a court. Depending upon the transaction and the parties involved, it is likely that some benefits will be perceived as more important than others. It is critical that those benefits most important to the parties are borne in mind when negotiating the arbitration agreement. After all, a poorly drafted or poorly thought out arbitration agreement can undermine the perceived advantages of arbitration.

Expertise of arbitrators

Unlike in court litigation, where disputes are heard by a judge who is allocated to the case, arbitration permits the parties to nominate the arbitrators to determine the dispute. So, while some disputes might be well suited to resolution by a legal expert, others might be highly technical or require divergent expert evidence concerning questions best left (for example) to engineers, quantity surveyors, or builders. In those circumstances, the ability to match the skills of the decision maker to the issues in dispute is an obvious advantage.

Flexibility of proceedings

Arbitration offers greater procedural flexibility than litigation. Litigators are bound by those rules of court and evidence in the jurisdiction in which a matter is heard. Strict, mandatory rules can be beneficial in some circumstances, but they are also costly and can hinder progress of the dispute. Arbitration rules often permit parties to agree on time limits; confidentiality; location of oral hearings; the language of documents and hearings; and even whether the tribunal will make a decision according to law or according to justice and fairness.

Neutrality and avoidance of national courts

As a method of dispute resolution divorced from local courts, arbitration offers parties a neutral forum and access to demonstrably neutral decision makers. Because of the supervisory role played by the courts of the seat of arbitration,1 parties often prefer to have their arbitration determined in a neutral jurisdiction. Parties have the opportunity to arbitrate according to neutral rules and procedures, disconnected from domestic jurisdictions.

Limited recourse against the award

Once an award is made, it is usually only able to set aside on limited grounds such as jurisdictional error by the tribunal or breach of public policy. This is contrasted with the wide grounds on which a decision of a first instance judge may be appealed.2

Ease of enforcement of arbitration agreement and award

By virtue of the New York Convention on the Recognition and Enforcement of Arbitral Awards

(the New York Convention), awards are easily enforceable in a variety of jurisdictions around the world. The New York Convention has been signed by more than 155 nations worldwide.3 As its name suggests, it regulates the international enforcement and recognition of foreign awards. At its simplest, it compels state parties' courts to recognise and enforce international arbitral awards unless the relevant arbitration agreement, the tribunal, the proceedings, or the award do not satisfy the limited requirements set out in the New York Convention.

Australian courts are considered 'pro-arbitration' and readily uphold agreements to arbitrate, even in the face of significant ambiguity or 'pathology'.4 They have also enforced awards in the face of allegations that the tribunal had no evidence to support its decision, or proceeded without adequate notice to a respondent,5 or failed to accord a party natural justice6 or procedural fairness.7

International enforcement of a judgment, however, is much more difficult. In order for a judgment to be enforced internationally, there must be a mutual recognition agreement between the jurisdiction in which the decision was made and the jurisdiction in which enforcement is sought. By way of example, at the time of writing this article, Australia has agreements with fewer than 30 countries.8 Notably absent are the United States, China, and Thailand, all in Australia's list of top two-way trading partners.

Drafting an arbitration agreement: the basics

It is with these advantages in mind that we consider drafting the arbitration agreement. An 'arbitration agreement' may be a stand-alone agreement or an arbitration clause within a commercial agreement between the parties. Arbitral institutions usually provide model clauses. These are example arbitration agreements that parties intending to arbitrate in accordance with the institution's rules can incorporate into their contract.

While such model clauses are obviously useful to those wishing to have an institutional arbitration, the clauses are also valuable to parties who are not; they are tried and tested clauses shown to work repeatedly in practice. Whether you are adopting an institutional clause or drafting your own clause, we have outlined some factors below to bear in mind.

The Model Law and the New York Convention

An arbitration agreement must satisfy the requirements of the lex arbitri (the law of the place of arbitration) and the law of the place of enforcement. These will likely be the Model Law9 and the New York Convention. They require an agreement in writing to submit any or all disputes to arbitration, whether existing or future, arising in the context of a defined legal relationship (whether contractual or not) and capable of arbitration.

- 'In writing' requirement

An arbitration agreement must be evidenced in writing. 'Writing' has a broad definition; however, the requirement is satisfied by inclusion of an arbitration clause in an agreement that has been signed by the parties. It can also include an electronic document.

- 'Any or all disputes'

Parties have the discretion to refer all or only particular matters or types of disputes to arbitration.

To be safe, arbitration agreements should be couched in mandatory language, not merely directory. They should use words to the effect that 'disputes shall be referred to arbitration'.

While 'may be referred to arbitration' has been held to be valid, the use of non-mandatory language is an unnecessary risk that can undermine the parties' ability to refer a matter to arbitration in accordance with the arbitration agreement.10

- Defined legal relationship

The arbitration agreement must define the subject matter of disputes that will be referred to arbitration. This requirement is usually satisfied by inclusion of words in the agreement, such as, that disputes 'arising out of or in connection with this agreement' will be arbitrated.11

But attempts to cast the net too wide, and have the clause apply to any dispute between the parties whether arising out of the commercial relationship or not, may fall foul of the requirements of the Model Law and New York Convention.12

- Capable of being arbitrated

'Arbitrability' refers to whether a dispute is capable of being resolved by arbitration. National laws may deem certain matters incapable of arbitration. For example, family law matters are usually only capable of being resolved through the public court system. Often laws aimed at protecting consumers are also considered to fall outside the jurisdiction of an arbitral tribunal.

Institutional or ad hoc

As set out above, an arbitration administered by an institution, and in accordance with institutional rules, is 'institutional'. If it is not institutional, the arbitration is 'ad hoc'.

Institutions are non-government bodies with a supervisory function, specialised in administering the logistical and practical aspects of arbitrations. They have a secretariat or court that decides matters that would otherwise fall to be determined by the domestic courts such as the appointment and challenge of arbitrators.

There are many different arbitral institutions around the world. Some of the most well known institutions in the Asia-Pacific region include the Hong Kong International Arbitration Centre (HKIAC), the China International Economic and Trade Arbitration Centre (CIETAC) and the Singapore International Arbitration Centre (SIAC). In Australia, the Australian Centre for International Commercial Arbitration (ACICA) and the Resolution Institute (formerly named IAMA) will administer arbitrations.

Institutional rules have generally been shown to work well in practice. The rules are periodically revised and updated to keep pace with developments in law and practice. Parties who agree to arbitrate according to institutional rules automatically incorporate those rules into their agreement.

Ad hoc arbitrations are administered by the tribunal itself. They can be conducted in accordance with institutional rules (usually the UNCITRAL Rules) or rules developed by the parties. As such, ad hoc arbitration typically requires a high degree of cooperation between the parties. Parties are also reliant on national arbitration legislation and are subject to the supervisory jurisdiction of the courts for a wider variety of matters.

Selection of rules – matters to consider

Arbitral rules regulate procedural aspects of the arbitration such as the method and timing of filing documents; the conduct of the evidentiary hearing; and any application for provisional measures. It is important to be aware of differences between institutional rules.

For example time limits can vary substantially13 and tribunals may wield different powers.14 The speed at which an award must be issued, or at least drafted, can range from 45 days from the close of proceedings15 to six months from the formation of the Tribunal.16

Drafting the arbitration agreement: details

The parties have broad discretion to make decisions about the conduct of their arbitration, but where the parties fail to make those decisions, the tribunal will fill in the gaps.

Number of arbitrators

If parties prefer to stipulate the number of arbitrators in their arbitration agreement, it is advisable to agree on one or three. Odd numbers prevent a deadlock and more than three arbitrators can be prohibitively expensive.

Three arbitrators, while obviously increasing the costs of the arbitration, allow the parties to select at least one arbitrator who shares the characteristics or qualification that party desires. They may dispose of the work more quickly and, in large and complex cases, may be capable of producing a better final award.

A sole arbitrator may be lacking in either the legal or technical expertise to properly grasp the significance and intricacies of all aspects of the dispute, though if parties have careful selection procedures in place this can be avoided. But sole arbitrators are significantly cheaper. It is also obviously more difficult to coordinate the schedules of three people as opposed to just one.

Most rules provide that the head of the institution selects the arbitrators where the parties cannot agree on the number or identity of the arbitrators. In the case of ad hoc arbitration, the courts, or another authority, can provide assistance to determine the identity of the arbitrator.17

Language of the arbitration

Parties are able to select the language of the arbitration proceedings, including the language of submissions and the final award. The language is usually dictated by the language of the parties involved. However, the language of possible witnesses and the official language of potential places of enforcement are also relevant factors.

Law of the merits

This is the law that is to be applied to determine the merits of the dispute. Most arbitration rules provide that, absent a selection by the parties, the law will be selected by the arbitral tribunal.18 But, it is preferable that law be agreed in advance so the parties understand the content of their obligations from the commencement of the contract.

Law of the arbitration agreement

An arbitration agreement is a distinct and separate agreement from the main contract. This ensures that, following termination of the substantive contract, disputes arising out of that termination can still be referred to and determined by arbitration. As a result, the arbitration agreement can be governed by a law that is different from the law that governs the merits of the dispute.

The law of the arbitration agreement governs the interpretation, formation and enforcement of the arbitration agreement as a separate contract. So, if the law of the arbitration agreement is Australian law, then Australian contractual principles will govern the arbitration agreement.

Often, parties fail to make this selection. This can cause problems when a dispute arises, particularly in complex cases that may involve multiple parties or contracts, or non-signatories. If parties turn their minds to this question when drafting an arbitration agreement it can avoid unnecessary costs and delays.

In circumstances where the parties have failed to select the law of the arbitration agreement, the tribunal will choose for them. This instantly creates uncertainty: some jurisdictions consider that, absent a selection by the parties, the law of the seat of the arbitration will govern the arbitration agreement.19 Others apply the law of the substantive contract. This unnecessarily delays the tribunal proceeding and increases costs, creating an additional question for the tribunal to answer.

The seat or place of the arbitration

Seat selection is a critical aspect of the arbitration agreement. The seat of arbitration determines the lex arbitri or law of the arbitration. It is the law that determines the validity and enforcement of the arbitration agreement. It also determines which courts will hear applications to challenge the tribunal20 or set aside an award.

It is best to select a neutral seat with local courts known for being supportive of the arbitral process. It is also important to be familiar with the arbitral law of the seat of arbitration to ensure that challenges can be mounted with speed and enforcement proceedings won't be disrupted by technicalities.

Final advice: things to avoid

Avoid including too much detail in your arbitration agreement. Trying to define the parameters of the arbitration agreement too precisely can invalidate the arbitration agreement or oust the tribunal's jurisdiction in respect to certain matters.

Parties should also bear in mind that if a contract is ongoing or is part of a group of contracts, it may be necessary to consider ways to ensure speedy resolution of disputes. Some institutions provide fast track arbitration rules that usually facilitate resolution of disputes within a three month period (while information is not readily available,21 some sources indicate the average length of an arbitration is between 16 and 20 months).22 However, this should be balanced against the likely size of any potential dispute.


1 A concept discussed later in this article.

2 Note: the limited recourse against the award is widely seen as one of the few remaining efficiencies exclusive to arbitration.

3 As at the date of writing.

4 Robotunits Pty Ltd v Mennel [2015] VSC 268.

5 Emerald Grain Australia Pty Ltd v Agrocorp International Pte Ltd [2014] FCA 414.

6 Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd [2015] NSWSC 735.

7 Ye v Zeng [2015] FCA 1192.

8 Foreign Judgments Regulations 1992 (Cth).

9 Note: some jurisdictions, like the United Kingdom, have not adopted the Model Law. Usually the arbitration legislation in these jurisdictions defines 'arbitration agreement' in the same way as that set out in the Model Law.

10 Anzen Ltd & Ors v Hermes One Ltd (British Virgin Islands) [2016] UKPC 1; WSG Nimbus Pte Ltd v Board of Control for Cricket in Sri Lanka [2002] 3 SLR 603; Oakton Services Pty Ltd v Tenix Solutions IMES Pty Ltd [2010] VSC 176.

11 Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; Walter Rau Neusser Oel und Fett AG v Cross Pacific Trading Ltd [2005] FCA 1102; cf Fiona Trust & Holding Corporation v Privalov [2007] Bus L R 686.

12 This is rarely tested, though parties should be take note of Roose Industries Ltd v Ready Mixed Concrete Ltd [1974] 2 NZLR 246.

13 Compare SIAC Rules, Art 4 (under which a response to a Notice of Arbitration is due within 14 days of receiving the notice) and CEITAC Rules, Art 15 (under which a defence must be filed within 45 days of receipt of the Notice of Arbitration).

14 See HKIAC Rules, Art 28 (under which a tribunal can consolidate two or more related HKIAC arbitrations). The SIAC Rules contain no similar provision.

15 For example, the SIAC Rules require a draft award to be provided to the Registrar within 45 days from the date on which arbitral proceedings are closed.

16 CEITAC Rules, Art 48.

17 International Arbitration Act 1974 (Cth), s 18.

18 cf HKIAC Rules, Art 35; SIAC Rules, Art 27; ACICA Rules, Art 34.

19 Sulamerica Cia Nacional de Seguros SA & Ors v Enesa Engenharia SA & Ors [2012] EWCA Civ 638. It is worth noting that, since the decision in Sulamerica, institutions have updated their model arbitration clauses to either prompt parties to select the law governing the arbitration agreement (like the HKIAC) or changed their arbitration rules to include a provision stating that the law governing the arbitration is the law of the seat, unless otherwise agreed (LCIA Rules, Art 16.4).

20 Subject to the provision of relevant institutional rules.

21 Queen Mary University of London and White and Case LLP, 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration (nd), available online at <>.

22 London Court of International Arbitration, LCIA Releases Costs and Duration Data (3 November 2015), available online at <>.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

Toby Boys
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.