Australia: Drafting An Arbitration Agreement - It´s Not As Easy As It Looks

Last Updated: 25 June 2008
Article by Doug Jones

Key Point

  • Arbitration clauses may seem to be straightforward and simple to draft, but they can be easily derailed.

The first and essential step towards successful dispute risk management is agreeing to go to arbitration. While this might seem easy enough, getting the drafting right for an arbitration agreement can be surprisingly difficult.

That is because there are underlying complexities which must be understood. If they are not, a small drafting mistake can lead to unnecessary expense and delay before an arbitration; or even a court battle over the validity or existence of an arbitration agreement.

In this article we look at some of the common pitfalls of drafting, and why expert advice is often needed to avoid them.

One of the most common mistakes when drafting an arbitration agreement is including provisions that are inconsistent with the arbitrator's own rules. For example, in Sumitomo Heavy Industries v Oil & Natural Gas Corporation [1994] 1 Lloyd's Rep 45, the arbitration agreement referred the dispute to the ICC, but also allowed for the appointment of an umpire. As this was inconsistent with the ICC procedure, the ICC refused to administer the arbitration.

Your arbitration agreement should refer to an established set of arbitration rules to govern the arbitral procedure and you should be cautious when making alterations to those arbitration rules. Any alterations should be for a good reason and thought through properly, because alterations which are inconsistent with the rules themselves may invalidate the arbitration agreement.

Is your dispute captured by the arbitration clause?

The scope of the arbitration agreement is a matter of interpretation and as such the parties may believe that their agreement will capture all potential disputes, when in fact it will not. In the past many disputes re the validity and scope of the arbitration agreement arose from wording such as disputes "arising from" or "out of" a contract.

Since the decisions in Comandate Marine Corp v Pan Australia Shipping Pty Limited [2006] FCAFC 192 and Hi-fert Pty Ltd. v Kiukiang Maritime Carriers Inc (1999) 159 ALR 142, Australian courts have been more willing to widen the scope of arbitration agreements in order to give them commercial effect. This is also the case in England but the same cannot be said for other important jurisdictions such as India. It can be costly down the track when the parties are unsure if their dispute is covered by the arbitration agreement.

Parties should be aware that careful, unambiguous wording of the arbitration agreement is required to ensure that all relevant dispute are captured by the agreement.

Conflicting provisions

Commonly parties try to keep all avenues open by including arbitration clauses in the same contract with forum selection clauses (or jurisdiction clauses), or combining arbitration and litigation procedures (for example, "the parties shall proceed to litigate before the arbitration court").

They might however be shooting themselves in the foot as they can lead to ambiguity as to the parties' intent to refer their disputes to arbitration, an ambiguity which can make their arbitration clauses ineffective and unenforceable.

Be very cautious about including a court jurisdiction clause together with an arbitration clause; there is a risk that it renders the arbitration clauses ineffective and ambiguous.

Case study: The helpful clause that backfired

The recent case of Seeley International Pty Ltd v Electra Air Conditioning BV [2008] FCA 29 is a good example of how badly drafted arbitration agreements can cause trouble and harm (and be unenforceable).

The parties agreed that if the senior management couldn't resolve a dispute it would be referred to arbitration.

"20 Dispute Resolution
20.1 (b) if senior management of each party are unable to resolve the Dispute under Section 20.1(a), it shall be referred to arbitration in accordance with the Rules for the Conduct of Commercial Arbitrations of the Institute of Arbitrators and Mediators Australia. The number of arbitrators shall be 1. The place of arbitration shall be Melbourne, Australia. The language of arbitration shall be English. The arbitral award shall be final and binding upon both parties."

Presumably to clarify that an arbitrator may grant injunctive or declaratory relief without requiring the parties to satisfy time-consuming procedural steps, the parties then added one sentence:

"20.3 Nothing in this Section 20 prevents a party seeking injunctive or declaratory relief in the case of a material breach or threatened breach of this Agreement."

The court, however, took a different view. Owing to the fact that an arbitrator already has the power to grant injunctive or declaratory relief under section 23 of the International Arbitration Act 1974 (Cth), the court instead interpreted clause 20.3 as preserving a party's right to seek injunctive or declaratory relief before a court. The court was assisted in this interpretation by clause 25 which says that the contract is governed by the laws of Victoria, and that:

"Subject to s 20, the parties irrevocably submit to the courts of Victoria, and any courts of appeal from such courts, in relation to the subject matter of this Agreement."

As a result of these contradictory and overlapping provisions, it was held that the parties had not agreed to submit the relevant dispute to arbitration. The unnecessary inclusion of clauses 20.3 and 25 ultimately caused the arbitration agreement to fail.


Most failed arbitration clauses can be associated with a lack of precision in drafting the clause. A number of the common pitfalls to avoid have been highlighted above; however, if you are required to include special terms or procedures in these types of clause you should seek expert advice as small drafting mistakes can be costly and ultimately lead to the failure of an arbitration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

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”

Mondaq Advice Centre (MACs)
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.