Previously published in The Advocates' E-Brief, Spring 2008, vol. 19, no. 3
This checklist does not stipulate what is best in all cases (no single option could serve all situations); rather it is intended to be used as its name indicates -- as a checklist to help ensure that all relevant issues are considered, adequately and on a timely basis, in the process of negotiating and drafting a commercial arbitration clause.
Get Advice And Get A Head Start
Encourage those negotiating and drafting dispute resolution clauses to do three things:
- Become reasonably familiar with advantages and
disadvantages of different dispute resolution processes
generally, and in the particular jurisdictions
- Before negotiating or preparing an arbitration clause,
obtain advice from someone who is truly experienced in
arbitration, particularly for international situations.
- Do not leave consideration of the clause to the last
minute. Consider dispute resolution options early in
strategizing for the negotiation (which can be an advantage
because the other party likely will not do so). This will
enhance the prospect of achieving a dispute process that is
as favorable as possible.
Preliminary Considerations: Is Arbitration The Best Option?
- Consider what type of dispute resolution process is best
in the circumstances.
- Consider the probable types of disputes that could arise
in the context of the commercial relationship, whether your
client is more likely to bring or defend a claim, whether
claims are likely to be large or small, the possible
jurisdictions in which a claim could be brought, the likely
jurisdictions in which the other party's assets will
be located, and the advantages and disadvantages to your
client of having the dispute resolved in those
Processes Prior To Arbitration (Or Litigation): Multi-Step Clauses
- Consider whether negotiation and/or mediation processes
should be stipulated in a multi-step dispute resolution
clause so that the parties attempt to resolve disputes before
arbitration (or litigation) is commenced.
- Avoid specifying any prior step as a precondition to
commencing arbitration (or litigation) or requiring the
parties to act reasonably or in good faith.
- Specify that completion of the consensual process(es) is
not a condition precedent to commencing arbitration or
litigation so that pursuit of a claim is not held up by an
assertion that the condition has not been satisfied.
- If a condition precedent is adopted, clearly state a
deadline for satisfaction of the condition and a precise
means of knowing if the condition has been satisfied.
Which Disputes Will Be Arbitrated?
- The arbitration clause should describe the disputes that
the parties want to have determined by arbitration; if all
disputes arising in relation to the relationship are to be
arbitrated, the clause should make that clear, preferably
using tested language.
- Determine whether courts in the relevant jurisdiction
will give broad meaning to clauses specifying the types of
disputes/claims that are arbitrable.
- Also ensure that the clause is clear. You do not want to
have to take an arbitration claim to court to establish that
a type of dispute/claim is arbitrable.
- Sometimes you want only certain types of disputes to be
arbitrated, or you may want a second, expedited arbitration
process for smaller disputes. Whatever the decision, use
wording that will achieve the intended result.
- Avoid allocating particular types of disputes to
different jurisdictions or different dispute resolution
processes (e.g., certain kinds of disputes to arbitration and
others to litigation) unless doing so is necessary (e.g.,
where a certain jurisdiction does not permit arbitration for
a particular dispute) or has clear advantages for your client
that override the likely increase in costs and/or potential
for inconsistent decisions.
Who Will Arbitrate And How Will The Tribunal Be Selected?
The arbitration clause should specify, either directly or by naming a specific set of arbitration rules, the essential aspects about who will arbitrate (the "tribunal") and how the selection of the arbitrator(s) will be made.
There are two important considerations in deciding who will
- First, the number of arbitrators -- almost always one
Second, specific qualifications for the arbitrator(s)
or the chair of the tribunal, if any; sometimes
nationality and/or a particular expertise will be
- Avoid being so specific about qualifications that
the requirements are virtually impossible to fulfill
- Avoid naming a particular person in the
- Avoid being so specific about qualifications that the requirements are virtually impossible to fulfill in practice.
- First, the number of arbitrators -- almost always one or three.
- The arbitration clause should specify, either directly or
by naming a specific set of arbitration rules (and with them,
the use of an arbitration institution), the process for
selecting the tribunal (and dealing with challenges to an
arbitrator and the replacement of an arbitrator).
- If these matters are not covered adequately in the
arbitration clause, the fallback will be the courts in the
place of arbitration.
- Using an arbitration institution, either to administer
the arbitration (see "Arbitration Institutions"
below) or at least to handle the appointment process (as an
"appointing authority"), can reduce the time,
complication and expense of appointing a tribunal and dealing
with challenges and replacement.
- The clause can specify anyone as an appointing authority,
not just arbitration institutions that handle appointments
regularly; however, before naming an appointing authority,
consider whether the person/organization chosen is certain to
be available, willing to undertake the task and has the
ability, expertise, resources and judgment for the
- If an institution will not be used, set out in the clause
an appointment process that will function efficiently and
expeditiously, and deal with complications such as a
party's failure to proceed on a timely basis with the
appointment of its arbitrator.
"Place" Of Arbitration
- Unless otherwise specified, the procedural law that will
govern the arbitration will be that of the "place"
(or "seat") of arbitration.
- Any necessary resort to the courts to deal with matters
arising in the course of the arbitration will be to the
courts in the place of the arbitration. Be aware, however,
that not all courts equally support arbitration or are
independent, stable or reliable.
- Applications to set aside or enforce an award may be
brought in the courts of the place of the arbitration.
- It is important to determine whether the courts in the
proposed place of arbitration will be advantageous or
disadvantageous to your client. You may have to ascertain
from local counsel in the proposed place of arbitration what
the procedural law is and whether it has disadvantageous
- Hearings can be held anywhere; however, they often will
be in the place of arbitration, so, in selecting the place,
consider practical issues such as cost, accessibility,
convenience and ability of parties and witnesses to obtain
Other considerations in selecting the place of arbitration
- any restrictions on the choice of counsel or
- the availability of interim measures of protection
from local courts;
- the extent to which arbitrations are confidential
(see section below) and whether this confidentiality is
maintained in court proceedings;
- whether a home advantage or a neutral location would
be preferable; whether your client will want to risk
suffering the disadvantages of arbitration in the
opposite party's jurisdiction.
- any restrictions on the choice of counsel or arbitrators;
Language Of The Arbitration
- The arbitration clause should specify the language that
will be used.
Using An Arbitration Institution
- Consider the advantages and disadvantages of providing in
the clause for the arbitration to be administered by an
- Deciding to use an arbitration institution and its rules
will greatly simplify the drafting of the arbitration clauses
because many matters that could be set out in the clause are
specified in the institution's rules and, subject to
agreed variations, are handled by the institution in
accordance with its rules and practices.
- While arbitration institutions have things in common,
each is different -- different rules, competencies,
approaches to administering arbitrations, features, methods
of charging, and so on. Also, some institutions, particularly
regional and national institutions, may have features (e.g.,
limited available arbitrators) that would not make them
attractive to your client in the particular
- Consult with someone who is familiar with the arbitral
institutions before selecting one.
- Verify the existence and proper name of any institution
that you specify.
- Obtain a tested precedent clause from the specified
institution (available online and in published rules of the
- Institutional arbitration clauses are short, widely
accepted and cover key points.
- Institutional rules generally give considerable
discretion to the arbitral tribunal to craft appropriate
procedures, all in keeping with the flexibility of
arbitration to fit the process to the dispute and to the
common desires and expectations of the parties.
- If you want a particular set of rules of the institution,
specify the rules and verify their proper name.
- If you want the rules that are current on the date of the
contract to apply (which may not be a wise decision), specify
that as well.
- It is often unwise, and in some cases unworkable, to
adopt an institution's rules without appointing the
institution to administer the arbitration.
- Determine which substantive law will govern.
- Be careful not to add a substantive law provision in the
arbitration clause if one already exists in the contract. It
may, at best, cause ambiguity.
- Specify the currency in which the award will be
- Consider the remedies that you want to be
- Consider whether there should be any limits on the
authority of the arbitral tribunal to award punitive or other
non-compensatory damages -- often institutional rules, for
example, will preclude these types of damages.
- If desired, specify that the arbitral tribunal has
jurisdiction to award legal and equitable relief (specific
performance, contract modification or rescission).
- Ascertain the ability of the tribunal to award interest
and costs (see section below).
- Consider whether claims by or against affiliates should
- Assess whether affiliates of the contracting parties, or
others, may be necessary parties in order to obtain and
enforce the relief that may be desired.
- Specify how the tribunal will be selected when there are
- One option is to provide that the arbitral institution
will select the arbitral tribunal.
- Specify whether two or more arbitration proceedings may
be consolidated, and in which circumstances.
- Specify how the tribunal will be selected when claims are
- One option is to provide that the arbitral institution
will select the arbitral tribunal.
- Determine whether there should be a process to seek
interim relief (interim measures of protection) from a
- If your client may need interim relief, provide for
appointment of an emergency arbitrator or for interim relief
by a court (without its impairing the ability to proceed with
the main claims in arbitration).
- Determine whether the arbitration institution chosen has
optional rules for emergency relief, and whether it is
necessary to specify that such optional rules apply or do not
Privacy And Confidentiality
- Determine whether the arbitration should be confidential
as well as simply private.
- Ascertain the default confidentiality rules of the
proposed place of arbitration and of any arbitral institution
- Consider public and other disclosure obligations to which
your client is subject.
- Consider providing for greater (or lesser)
Procedures For The Arbitration
Consider stipulating specific procedural or evidentiary
requirements, or limiting or eliminating some of the
procedural or evidentiary processes, restrictions and
formalities found in court litigation. The arbitration
clause can specify what the parties want in all of these
- documentary discovery/disclosure;
- oral discovery/depositions;
- experts, including number and/or appointment by the
- documentary discovery/disclosure;
Consider specifying that, in addition to the institutional
or other rules chosen, the arbitration be conducted
according to the IBA Rules on the Taking of Evidence in
International Commercial Arbitration
Set procedures and timing provisions (often aimed at speed)
that are realistic, practical, workable and in your
- If deadlines are provided, the tribunal should have
discretion to extend them. Otherwise, failure to complete
a step or the arbitration within a particular time frame
may result in a loss of jurisdiction.
- Allow the tribunal adequate discretion to determine
procedures and timing that suit the circumstances because
detailed procedural rules or tight timetables may not fit
the particular dispute that arises.
- If deadlines are provided, the tribunal should have discretion to extend them. Otherwise, failure to complete a step or the arbitration within a particular time frame may result in a loss of jurisdiction.
- Determine whether the arbitral tribunal will be able to
Reasons For The Tribunal's Decision
- Determine whether the tribunal should be required to
provide reasons for its award (usually it should).
Appeals And Reviews
- Consider whether the rights of appeal and/or review
provided in the applicable arbitration legislation should be
expanded, or contracted, if the law of the place of
arbitration so permits.
- Consider enforcement of the award and the inclusion of a
provision that judgment may be entered on the award and
enforced in any court of competent jurisdiction.
Consider the jurisdictions in which the parties may want to
enforce an award.
- Ensure that they have ratified the New York
Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (and consider any other treaty
commitments relevant to enforcement of awards rendered
- Consider whether the jurisdiction's treaty
ratification is subject to any declarations and
- Ascertain whether its laws, court decisions or
enforcement procedures could make enforcement less likely
or more difficult.
- Ensure that they have ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (and consider any other treaty commitments relevant to enforcement of awards rendered there).
Issues Arising When The Other Party Is A State
- Provide for waiver of sovereign immunity -- both immunity
from suit and immunity from enforcement/execution.
- Provide for waiver of non-disclosure privileges.
- Be aware that issues such as the place of arbitration
will be especially important, given the particular powers,
interests and behaviours of states.
- When the clause had been drafted, review it to confirm
that it is clear, simple to follow, and that it provides
sufficient room to maneuver.
- In situations of unequal bargaining power, ensure that
the arbitration provisions treat the weaker parties fairly
(e.g., consumer contracts, employment contracts).
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.