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Arbitration offers an alternative to litigation in national courts and is a popular means of resolving both domestic and international disputes. The end product in arbitration is the "award", which is final and binding and can be enforced internationally, with only limited rights of challenge. Whereas domestic arbitration is commonly categorised as a form of "alternative" dispute resolution, the New York Convention enables recognition and cross‑border enforcement of arbitral awards in 170+ countries, making international arbitration a leading dispute resolution mechanism in its own right.
In our latest Back to Basics series, brought to you by our global team of international arbitration lawyers, you will find our top tips for in-house counsel on conducting and managing an arbitration.
In this first article of the series, we explain when to choose arbitration, how arbitration works in practice, and what to include when drafting an agreement, drawing on expert commentary from our international arbitration experts.
The agreement to arbitrate
One of the main ways in which arbitration differs from court litigation is that arbitration is almost always by consent, meaning that parties must expressly agree to arbitrate their disputes.
An arbitration agreement is usually included as a clause within a contract recording the parties' rights and obligations more generally. However, this is not a requirement; an arbitration agreement may be made separately and at a different time to the "substantive" contract.
When included within a contract, the agreement to arbitrate is still legally considered separate. The "separability" of an arbitration agreement from the rest of a contract means that the arbitration agreement survives where, for example, the contract is terminated or its validity is challenged.
Unfortunately, when negotiating contracts, parties often only turn their mind to the dispute resolution clause at the last minute and often rely on boilerplate provisions that may or may not be suitable. By the point at which the arbitration agreement becomes relevant, a dispute is often looming or already underfoot, and the parties' interests are no longer aligned. At that stage, any uncertainties in the drafting of an arbitration agreement can lead to disputes about its effectiveness or validity.
Such uncertainties can be counterproductive in terms of time efficiency and cost management, but also have the potential to derail the arbitral process and create jurisdictional issues, leaving the parties (by default) to resolve their dispute through litigation. Therefore, an arbitration agreement must be clearly and properly drafted.
We set out below some of the details that, based on our experience, should be specified in an arbitration agreement – and what may happen if they are not.
Checklist: what should be included in my arbitration agreement?
Over 170 countries around the world are party to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) (which we will cover in more detail in a future article in this series).
Under Article II of the New York Convention, those countries each agree to recognise an arbitration agreement that (i) is in writing; (ii) deals with current or future disputes; (iii) arises out of a legal relationship (whether contractual or not); and (iv) concerns a subject matter capable of settlement by arbitration.
Beyond these prerequisites for an internationally-recognised (and enforceable) arbitration agreement, what are the "must-have" features when drafting such agreements?
1. State the parties' clear and unequivocal intention to arbitrate
Clarity is crucial for avoiding any risk of (potentially costly) disputes over whether the arbitration agreement is binding. It is vital that an arbitration clause records the parties' clear and unequivocal intention to arbitrate.
The clause should also set out the scope of the arbitration agreement. We would generally recommend that the scope be drafted in broad terms, encompassing all potential disputes and claims that might arise between the parties, including claims in contract, tort, non-contractual claims and other disputes "in connection with" the contract (such as claims concerning its validity). Ensuring that arbitration is the sole dispute resolution forum will help avoid disputes as to whether a particular claim or dispute falls within the arbitration clause.
A 'one-stop shop':
"Under English law, following principles set out by the House of Lords in Fiona Trust1, if parties wish to exclude a particular type of claim from the scope of an arbitration agreement, they will need to do so expressly. Following Fiona Trust, the English courts are unlikely to draw any legal distinction between phrases such as "under", "in connection with" or "arising out of" a contract."
- Gordon Bell, Head of International Arbitration, Partner (London)
2. Designate the "seat" of arbitration
Good practice will see the legal place or "seat" of arbitration clearly specified in the arbitration agreement, i.e. the city or country the laws of which the parties have agreed will apply to the arbitral procedure. Designating the seat determines the applicable legal framework for the arbitration proceedings, including the procedural law that will govern the arbitration (also known as the curial law or lex arbitri); the court that, where necessary, will "supervise" the arbitration and apply that procedural law; and the "nationality" of awards for enforcement purposes (which we discuss in a later article).
The seat of arbitration need not be the physical location of any hearings carried out during the arbitration – the parties and tribunal may (and often do) agree for hearings to take place in another location that is more practical for the participants. With the parties' agreement, hearings may also take place virtually, which is nowadays common practice for case management conferences and other procedural hearings or hearings of relatively short duration. Notwithstanding the physical location of hearings, the seat, the applicable procedural law and the court with supervisory jurisdiction will remain as specified in the arbitration agreement.
The law governing the seat of arbitration may differ from the governing law chosen by the parties to determine their substantive rights and obligations under the contract. The procedural law (determined by the seat) governs aspects of the arbitral procedure, generally including witness evidence, the appointment of the tribunal and its powers and duties. The seat also determines the court that will have jurisdiction over the proceedings. This might become relevant if interim measures are required which a tribunal is unable to provide, or when it comes to challenging or enforcing an award.
In specifying the place or seat, an arbitration agreement might simply state as follows:
"The seat or legal place of arbitration shall be [London, England]."
3. Specify the law applicable to the arbitration agreement
The law applicable to the arbitration agreement will determine, amongst other things, the validity and scope of the arbitration agreement, in the event that there is a dispute on these points.
Again, as for the law of the seat, the law of the arbitration agreement may be different to the substantive governing law of the contract.
In our experience, while parties usually do not neglect to agree on the governing law of the contract itself, they more frequently omit to specify the law governing the arbitration agreement.
The Arbitration Act 2025 has codified the English approach:
"The approach that the English courts will take to determine the governing law of an arbitration agreement has now been codified in the Arbitration Act 2025. As we explain in more detail in our blog post on the new Arbitration Act, the law governing an arbitration agreement will be:
- the law the parties have expressly chosen for the arbitration agreement (as opposed to any wider contract in which it sits); or
- where there is no such agreement, the law of the seat of arbitration.
"The English courts will apply this new rule irrespective of whether the seat of arbitration is England & Wales or elsewhere, which introduces certainty in an area which has seen a number of appellate court decisions in recent years."
- Patrick Fox, Principal Associate (London)
The approach differs in other jurisdictions.
"Under French arbitration law, for example, where the parties have not determined the applicable rules of law, the arbitral tribunal shall decide in accordance with the rules of law that it considers appropriate (CPC, art. 1511), and not, as in the UNCITRAL Model Law, in accordance with the law designated by the conflict of laws rules that it considers appropriate (Model Law, art. 28(2))."
- Sophia Allouache, Principal Associate (Paris)
4. Decide: will any arbitrations be administered by an institution, or would ad hoc arbitration be more suitable?
Within the bounds of the applicable procedural law, arbitrations are conducted under procedural rules, whether agreed by the parties or, if necessary, imposed by the Tribunal. It is generally preferable for the parties to agree the applicable rules when entering into their contract.
There are a number of arbitral institutions whose rules provide a framework for the proceedings and, for a fee, can also administer an arbitration. This might include managing the process, appointing arbitrators and paying the tribunal's fees, and scrutinising an award before it is handed down to the parties.
In our experience, the majority of international commercial arbitrations are administered by one of a handful of leading arbitral institutions, popular choices being the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), the Singapore International Arbitration Centre (SIAC) and the Dubai International Arbitration Centre (DIAC). There are also specific rules for Investor-State dispute settlement such as those of the International Centre for Settlement of Investment Disputes (ICSID).
The alternative to institutional arbitration is ad hoc arbitration. In an ad hoc arbitration the rules are set (again, within the bounds of the applicable procedural law) by either the tribunal or the parties, including where the parties agree to use a set of rules which are not administered by an institution. In this latter respect, parties often elect to use the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules.
5. Specify the number of arbitrators and the appointment mechanism
One or three? Many popular arbitration rules provide that, in the absence of party agreement, a sole arbitrator will be appointed – although the ICC Rules, for example, permit a three-member panel where the dispute warrants this, e.g. due to its value or complexity.
"It's often helpful to consider the likely value of claims when deciding whether to opt for a sole arbitrator or a tribunal of three. Where claims are likely to be lower in value, a sole arbitrator may be preferable to keep down the running costs of the proceedings. However, in complex disputes of a technical nature a three-member tribunal is likely to be more appropriate.
"Many parties will use the mechanism for the appointment of the tribunal set out in the applicable arbitration rules, although it may be possible for the parties to vary this by agreement, in particular in relation to the appointment of the presiding arbitrator in a three-member tribunal. It is important to consider including a fall-back mechanism in the event that party agreement is required for the appointment process but cannot be reached."
- Peter Anagnostou, Partner (Dubai)
The parties can also specify particular credentials and qualifications that arbitrators must have – for example, particular industry experience or legal expertise relevant to the subject matter of the dispute. Caution should be exercised here so as not to introduce ambiguity when specifying required characteristics, and also to avoid unwittingly narrowing the pool of arbitrator candidates. Naming specific arbitrators is also not recommended; if in the event they are unable or unwilling to act, an element of uncertainty will be introduced before the proceedings have properly commenced.
6. Other terms of an arbitration agreement
Confidentiality is often cited as one of the benefits of arbitration over court proceedings. However, in certain jurisdictions, arbitration is not necessarily confidential, and whether or not awards are confidential will also depend on the arbitral rules chosen. Certain arbitral institutions now aim, where appropriate, to publish the names of parties, procedural orders and awards. This is normally achieved only with the parties' consent on an opt-out basis, but it may be advisable to clarify in the arbitration agreement that the proceedings and any awards are to be kept confidential.
The arbitration agreement may make further provision as to how the proceedings should be conducted. There may also be provisions of the applicable procedural law that the parties may modify or exclude by agreement.
By way of example, the English Arbitration Act 1996 permits parties to agree to exclude a right to appeal on a point of law (Section 69), but not to exclude a right to challenge an award on grounds of serious irregularity (Section 68).
- Mary Lindsay, Legal Director (London)
As mentioned at the beginning of this article, the end product of any arbitration is the final award. Arbitral proceedings are only worthwhile if they will result in an enforceable final award. The parties should therefore satisfy themselves that the terms of the arbitration agreement will lead to an award that can be enforced in the jurisdiction(s) where enforcement is likely to be sought – in general, the home jurisdiction of the parties to the agreement and any jurisdictions in which the parties hold assets sufficient to satisfy an award.
This might include ensuring that:
- the parties have legal capacity to arbitrate, e.g. because in some jurisdictions state entities do not have such capacity (at least not without certain waivers being in place); and
- the issues that are arbitrated are capable of settlement by arbitration in the jurisdiction(s) in which enforcement might be sought, and not contrary to public policy.
As noted above, the New York Convention requires the courts of its contracting states to give effect to arbitration agreements and to enforce arbitration awards made in other contracting states. It is therefore advisable to ensure that the seat, i.e. the place that an award will be deemed to have been made that determines the award's "nationality", is in a state contracted to the New York Convention, and that the place where the award will be enforced, if in a different jurisdiction, is also a contracting state.
We will consider enforcement of awards in a later article in this series.
Arbitration is more than an alternative to litigation, it's
a strategic choice that can deliver lasting and effective results
across borders. Whether you're drafting an arbitration clause
or weighing the benefits against court proceedings, informed
decisions are critical.
Footnotes:
Footnote
1 [2007] UKHL 40
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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.
