Drafting Of An Arbitration Agreement – Key Checkpoints

Scope of the Arbitration Agreement

The agreement should clearly state what types of disputes would be adjudicated by way of arbitration mechanism. Poorly drafted agreements are often the source of much trouble as it prohibits exercising of jurisdiction to adjudicate or decide fully or partly a dispute depending upon the facts and circumstances of the dispute. Since arbitration is a creature of agreement and entered into by the will of the parties in consensus ad idem, the arbitrator is prohibited to adjudicate matters which are not agreed by way of an arbitration agreement, unlike court system where such a restriction does not exist and is not found.

Further, language of the arbitral agreement can play a vital role, some phrases like arising “out of” “under” “in connection herewith or incidental thereto” will have different outcomes for the parties, as some may result in expansion of scope whereas usage of other words might restrict or narrow the scope of the Tribunal so constituted.

Furthermore, it is also extremely important to enlist right set of parties in the arbitration agreement. Since often time, awards cannot be executed against third parties which do not have connection with the dispute, for arbitration is a voluntary dispute resolution mechanism, and purely a creature of consensus and agreement. It can be said that for the abovementioned reasons it becomes extremely important for the right set of parties to be enlisted in the arbitration agreement. Furthermore, care must also be taken to enlist those parties against whom an arbitral award can be enforced, or in simple terms a party against whom damages and cost can be recovered, otherwise, the whole exercise would become futile.

Seat of the Arbitration

Seat is one of the most important and vital characteristics of an arbitration agreement.^[1] Depending on where the seat has been decided upon or envisioned by the parties, it will determine the applicable law as courts of that jurisdiction will have power to issue interim reliefs, further power of appeal as to question of law^[2], power to challenge award^[3], supervisory powers like assisting arbitral proceedings, applying to court for assistance in taking evidence^[4], etc. Furthermore, it can be said that most importantly seat gives power to the court to exercise its power to judicially review or challenge an arbitral award so rendered by an arbitrator. In light of these considerations’ “seat” should invariably be a neutral jurisdiction and should ideally be of a jurisdiction where courts are found to be pro – arbitration for smooth functioning of the arbitral proceedings.

Governing law of the Arbitral Agreement

In an international scenario it is not an unusual occurrence that laws of more than one nationality is being applied^[5] for there are multiple parties from different nationalities which form part of the dispute adjudication process. In such a context, the contract should carefully lay down different laws that are envisioned by the parties in sufficient clarity to avoid disputes regarding interpretation of such arbitral agreements, which can often be very expensive and time consuming, again defeating the objective for which arbitration was sought it the first place.

Consideration should be made with respect to the following

• The law which will be governing the substantive contract.
• The law which will be governing the arbitration procedure or the law of the seat where arbitration proceedings will commence or likely to commence.
• The law which will be governing the arbitration agreement.
• The law of state(s) where the arbitral award is aimed to be enforced.

Choice of Applicable Rules

It can often be of benefit to the parties to prematurely decide what rules would be applicable to the arbitration proceedings. Parties may agree to adopt rules of an established arbitral institution like that of SIAC^[6] or LCIA^[7], etc. The benefits of institution induced arbitral proceedings are many as it plays a key role in the whole process of administration of disputes from start to end by providing strategic support at each level of the adjudication process. Institution induced proceedings provide well established and predictable procedure which help in cutting unnecessary cost and time.

In case parties wish to go for ad – hoc arbitration, the rules, process, appointments, etc. at different stages of the arbitral proceedings must be decided prematurely to avoid any conflicts at a later stage which has the effect of stalling the whole process, increasing cost and time in the process.

Language

Arbitration is the preferred method of dispute resolution in the international setting, and when parties are from different nationalities, with different first languages, it becomes all the more important to identify and agree on a particular language in which arbitral proceedings will be conducted in. Though it might seem insignificant, it plays a major role as all evidence and submissions will be presented in the agreed language only during arbitral proceedings. A careful selection of the same will reduce unnecessary interpretation and translation cost, albeit also reducing costs and time in the process.

Number, Qualification & Appointment process of Arbitrators

Parties must beforehand agree the process for appointment of the arbitrator, whether it will be unilateral or both parties with joint consensus and understanding appoint the arbitrator, further number of arbitrators must also be pre - decided to reduce conflict. Parties can also specify qualifications for such arbitrator so wished to be appointed, as it is required in the interests of justice that the arbitrator must be competent, of a certain background and has had a minimum number of experience, knowledge in a particular field, etc. to resolve disputes as there are very limited grounds of appeal and arbitration being a creature of law is binding in nature. Unlike court system, parties aren’t afforded the benefit of multiple layers of appeal, making selection of right arbitrator extremely important.

Further, to reduce any foreseeable issues with respect to the qualification of arbitrator in an attempt to vitiate such arbitration proceedings, the appointed arbitrator must obtain a written confirmation from the parties beforehand that the contractual criteria which was so specified with respect to his/ her appointment has been fulfilled if any.

The above checkpoints are aimed at ensuring that arbitral proceedings do not lead to creation of more disputes than it attempts to resolve as often is the case to be seen.

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