In our earlier article, we discussed the implications of the Arbitration (Amendment) Ordinance 2017 and the factors to consider when deciding whether to settle Intellectual Property Right (“IPR”) disputes by arbitration.
Since arbitration can only take place with the consent of all parties, a crucial first step is to create a valid, enforceable arbitration agreement that reflects the consensus of the parties. In the majority of cases this will be the “arbitration clause” included in the parties’ agreements and contracts.
A poorly drafted arbitration clause can cause time-consuming and costly delays to the arbitration process, and in a worst-case scenario, could even result in the clause being declared invalid or unenforceable.
In this article we identify some key issues to note when drafting an arbitration agreement.
Drafting of Arbitration Clauses – A basic arbitration agreement should at least cover the following:
Scope of the arbitration agreement
Have your arbitration clause wide to cover all disputes arising out of or in relation to the contract, including pre-contractual and tort claims, unless you intend to carve out disputes for separate determination e.g. if you want a mechanism for expert determination for pricing or technical disputes.
Words such as “disputes relating to” or “arising in connection with” rather than “arising under” are best used to avoid the risk that certain claims or disputes are found to be outside the jurisdiction of the arbitral tribunal, and to avoid unnecessary argument, although there is a presumption that parties intend to have a one stop adjudication of disputes.
Composition of the arbitral tribunal
The number of arbitrators, either one or three, should be specified. The choice of the number of arbitrators depends on the size and complexity of likely disputes, the need for technical expertise, and the importance of cultural representation – having a party-appointed arbitrator that understands how companies from certain countries operate, and their systems and processes.
Method of selecting the tribunal
The method of selecting arbitrators is usually provided either in the institutional rules or in the arbitration clause. A sole arbitrator is appointed by the institution in default of agreement by the parties. For a tribunal of three, the claimant and respondent (or joint claimants or joint respondents) nominate one arbitrator each, with the third arbitrator, who acts as the presiding arbitrator, nominated by either the two party arbitrators or the institution, for confirmation by the institution of their appointment. Consideration should be provided in the arbitration clause for the two party arbitrators or the parties to choose the presiding arbitrator if the institutional rules state that the presiding arbitrator shall be chosen by the institution. Some institutional rules also require that the parties choose their party arbitrator from the institution’s list or panel of arbitrators. If that is the case, the parties should stipulate in their arbitration clause that they can appoint party arbitrators who are not on the institution’s panel. If there is no requirement for the sole arbitrator or presiding arbitrator to be a nationality other than that of the parties in the institutional rules, then this should be stated in the arbitration clause. Continue Reading