What are Arbitration Agreements?
In very brief, arbitration agreements are parties’ common intention documented generally via a clause in a commercial contract to bypass national court jurisdictions and refer to an arbitral tribunal to decide a potential dispute.
Why are they important?
An arbitration agreement is important for parties who seek expertise, quickness, confidentiality, neutrality, being able to follow the procedural developments, or being able to anticipate what to expect (procedurally speaking).
Some Parties seek expertise in highly specialized fields which may escape the knowledge of national judges.
Some Parties seek to be able to shorten the national states’ proceedings as parties to an arbitration have ample opportunity to agree on the timings and in the event that timings are not agreed the arbitral tribunal would decide taking into account notions of reasonability to ensure parties are offered the opportunity to present their cases. Even when parties are not in agreement in terms of timings it is possible to shorten periods by following arbitration good practices by the counsel leading the party who wishes to speed the process up.
Some Parties seek confidentiality. Proceedings in front of national courts are public as opposed to arbitration proceedings that are protected by Parties’ confidentiality.
Some Parties seek a greater perceived neutrality. We always place the example of reaching the United Arab Emirates and signing a contract with a semi-government entity. Would you want to refer to the UAE Courts to solve a potential dispute? Most international parties will not as they feel that national state courts will not be neutral and impartial – even if they are. The sense of neutrality is very important when engaging in international projects.
Some Parties wish to be able to follow the proceedings. Taking the example of the UAE or of Egypt (or any Middle East country where we practice for example), parties do lose the chance of being able to follow the details of proceedings when action takes place before the national courts because everything takes place in Arabic, plus timings, requirements, …, are different from country to country. The cost of being provided with full translations of the developments is highly costly and can never match a process in a language we are familiar with.
And other Parties seek the McDonald’s factor in litigation, being able to anticipate the steps and the thinking of the decision makers, etc. When litigating in a different national forum, parties may feel discomfort not being familiar with what’s ahead. With the particularities of each arbitration proceeding, arbitration practitioners and parties who have undergone an arbitration do often feel familiar with the arbitration selected hearing venues, the way hearings take place, the timings for submissions’ filings, how a western or Arab or Chinese arbitrator may think as opposed to a nationality unknown to us, etc.
Where are they placed?
Arbitration Agreements are often placed in contracts as a dispute resolution clause next to the governing law clause. They can also be agreed after a dispute has arisen, in a specific agreement. The later are very unlikely.
It can also be documented via a contract modification, addendums or electronically, at any point of a commercial relationship.
It is very important that arbitration agreements are documented in writing and that are signed by the competent signatories.
When should we think about Arbitration Agreements?
At the onset of commercial relationships! If you only think about arbitration when conflict has arisen it is too late. It is important to invest a little bit of protection at the beginning of a commercial undertaking and have contractual documents revised by expert counsel in the country where the project will take place. Lawyers are not experts on every legal field nor in every country!
How should we approach their selection?
On revision of the facts of the case and parties involved. The revision of the specifics will lead to the selection of the most suitable institution. Institutos recommendations will be the best starting point. All arbitral institutions have recommended clauses.
The question should be which institution is good for the specific project and which institution can both parties agree to.
The drafting of the arbitration clause itself should be fairly simple. Stick to the recommended clause and select the language and place of arbitration. You may not want to select the number of arbitrators as you never know what you may ultimately desire once the issue arises.
Unlike courts, arbitral tribunals have no inherent power or jurisdiction. Their authority arises from the parties’ Arbitration Agreement. Therefore, parties should take particular care in drafting arbitration provisions. Once a dispute has arisen, self-interest will often mean that it is too late to reach further agreement on how a dispute should be resolved.
We always recommend seeking tailored legal advice on drafting any proposed dispute resolution clause. We highly understand that Arbitration Agreements shall reflect the circumstances of the case and the needs of the interested parties.
If you are interested to read more about arbitration, we take the liberty to propose to read one of our latest posts on how COVID-19 has impacted the field of arbitration.
*Not intended as legal advice. **For more information: firstname.lastname@example.org