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  • SIX THUMB RULES TO BEAR IN MIND BEFORE ENTERING AN INTERNATIONAL ARBITRATION AGREEMENT

    • 17-Nov-2020

    Arbitration is the new litigation. International Commercial Arbitration is one of the preferred modes of formal dispute settlement in cross border business transactions due to its enforceability and procedural flexibility. It is the quick, practical, and economical way to settle cross border disputes between the contracting parties.

    Since it is not unusual for the laws of more than one Country to apply in an International Commercial Arbitration, the International Commercial Arbitration Agreement (Arbitration Agreement) requires careful drafting which otherwise result in undesirable delay in resolution of the dispute escalating cost and expenses.  It is always advisable to consult a skilled legal professional to draft an Arbitration Agreement to avoid a pre-litigation to establish the validity of the arbitration agreement without which the expected efficiency benefits of arbitration will not be manifested.

    The discussion below deals with the core or fundamental provisions to be incorporated in an Arbitration Agreement.

    1. Scope of the Arbitration Agreement

    One of the priority thoughts the contracting parties should have in mind is regarding the scope of the Arbitration Agreement. The Arbitration Agreement should be clear on if the all the disputes are arbitrable or only some specific dispute/s. The best way to eliminate such confusions would be to adopt a standard Clause from any of the Internationally recognized Arbitration Institutions such as Dubai International Arbitration Centre (DIAC) or Dubai International Financial Centre – London Court of International Arbitration DIFC-LCIA arbitration centre or the like.   

     

    1. The Seat of arbitration/ Place of arbitration

    Choosing seat of arbitration is another fundamental consideration in drafting Arbitration Agreement. The seat of the arbitration should not be confused with the venue or the physical location of arbitration proceedings. The choice of the seat determines the procedural law of the arbitration and the influence of the Courts of the Country where the seat is located. The parties should take in to account the approach of the Courts towards arbitration before choosing the seat. The value of Court’s involvement in expediting arbitration is inevitable to achieve the desired results. The parties can also consider using Arbitration Institution Rules to reduce the impact of the procedural law of the country where  the seat is located.

     

    1. Institutional or Ad hoc Arbitration:

    Parties have a choice between Institutional and ad hoc arbitration for the conduct of their arbitration. There are several arbitral institutions across the world such as Dubai International Arbitration Centre (DIAC), Dubai International Financial Centre – London Court of International Arbitration (DIFC-LCIA), International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), Singapore International Arbitration Centre (SIAC) etc. These institutions have their own set of Rules by which arbitration is conducted. The said Rules addressess the most important aspects of arbitration such as initiation of proceedings, appointment of arbitrators and conduct of hearings, fees of arbitrator and the like making the arbitration process easier for the parties. Such benefits are not available to parties choosing an ad hoc arbitration wherein they must depend entirely on the domestic arbitration legislation for the resolution of dispute. Therefore, parties are encouraged to incorporate an appropriate clause regarding Institutional arbitration.

     

    1. Governing Law

    In cross border transactions, laws from different legal systems may govern different aspects of the transaction. Therefore, the governing law of the Arbitration Agreement may be different from the governing law of the underlying contract. This is known as the ‘Separability Doctrine’. To avoid such ambiguities the Arbitration Agreement should specify the law governing the Arbitration Agreement. As a best practise, expressly stating the governing law of the arbitration agreement separately from the governing law of main contract will minimise the scope of disputes in court to secure interim measures.

     

    1. The number of arbitrators and their appointment

    The parties are free to appoint as many arbitrators as they want. For disputes of smaller monetary value, even one arbitrator would suffice, while for disputes entailing high value, having three arbitrators is preferable. Having more than three arbitrators can prove to be more expensive for the parties and elongate the arbitration. The parties should specify not only the number of arbitrators, but also the desired qualifications of the arbitrators including experience, expertise, training, nationality or language proficiency.

     

    1. Language of Arbitration:

    The choice of the language is important especially where the parties to the arbitration, relevant witnesses and key documentary evidence are expected to be in different languages. Parties usually choose the language of arbitration based on the language of the contract or the choice of the seat of arbitration. However, the parties are not restricted to confine their choice of language of arbitration based on any such factors. While selecting the language of arbitration, the parties must bear in mind the costs of translation and document transcription which can be immense, provided parties are expecting disputes with voluminous documents. Another factor would be the impact of the choice of language of the arbitration on the available pool of arbitrators.  

    When it comes to an International Arbitration, the parties should consider the judicial and political environment and government policies before choosing the seat/place of arbitration. Though there are several International Arbitration Institutions around the world, the ever-dynamic UAE would assume a lot of significance. The establishment of DIFC-LCIA Arbitration centre has a lot of advantages for the parties such as expeditiously securing an interim order, execution of final award and recognition of common law and English language for arbitration which creates comfort and favourable environment for the parties. The enactment of Federal Arbitration Act, 2018 by UAE undoubtedly brings the arbitration in UAE in line with global arbitration practise. Federal Arbitration Act, 2018, having based upon UNCITRAL Model Law confirms the application of well-established procedures adopted into law in more than 100 jurisdictions.