What Are Model Arbitration Clauses?

A model arbitration clause is a template or standard form of arbitration agreement that provides a clear and concise framework for resolving disputes through arbitration. These clauses are commonly used in commercial contracts to specify the procedures, rules, and venue for arbitration in the event of a dispute. By incorporating a model arbitration clause, parties can avoid ambiguity in their agreements and ensure that arbitration will be conducted efficiently and in accordance with international best practices. Model clauses can be used for both institutional (e.g., ICC, LCIA) and ad-hoc arbitration (e.g., UNCITRAL).

Key Elements of Model Arbitration Clauses

A well-drafted model arbitration clause should include several key elements to ensure that the arbitration process is effective, enforceable, and meets the parties’ needs. These elements are:

Scope of the Arbitration Agreement

The clause should clearly define the types of disputes that will be subject to arbitration. This can include:

• Contractual disputes (e.g., breach of contract)
• Non-contractual disputes (e.g., tort claims, intellectual property issues)

The scope should ensure that both current and potential disputes are covered, avoiding future confusion about whether an issue falls under the agreement.

Example:
Any dispute, controversy, or claim arising out of or relating to this Agreement, including any question regarding its existence, validity, interpretation, breach, or termination, shall be resolved by arbitration.

Arbitration Rules

The clause should specify the set of rules that will govern the arbitration. These can be from an established arbitration institution or a set of agreed procedural rules. The two main types of arbitration are:

• Institutional Arbitration: Governed by the rules of an established arbitration institution (e.g., ICC Rules, LCIA Rules, SIAC Rules).
• Ad-Hoc Arbitration: Governed by a set of rules chosen by the parties, such as the UNCITRAL Arbitration Rules.

Example:
The arbitration shall be conducted in accordance with the ICC Rules of Arbitration.

Seat of Arbitration (Venue)

The seat of arbitration is the legal jurisdiction in which the arbitration is conducted. It determines the procedural law that applies to the arbitration and plays a key role in the enforcement of the arbitral award. The seat can be different from the place of the actual hearings.

Example:
The seat of arbitration shall be London, United Kingdom.

Appointment of Arbitrators

The clause should specify how the arbitrators will be appointed. This can include:

• The number of arbitrators (usually one or three)
• The method of their appointment (e.g., by mutual agreement, by an institution, or by courts)

Example:
The arbitration tribunal shall consist of three arbitrators, one appointed by each party and the third by the two appointed arbitrators.

Language of Arbitration

The language in which the arbitration will be conducted should be clearly stated. This ensures that all parties are clear on the official language of proceedings, reducing the possibility of miscommunication during hearings and documentation.

Example:
The language of the arbitration shall be English.

Governing Law

This refers to the law that will govern the arbitration process and the substantive issues in dispute. It’s often the law of the seat of arbitration, but it can be any law agreed by the parties.

Example:
The substantive law governing the Agreement shall be Indian law.

Arbitration Procedure and Time Limits

While the clause may not need to specify every detail of the arbitration procedure, it is often helpful to include provisions related to timelines or the appointment of arbitrators. Parties can also specify whether expedited procedures should apply.

Example:
The arbitration proceedings shall be completed within six months from the appointment of the tribunal.

Confidentiality

Arbitration is often preferred for its privacy. Including a confidentiality clause ensures that the proceedings, documents, and awards remain confidential, unless disclosure is required by law.

Example:
The parties agree that the arbitration proceedings and any award made shall be confidential.

Enforceability of the Award

A key advantage of arbitration is the enforceability of the award under international conventions, like the New York Convention. The clause should specify that any arbitral award will be final and binding on the parties, and enforceable in the relevant jurisdictions.

Example:
The parties agree that any award rendered by the arbitral tribunal shall be final, binding, and enforceable under the New York Convention.

Examples of Model Arbitration Clauses

Institutional Arbitration Model Clause:

Any dispute arising out of or in connection with this Agreement shall be settled by arbitration in accordance with the Rules of the International Chamber of Commerce (ICC). The seat of arbitration shall be Paris, France. The arbitration shall be conducted in the English language, and the arbitration panel shall consist of three arbitrators. The governing law of the Agreement shall be the laws of France.

Ad-Hoc Arbitration Model Clause (UNCITRAL Rules):

Any dispute, controversy, or claim arising out of or in connection with this Agreement shall be resolved by arbitration in accordance with the UNCITRAL Arbitration Rules. The seat of arbitration shall be Singapore. The arbitration shall be conducted in the English language. The tribunal shall consist of three arbitrators, and the governing law shall be Indian law.

Simplified Model Clause for Smaller Contracts:

Any dispute under this Agreement shall be referred to and finally resolved by arbitration under the Indian Arbitration and Conciliation Act, 1996. The seat of arbitration shall be New Delhi, India, and the arbitration shall be conducted in English.

Why Are Model Arbitration Clauses Important?

Clarity and Certainty

A model clause ensures that the parties’ intention to arbitrate is clearly expressed and helps prevent future disputes over the validity of the arbitration agreement. By specifying the rules, venue, and procedures, the clause removes ambiguity that could hinder the process.

Enforceability

By including standard, internationally recognized arbitration rules and agreeing to a specific seat of arbitration, the enforceability of the arbitral award is enhanced. This is particularly important in cross-border disputes where international treaties (like the New York Convention) may apply.

Saves Time and Effort

Model arbitration clauses streamline the process of drafting contracts by providing a starting point that parties can adapt to their needs. This reduces the time and effort spent negotiating arbitration terms.

Efficiency in Dispute Resolution

These clauses set the foundation for resolving disputes outside of the court system, which can be time-consuming and costly. Arbitration is often faster, more flexible, and more confidential than court proceedings.

Example Scenario:

A multinational corporation (Corporation A) based in the USA enters into a supply agreement with a company (Company B) based in India. They agree to include an arbitration clause based on the ICC Rules.

The model arbitration clause specifies that any disputes will be settled under ICC Rules in Paris, in English, with a three-member tribunal.

When a dispute arises regarding the delivery of goods, the clause ensures that both parties will have a clear, predictable process to follow. The seat of arbitration (Paris) is chosen to ensure neutrality, and the use of ICC Rules helps the parties to avoid procedural ambiguity.

Conclusion:

Model arbitration clauses provide an essential framework for resolving disputes efficiently, fairly, and predictably. By including critical elements like the rules, seat, and language of arbitration, these clauses help reduce the likelihood of confusion or legal challenges. Parties to a contract can use model clauses to ensure that arbitration is a viable and effective dispute resolution mechanism, whether for domestic or international disputes.