How to write an Arbitration Agreement

By Azeez Nazar Sabri

A valid “Arbitration Clause” is a prerequisite to invoke Arbitration under any Rules of the Arbitration, whether  it is Arbitration under Arbitration and Conciliation Act, 1996 ( amended in 2015) or under ICC Rules/ Singapore International Arbitration Rules/ Dubai International Arbitration Rules or London Court of International Arbitration Rules ( LCIA Rules).

Section 7 of the Arbitration and Conciliation Act, 1996 defines “Arbitration Agreement” as under:

1.  “Arbitration Agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

2. An Arbitration agreement may be in form of an arbitration clause in a contract or in the form of a separate agreement.

3. An arbitration Agreement shall be in writing.

4. An Arbitration agreement is in writing if it is contained in-

a) a document signed by the parties;

b) an exchange of letters, telex, telegram or other means of telecommunication which provide a record of the agreement; or

c) an exchange of statement of claim and defence in which the existence of the agreement is alleged by one party and not denied by other.

5. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make the arbitration clause part of the contract.

Under section 7 of Arbitration and Conciliation Amendment Act, 2015 an Arbitration Agreement containing in the form of communication through electronic means shall also be treated as an “ Arbitration Agreement”

Parties are free to agree on an arbitration agreement, they can refer all or any dispute to the arbitration. If the parties agree to refer only specific dispute (s) to the Arbitration then other disputes shall come under the category of exempted matter and can’t be referred to the Arbitration. Similarly, parties are free to agree on the number of Arbitrators, place of Arbitration, language of the Arbitration and cost of the Arbitration.

While drafting an Arbitration clause care must be taken to avoid any risk of ambiguity and there must be clarity regarding reference of the disputes, number of Arbitrators and their appointment, place of Arbitration and language of the Arbitration and Rules of the Arbitration. Unclear wording in the Arbitration clause will cause uncertainty and delay and can hinder dispute resolution process.      

Standard Arbitration Clause under ICC Arbitration Rules is as under:

“ All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules”

If parties wish to appoint Sole Arbitrator, they may agree to the appointing authority also failing which Sole Arbitrator will be appointed by the Court as per applicable Rules. In case of three Arbitrators, each party may appoint one Arbitrator and the third Arbitrator shall be appointed by the two Arbitrators so appointed by the parties, failing which the third Arbitrator shall be appointed as per applicable Arbitration Rules. Under ICC Arbitration Rules ICC Court will appoint third Arbitrator. In domestic Arbitration third Arbitrator shall be appointed by the Chief Justice or any person or institution designated by him. If parties fail to appoint their respective Arbitrator within a stipulated period under applicable rules the similar procedure will be applicable in those cases also.

Under ICC Arbitration parties can also agree to exclude any recourse to the Emergency Arbitrator, in that case following wording can be added;

The Emergency Arbitrator Provisions shall not apply.

Similarly, under ICC Rules parties can agree to include the expedited procedure clause as follows;

The Parties agree, pursuant to Article 30(2) (b) of the Rules of Arbitration of the International Chamber of Commerce, that the Expedited Procedure Rules shall apply irrespective of the amount in dispute.

Further, if the parties wish to adopt ADR system before invocation of the Arbitration they can add the same in the Arbitration Agreement. Parties should also clearly agree on the applicable law and jurisdiction of Court.

For further assistance feel free to write to azeez_nazar@rediffmail.com