Burning The Boiler Plate - Drafting An Effective Arbitration Clause

John is an in house counsel for a large Chinese company working on a cross border transaction with a Qatari company. It is 11:30pm on a Thursday night and John has to prepare the final draft of the contract for the Managing Director who is due to sign it with the counter party in Doha the following day. John gets to the dispute resolution clause at the end of the contract which provides for disputes to be referred to the Qatari Courts. John is not quite comfortable with this and decides arbitration would be better. Short on time, John uses a "boiler plate" arbitration clause the company has used in previous contracts in Qatar which simply provides for disputes to be referred to "arbitration in Doha".

Sound familiar?

While it is tempting to use a boiler plate arbitration clause, when it comes to arbitration, that can be a dangerous practice. In the example cited above, if a dispute arose between the parties, the boiler plate clause would mean the dispute would have to be referred to ad hoc arbitration in Doha administered by the Qatari Courts. This will potentially give rise to all sorts of issues over the enforceability of the clause, the procedural rules to be adopted for the arbitration and the enforceability of the award itself. Issues might also arise in arranging visas for counsel, witnesses and the tribunal members, not to mention the cost flying all of these people to Doha.

In this article, we look at the elements of an arbitration clause, what factors should be considered when drafting an arbitration clause and give five "top tips" on how to draft an effective clause.

Components of an arbitration clause

In order to draft an effective arbitration clause, it is important to have an understanding of the following concepts:

1. Institutional and ad hoc arbitration

   There are two types of arbitration the parties can choose from to resolve any disputes under their contract - institutional or ad hoc. Institutional arbitration is simply an arbitration that is administered by a recognized arbitral institution such as International Commercial Court (ICC), the Singapore International Arbitration Centre (SIAC) and the China International Economic and Trade Arbitration Commission (CIETAC). These institutions have their own rules and are responsible for arranging the appointment of the arbitral tribunal and the administration of the arbitration.

   Ad hoc arbitration refers to arbitration that is not administered by an institution and requires the parties to make their own arrangements for the selection of the arbitral tribunal.

2. Arbitral tribunal

   In most arbitrations, the arbitral tribunal will comprise of either one or three arbitrators. Where the parties have agreed on institutional arbitration, the rules of the institution will usually contain default provisions governing the number of arbitrators in the event the parties have not covered this in the contract and cannot agree.

3. Procedural rules

   Most arbitral institutions issue rules governing the appointment of the tribunal and the procedure for the arbitration. In many cases the procedural rules will give the tribunal a wide discretion to determine the manner and timing of the various procedural steps in the arbitration such as the...