How to make an effective Arbitration Agreement

A lucid and effectual arbitration agreement is crucial for the success of any arbitral proceedings where a well-drafted arbitration clause won’t be a guarantee of success; but a faulty one will be the cause of yearly proceedings, dissipated costs and a fruitless award. Before impending on to how to draft an arbitration agreement, one needs to know…

What an arbitration agreement actually is?

It is a contract which is drafted when two or more parties are of the same opinion of settling a dispute outside the court which can be about the execution of a specific contract, a faulty product and a claim of illegal or unfair treatment in the workplace along with various other issues.

This agreement can be as simple as a provision in a contract which states the unison of the arbitration in case of any future friction. People are free to use arbitration regarding anything that they could settle, otherwise via legal proceedings.

Being in want for a prompt, economical and Volant dispute resolution procedure which is aided by the developing technology of the country and various economic liberalization policies, lead to the changes in the arbitration act which has been now brought into force with the hope of making India a preferred seat of arbitration because of the dampening of the old resolution system for the small and medium scale businesses who are in a fight with the large companies, business or firms.

To make the above mentioned system happen, the following points should be taken into consideration while drafting arbitration clause in a particular agreement

1. Scope of the clause

In this point, the boundary for the friction for which the panel has been approved is set. Lucidity is essential as the solution made for the issues that do not fall in the scope of the clause will become fruitless. Hence, it is advisable to cast the net vast to make sure that the clause borders the broadest viable ranges of disputes.

2. Choice of rules

There is no such mention of as to which rules should be used and which should not be used but with the help of the non institutional rules which are tried and tested , the parties need not meet settle the expenses of the secretariat and to bear the proceedings in the most systematic manner.

3. The number and qualification of the arbitrators

The larger the dispute, the composition of the tribunal will be small, say a maximum 3 members. The appointment of a sole arbitrator is a wise decision for an obvious reason which is in order to be cost effective.

The qualification of the arbitrator is of utmost importance as there will be disputes arising from various fields and hence the arbitrator needs to have proper knowledge regarding the various aspects of the respective fields in order to provide fruitful solutions.

4. Choice of venue

This is the most important point of all to be added in the clause. It includes the geographical location for the proceedings to be carried out along with law of the proceedings.

Other clauses

Phrases like ‘Disputes under the contract’ should not be used as they signify the enlarging of the scope of disputes where the term used should be ‘Disputes arising out of the contract’ which signifies only the scope of disputes.

By keeping these following points in mind while drafting the arbitration agreement, an effective agreement can be easily made which can to a certain point prove beneficial for both the parties.

Related Articles