An agreement that the parties will “endeavour to first resolve the matter through Swiss arbitration” is not a binding agreement to refer disputes to arbitration.
In a recent decision the English High Court has considered whether the following clause constitutes a binding agreement to arbitrate disputes:
“In the event of any dispute between the parties pursuant to this Agreement, the parties will endeavour to first resolve the matter through Swiss arbitration. Should a resolution not be forthcoming the courts of England shall have non-exclusive jurisdiction”.
The court ruled that the above was not a binding arbitration agreement. The court interpreted the above clause as providing for two stages – (a) an attempt to agree a form of arbitration between them in Switzerland; and (b) failing that, the English court would have non-exclusive jurisdiction. The English court was reinforced in its view by the lack of provisions in the clause relating to issues such as the number and identity of arbitrators.
This decision provides useful guidance on the drafting of arbitration agreements.
In order to ensure that the arbitration agreement is valid and binding it must be in writing. When drafting arbitration agreements it is important to cover the following:
1. Clearly define scope of the arbitration agreement
The jurisdiction of the arbitral tribunal is dependent on the scope of the arbitration agreement. Therefore, the arbitration agreement should clearly identify the scope of the matters that are to be referred to arbitration and non-committal wording like “endeavouring to resolve matters through arbitration” should be avoided.
2. Seat of arbitration
In arbitration there is a distinction between the law that the arbitral tribunal will apply to determine the dispute and the law that governs the arbitral process. The governing law of the underlying agreement will be used to determine the dispute and the seat of the arbitration will determine the jurisdiction whose laws will be applicable to the arbitral process. As such identifying the seat of the arbitration is as important as identifying the governing law of the underlying agreement.
An arbitration agreement should also ideally cover the following:
1. Ad hoc arbitration or choice of arbitral institution whose rules apply
The parties can appoint an arbitral institution to administer the proceedings or simply state that the arbitration will be conducted in, for example, London – this would be an “ad hoc” arbitration. In “ad hoc” arbitrations it will be the laws of the location or the seat agreed by the parties that will be govern the arbitral process. On the other hand, most arbitral institutions have published rules regarding the conduct of the arbitrations. In the event that an arbitral institution is chosen, the institution’s rules are typically deemed to be incorporated into the arbitration agreement. As such, parties should ensure that they identify a suitable institution.
An alternative approach is to arbitrate disputes under tailored rules without the need for an institution, e.g. The United Nations Commission of International Trade Law’s (UNCITRAL) rules.
2. Number of arbitrators and method of choosing arbitrators
3. Language of arbitration
It is not mandatory to identify 2 and 3 above in an arbitration agreement because these are issues that can be determined by reference to either the laws of the seat of arbitration or the application of the rules of an arbitral institution chosen by the parties. However, identifying the number and method of choosing arbitrators and the language of arbitration in the arbitration agreement gives certainty and speeds up the arbitral process if and when a dispute does arise.
Finally, since the arbitration agreement is treated as an agreement that is separate from the underlying agreement to which it relates, consideration should be given to whether the governing law of the arbitration agreement should be identified too. This will be important if and when a dispute arises as to the validity and scope of the arbitration agreement. Typically it will not be necessary to identify the governing law of the arbitration agreement separately where the governing law of the underlying agreement and the seat of the arbitration are the same and the arbitration agreement is contained in the same document as the underlying agreement but where that is not the case the law governing the arbitration agreement should be identified separately.
Case reference: Christian Kruppa v Alessandro Benedetti & Anr  EWHC 1887 (Comm). Please click here for a copy of the judgment.