International arbitration can provide the security of a neutral forum and a framework of enforcement treaties that is far superior to reliance on the other side’s home courts for resolving disputes in international transactions. But a poorly drafted arbitration clause can result in inefficient procedures at best and an unenforceable agreement at worst. This list identifies ten of the most important characteristics of an enforceable, functional dispute resolution clause.
1. Unambiguous agreement to submit to arbitration (“Any dispute or difference arising out of or relating to this agreement shall be finally resolved by arbitration …”).
2. Unambiguous definition of any exceptions to the agreement to arbitrate (if exceptions absolutely cannot be avoided).
3. If arbitration is to be preceded by negotiation or mediation, the time for commencing the arbitration must be unambiguously defined by reference to objective dates or events (“If no agreement has been reached within __ days of the delivery of written notice of the existence of a dispute, either party may serve a request for arbitration …”).
4. Accurate designation of the administering institution (if desired).
5. Designation of the applicable rules.
6. Specification of the site of the arbitration, carefully chosen for the quality of its arbitration jurisprudence and the respect of its courts for the arbitral process.
7. Specification of the number of arbitrators and the means of their selection.
8. Designation of the language of the proceeding.
9. If confidentiality of the proceeding, evidence and award is desired, an explicit provision to that effect that does not rely on assumed, and likely non-existent, provisions in the arbitral rules or applicable law.
10. Definition of any limitations on the power of the arbitrators, such as awarding punitive or consequential damages, injunctive relief, etc., and excluding the arbitrators’ power to alter such limitations.