SIX THUMB RULES TO BEAR IN MIND BEFORE ENTERING AN ARBITRATION AGREEMENT

July 8, 2020by Admin0
six thumb rule

Arbitration is a legally binding private dispute resolution mechanism outside of courts. In arbitration, disputes are resolved by one or more arbitrators appointed by the parties through agreement.  Arbitrator is bound to issue a final binding decision after reviewing evidence and hearing arguments of the parties, much like a court process. Arbitration awards are final, subject to limited court review, and are fully enforceable like a court judgment.

Parties opting for arbitration as their preferred mode of dispute resolution are voluntarily waiving their basic right to access courts for dispute resolution.  Once arbitration is opted for, there are very limited grounds for approaching a court for redressal of grievance.  

Parties opt into arbitration mostly through pre-dispute contracts entered between them. Contracts usually provides for an Arbitration Clause / Agreement  which elects arbitration as the conclusive mode of dispute resolution, should there be a dispute between the contracting parties. Due to the conclusive nature of arbitration procedure, much care and caution needs to be exercised while drafting and entering into an arbitration clause / agreement. Disputes related to interpretation and validity of an arbitration agreement often arise and it is time consuming and expensive to resolve them. 

Below are some of the key considerations while opting for Arbitration.

While agreeing to an arbitration clause, parties should have clarity in mind regarding scope of the Arbitration Clause. Inclusion of an arbitration clause in a contract does not mean that all disputes automatically fall within the scope of Arbitration unless the arbitration clause is worded so. The wordings of the Arbitration Clause is very important. While interpreting an arbitration clause, court would give much importance to the specific words used. If parties wish to avoid certain specific dispute from the scope of the arbitration agreement, those exceptions have to be clearly set out; otherwise the general presumption would be in favour of non-fragmentation of dispute resolution processes. 

  • The Seat of arbitration and the Place of Arbitration

The distinction is important. “Seat of arbitration” refers to legal situs (which law applies to the arbitration) of the arbitration proceedings. “Place of arbitration” refers to the venue where the arbitration proceedings are conducted. The choice of the seat determines the procedural law of the arbitration and the influence of the Courts of the country where the seat is located. While choosing a particular country / state as the seat of arbitration parties should take in to account their arbitration law, national Courts and their support to arbitration, whether the country is a signatory to New York Convention etc.   

  • Institutional or Ad hoc Arbitration

Parties have a choice between Institutional and ad hoc arbitration for the conduct of their arbitration. There are several arbitral institutions across UAE such as Dubai International Arbitration Centre (DIAC), the Abu Dhabi Commercial Conciliation and Arbitration Centre (‘ADCCAC’), Dubai International Financial Centre – London Court of International Arbitration (DIFC-LCIA), International Chamber of Commerce (ICC), Sharjah International Commercial Arbitration Centre (Tahkeem), Ras Al Khaimah Centre for Reconciliation and Commercial Arbitration etc. These institutions have their own set of Arbitration Rules by which arbitration is conducted. These Rules address most important aspects of arbitration such as initiation of proceedings, appointment of arbitrators and conduct of hearings, fees of arbitrator and the like, making the arbitration process efficient and faster for the parties. These benefits are not available to parties choosing ad hoc arbitration. In ad hoc arbitration, parties decide the arbitration procedure in accordance with the provisions of the applicable arbitration act with the consensus of the arbitrator. Various considerations such as costs, flexibility, expertise of arbitrators, technicality of the matter under consideration etc play a role while deciding.

  • Governing Law of the arbitration clause

In cross border transactions, laws of different countries may be applicable over the same subject matter. For e.g. law governing of the subject matter, law governing of the arbitration procedure / seat of arbitration, law governing of the arbitration agreement and law of the place where the arbitration award is to be executed. Usually, arbitration agreement takes the form of an arbitration clause in a substantive contract. The presumption of law is that arbitration clause in itself is a valid and separate contract from that of the substantive contract. Therefore, arbitration clause will be held valid even when the parent contract is found not enforceable.  Arbitration clause can have a separate governing law than the governing law of the substantive contract and it is called the doctrine of separability. As a best practise, expressly stating the governing law of the arbitration agreement separately from the governing law of substantive contract will minimise the scope of disputes over validity of arbitration clause.

  • The number of arbitrators and their appointment

The parties are free to appoint as many arbitrators as they want. However, the rule is odd numbers. For disputes of smaller monetary value, single arbitrator would suffice, while for disputes entailing high value, three arbitrators are preferable. Having more than three arbitrators can prove to be more expensive for the parties and elongate the arbitration procedure. The parties should consider specifying not only number of arbitrators, but also their desired qualifications, experience, expertise, training, or language proficiency.

  • Language of Arbitration

The choice of the language is very important especially where parties to the arbitration, relevant witnesses and key documentary evidence are expected to be in different languages. Parties usually choose the language of arbitration based on the language of the contract or seat of arbitration. However, the parties are not restricted to confine their choice of language of arbitration based on any such factors. While selecting the language of arbitration, the parties must bear in mind the costs of translation and document transcription which can be immense, if parties are expecting disputes with voluminous documents. Another factor would be the impact of the choice of language on the available pool of arbitrators.

About ATB Legal

ATB Legal is a full-service legal consultancy in the UAE providing services in dispute resolution (DIFC Courts, ADGM Courts, mainland litigation management and Arbitrations), corporate and commercial matters, IP, business set up and UAE taxation. We also have a personal law department providing advice on marriage, divorce and wills & estate planning for expats. Please feel free to reach out to us at office@atblegal.com for a non-obligatory initial consultation.

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