Arbitration clauses; arbitration institute or ad hoc arbitration?

Once it is decided to go for arbitration, the parties should decide to submit to ad hoc arbitration or choose an appropriate arbitration institute. And in the last case, as is strongly recommended, which arbitration institute to choose?

If the potential disputes under a contract are likely to be ‘simple’ or capable of being resolved relatively easily, it could be perfectly fine to provide for ad hoc arbitration. In that case, the arbitration law of the place of arbitration will determine how the arbiter or arbitral tribunal will be appointed, unless the parties have provided for their own appointment mechanism. But in most cases, it is unlikely to be that simple of easy.

Which arbitration institute to choose? #

Normally, the parties will agree on an arbitration institute to administer their arbitration. Which arbitration institute should be chosen? Arguments of particular expertise or location of the institute’s principal office, as well as a link with the applicable law, might influence the choice.

A contract drafter will encounter competition amongst the major arbitration institutes: ICC, AAA, LCIA, the Stockholm or the Swiss chambers of commerce, the NAI, CEDR, ‘Singapore’ or CIETAC each have their particular benefits. It may be helpful if you establish a contracting policy as regards the arbitration institute you appoint when the agreement ‘moves out of your jurisdiction’. Although the differences between the main arbitration institutes fades, historically, some aspects may have coloured their reputation:

• Often, for contracts with a link to Eastern Europe or Russia, arbitration is sought under the rules of the Stockholm Chambers of Commerce.
• ICC has the reputation of being expensive but an arbitral award will likely not be voidable as this is specifically double-checked as part of the ICC arbitration procedure, and the ICC is at least clear about the costs, which is not necessarily the case for other arbitration institutes.
• Sometimes, for Asian parties, arbitration under the Singapore SIAC rules may be preferred.
• In China, it may well be that you end up litigating under the rules of the CIETAC (China International Economic and Trade Arbitration Commission).
• Note that NAI is a highly respected international institute, due to a long tradition of well-known arbitrators.
• But there are similar arguments in favour of LCIA, its competitor in London.
• In the U.S., one would often choose either the ICC or ICDR (International Centre for Dispute Resolution), the international division of the AAA (pronounced: ‘triple A’).
• Finally, especially in connection with mediation, CEDR administers arbitrations.

Which arbitration clause? After choosing an arbitration institute, it is strongly recommended that you include the model arbitration clause of the elected institute in the contract. When you switch from arbitration institute during contract negotiations, the arbitration clause should be amended according to the agreed institute’s model clause. The background of this is that arguments about the meaning or scope of an arbitration clauses has typically been tested in the past, and the arbitration institute will likely have ‘off-the-shelf answers’ to arguments questioning their model clause.

Points of attention in drafting an arbitration clause #

All model arbitration clauses provide for some options. Normally, it is advisable to include them:

1. You should agree on a place of arbitration. Although the arbitration rules will provide for a solution, identifying a venue improves the enforceability of an arbitral award. Although the arbitral proceedings would normally be held in the chosen city, this is not a must (the parties may always agree on other places). You should know that all arbitral institutes will allow you to compromise on any place of arbitration.
2. You may agree on the number of arbiters that the tribunal should consist of. Many arbitration laws require that this must be an odd number (one or three).
3. Be aware that in the absence of a choice of law clause the arbitral tribunal may sometimes be entitled to “decide ex aequo et bono“. This depends on the applicable arbitration law, which is that of the jurisdiction of the place of arbitration. Since virtually all arbitration laws are highly flexible, there is no need to explicitly stipulate that another arbitration law applies. Parties might, however, desire to determine that the arbitral tribunal “shall decide in accordance with the rules of law” or “as amiable compositeurs“.
4. You may want to provide a customised mechanism for appointment of the arbitral tribunal. Each arbitration institute has its own rules, but all institutes require that the arbitral tribunal is independent from both parties (even though the parties might have nominated their own ‘representatives’ on the tribunal).
5. Most arbitration institutes provide for adequate access to summary proceedings and provisional measures. If not, the applicable arbitration law will probably allow for it. Nevertheless, you might exceptionally want to say something about such a possibility.