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As a business owner, you will inevitably enter into complicated commercial contracts. When you draft a contract, one term you may include is an arbitration clause. This dispute resolution process will be in place to use for any future disputes. Your commercial contracts may be international contracts, which means you and the other company are in different jurisdictions. There are different types of arbitration clauses as the dispute resolution method. This article will explain the types of arbitration clauses that can be included in your international contract.
What is Arbitration?
Arbitration is a formal type of alternative dispute resolution (ADR) that you may choose to use for your commercial dispute. It is an alternative to court litigation but still follows specific rules and procedures.
Arbitration is where you and the other party appoint an arbitrator or a panel of arbitrators to resolve the commercial dispute. They will be experts in the type of dispute and may have industry knowledge. You are more likely to choose a panel of arbitrators rather than a sole arbitrator. Moreover, you and the opposing party will provide evidence for your argument, which an arbitrator will review. Following this arrangement, the arbitrator will make a formal binding decision on the disagreement.
What Type of Arbitration Clauses Can Be Included in an International Contract?
It is vital to your contract that your arbitration clause is well-drafted to avoid confusion and resolve your dispute effectively. It is also essential to know that there is no standard arbitration clause. Instead, arbitration clauses need to be written according to the circumstances of the commercial contract. If you have an international contract, there are several arbitration clauses, which are addressed below.
1. Basic Clauses
A basic arbitration clause is a clause that will include all the necessary provisions to allow an arbitration agreement to work. Basic arbitration clauses are commonly used.
2. General Clauses
Where the contract is a substantial commercial transaction, a general clause will likely be used. General clauses detail specific issues that are relevant to the potential arbitration and are particularly important where you and the other party are located in different countries. Details in a general clause may include:
- what venue the arbitration will take place in;
- the language to be used;
- applicable laws that will be applied; and
- whether negotiation and mediation need to take place before arbitration.
General clauses may also be relevant where the parties to the international contract want to ensure they follow institutional rules. For instance, an international chamber may set specific rules that the parties agree to adhere to.
3. Complex Clauses
Complex clauses for arbitration in international contracts will have many provisions within them. Some of these are likely to be different from what you may usually expect in an arbitration clause and not ones accepted by many. Complex arbitration clauses are difficult to draft. As such, it is essential to ensure they work with the jurisdiction’s legal framework in which arbitration will take place. Complex clauses may include additional terms such as:
- confidentiality issues;
- split clauses, which are clauses that address issues that should be determined by arbitration and which issues should be heard by a court;
- appeals, such as when these can be waived; and
- whether the contract can be approved and if gaps in it can be completed.
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Key Takeaways
If you form an international contract when carrying out your business activity, you may choose to include an arbitration clause. This means that you and the other party will try to resolve your dispute through arbitration. Arbitration is when an expert arbitrator or panel of arbitrators listen to your evidence and makes a legally binding decision on the dispute. If you include an arbitration clause, you must decide which type of arbitration clause to include.
If you need help understanding what types of arbitration clauses can be included in an international contract in the UK, LegalVision’s experienced disputes lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Contracts are legally binding agreements that contain the details of the business activity you and the other party carry out, such as the terms and conditions of your business together.
Arbitration is a form of alternative dispute resolution in which parties present their cases to an independent third party, the arbitrator. Depending on the complexity of the case, a panel of arbitrators rather than a sole arbitrator can be used.
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