What is an arbitration clause?

 

There are a number of standard clauses found in commercial contracts concluded between business entities. These clauses or group of clauses are known as ‘boilerplate’ clauses.

An example of such a boilerplate clause is an arbitration clause. An arbitration clause is inserted into a contract to ensure that if a dispute in relation to the contract arises, arbitration will be used to resolve the issue.

Call us if you would like an arbitration clause drafted into an agreement, or if you are in dispute over an existing arbitration clause, and we will recommend a specialist solicitor to assist you.

The use of arbitration clauses

An arbitration clause must be carefully drafted. It should clearly define what disputes should be resolved by arbitration. For example, you must consider:

  • Should arbitration be used to resolve all disputes that arise between parties
  • Should it be used to resolve just the ones arising out of that specific contract

An arbitration clause should designate a specific party to be the arbitrator. The arbitrator will be the person responsible for hearing the dispute and passing judgment. If you think the arbitrator may be biased, you should query this with the other party before signing the agreement.

However, if you have already signed the agreement you can still challenge the validity of the arbitration clause in court as long as you have solid grounds to do so. For example, if you are claiming that the arbitrator is biased, on what basis are you making this claim?

Why businesses use arbitration

Arbitration is used by many businesses as a way of approaching the settlement of disputes without needing to resort to court action. Such methods have developed in recent years, and are collectively referred to as alternative dispute resolution (ADR).

Arbitration is a form of ADR, used by those looking for a formal and decisive conclusion to a dispute. The main feature of arbitration is that all parties to a dispute must consent to its use. As a result, it can only benefit your business if the other party to the dispute is also receptive to arbitration.

For this reason, many commercial contracts and business transactions now specify the preferred method for the resolution of disputes relating to that agreement at the outset. Your commercial solicitor will be able to offer legal advice on the best way to incorporate an arbitration clause into the wording of your commercial contracts.

If you are considering entering into a commercial contract, consult your commercial solicitor for advice on drafting an arbitration clause. For more advice on using arbitration within the course of your business and why it's proving popular, see our information page on arbitration.

Are you in dispute over an arbitration clause or do you require an arbitration agreement or clause to be drafted for your business? Contact Law works with qualified public and international law experts who can help with any issues relating to the contract, and also arbitrators who can help with any dispute resolution that arises as a result of the arbitration clause or agreement. Please call us on 0800 1777 162 or complete the web-form above.

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