Arbitration clauses that survive contact with a real dispute

Almost every arbitration clause I have litigated was drafted in the final hours of a negotiation, by people who were tired and who believed, sincerely, that it would never be used. That belief is usually correct. When it is wrong, the clause becomes the most consequential paragraph in the contract, and its defects are no longer academic.

The failures are repetitive. Across two decades of appearing in these proceedings, the same four drafting decisions account for most of the time and cost spent arguing about how a dispute should be resolved rather than resolving it.

The seat is a legal choice, not a location

Parties routinely select a seat because it is convenient for travel, or because it is where one of them is based, or because it appeared in the last contract someone copied. The seat determines which court supervises the arbitration, what grounds exist to challenge an award, and what interim relief is available before a tribunal is constituted.

Choosing a seat whose courts are slow to grant interim relief will not matter in most disputes. In the dispute where assets are moving, it will be the only thing that matters. That risk should be assessed when the contract is signed, at no cost, rather than discovered later at considerable cost.

Multi-tier clauses need a defined exit

Escalation provisions — negotiate, then mediate, then arbitrate — are sensible and frequently unenforceable as drafted, because they specify what must happen without specifying when it has been satisfied.

A clause requiring the parties to "negotiate in good faith" before commencing arbitration, with no period attached, invites a jurisdictional objection that will be argued for months. The fix is a fixed period running from a written notice, with an express statement that expiry of the period satisfies the condition regardless of whether the parties met.

Consolidation should be decided in advance

Where a project involves several contracts between overlapping parties — a construction contract, a supply agreement, a guarantee — a dispute rarely stays inside one of them. If the clauses are not compatible, the parties will litigate the same facts in parallel proceedings before different tribunals, with the possibility of inconsistent findings.

Aligning the institution, the seat, and the number of arbitrators across the contract suite costs nothing at drafting. Retrofitting it costs a year.

Confidentiality is not automatic

Parties routinely assume arbitration is confidential. Depending on the seat and the institution, it may be only partly confidential, or confidential as to the hearing but not the existence of the proceeding, or subject to disclosure obligations that override any of it.

If confidentiality is genuinely important — and for a regulated client, it usually is — it should be an express term addressing what is confidential, who may receive it, and what happens when a regulator asks.

A short test

Before signing, read the dispute resolution clause as though a dispute has already arisen and you are the party in the weaker position. Ask what you would argue about first.

If you can identify an argument within a minute, so can the other side's counsel, and the clause should be redrafted while it is still cheap to do so.