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Factors to be considered before entering an arbitration agreement
How does arbitration differ from other methods of dispute resolution?
Arbitration shares some of the traits of litigation and mediation but has features that are distinct from both. Similar to litigation, the award made by the tribunal in the arbitration is binding on the parties. However, unlike going to court, the process is usually less formal and is confidential. AlthougFactorah mediation is informal, it requires both parties to reach an agreed settlement rather than having a decision imposed on them; this means that subject to an award being challenged in court, there is greater finality to the arbitration process.
The first step in any arbitration is the drafting of an appropriate arbitration agreement. This usually begins when the underlying contract is negotiated. Careful thought needs to be given to the form of the arbitration agreement. It is important to carefully consider what is included in the arbitration agreement because getting it wrong can be extremely costly. Some of the main factors to consider are listed below. Some will be more relevant to individual circumstances than others and there may be additional factors that are relevant to the particular circumstances of each contract. It is always advisable to seek legal advice when drafting arbitration agreements.
Considerations:
1) Is arbitration the most suitable form of dispute resolution, bearing in mind the nature of the contract?
2.) Do the parties want to refer all disputes arising out of the contract to arbitration or only certain types of disputes?
3.)Where do the parties want the ‘seat’ of the arbitration to be? This is important because the seat of the arbitration will also mean that the laws of that jurisdiction will apply to the arbitration’s procedure. Some jurisdictions do not have laws (or courts) that adequately support effective arbitration.
4.)In what language do the parties want the arbitration proceedings to be conducted?
5.) How many parties will be involved? If there are more than two, then a multi-party arbitration clause may be necessary.
6.)In multi-party scenarios, consideration must be given to whether the tribunal should be provided with a specific power to consolidate connected arbitrations and/ or join additional parties to the arbitration.
- Arbitration
- Arbitration: Different from other forms of dispute resolution
- Factors to be considered before entering an arbitration agreement
