DRAFTING OF ARBITRATION CLAUSES: PROBLEMS AND COMMON MISTAKES

Abstract

The arbitration clause is often infused in the contract at the last minute as the parties celebrate the conclusion of their negotiations. Usually little more than an afterthought, it deserves considerably more attention from a meticulous legal practitioner. Because the arbitration clause can become highly indispensable down the road if the parties’ relationship deteriorates, legal practitioners arbitration have recognized that the clause should be shaped in a thoughtful and careful way to the transaction and the parties’ needs for an economical and efficient dispute resolution process. The opportunity to do this is before the heat of battle, that is, during the drafting of the contract. The arbitration clause/agreement plays a vital role in the governance of arbitration. Where parties enter into contractual agreement, especially agreement of international nature, they are availed of inherent freedom to craft arbitration clauses/agreement based on the universal principle of the contracting parties’ autonomy, hence, ‘freedom of contract, therefore, it is at the very fulcrum of how the law regulates arbitration. What the contracting parties do provide in their agreement generally becomes the controlling law.’1 Drafting of Arbitration Clauses especially in contracts can be quite daunting. A small mistake in drafting an arbitration clause, for example, can result in unnecessary costs and delays before arbitration or even a court battle over the interpretation of such arbitration clause. This is because arbitration clause is more often than not, intricately interwoven into the contract yet they remain a distinct and separate form of agreement from the main contract. This work therefore, looks at what arbitration clause/agreement entails and the problems associated with drafting arbitration clauses/agreements; at what point can it be said that agreement to arbitrate is valid; and whether the agreement—by its terms—applies to the type of controversy at issue between the parties etc. To achieve this, reliance will be placed on some key arbitral institutions that set International standard frameworks for arbitration rules as well as our domestic rule, the Arbitration and Conciliation Act Cap A18 Laws of the Federation of Nigeria, 2004. By way of consolidation, the work will draw conclusion based on the knowledge gained from the literature. For ease of clarity, the phrase arbitration clause and arbitration agreement may be used interchangeably where necessary while keeping the meaning within the acceptable limit.