Effective resolution requires valid arbitration clauses

Arbitration and litigation are popular methods of resolving commercial disputes, but the parties usually need to choose one of the two. Effective arbitration clauses within commercial agreements between parties are the premise and basis for dispute resolution by arbitration, which can exclude the jurisdiction of courts. Here, based upon the arbitration cases represented, the authors will explain how to draft valid arbitration clauses in the commercial agreements.

Validity

Valid arbitration clauses should include the following three aspects: i) parties’ manifest intent to submit their matter for arbitration, which should be real, definite, equitable and voluntary. Clauses that go against the parties’ real intent are invalid; ii) matters for arbitration should be legitimate and mutually agreed. The matters should also be within the boundaries of the law and the arbitration clauses; iii) the arbitration committee should be expressly chosen. In case the arbitration clauses do not provide for the arbitration committee, or do so in a vague way, and there is no supplementary agreement afterwards in this regard, the arbitration clauses should be invalid.

Drafting the clauses

Each arbitration institution has its own model arbitration clauses, which can be referred to by the parties in their commercial agreements. For example, the model clauses in the Hong Kong International Arbitration Centre’s (HKIAC) administered arbitration rules stipulate that parties who intend to resolve prospective disputes by arbitration in accordance with the rules can incorporate the following arbitration clause in their contracts: Any dispute, controversy or claim arising out of or relating to this contract, including the validity, invalidity, breach or termination thereof, shall be settled by arbitration in Hong Kong under the HKIAC administered arbitration rules in force when the Notice of Arbitration is submitted in accordance with these rules. As is shown, the valid arbitration clauses should have clear and definite stipulations regarding the above-mentioned three aspects.

Ma Jiangtao is a senior partner and Bi Jianwei is a senior associate at Dacheng Law Offices in Beijing. They can be contacted on +86 10 5813 7799 or 5813 7675 respectively, or by email at jiangtao.ma@dachenglaw.com or jianwei.bi@dachenglaw.com respectively.