Arbitration clauses are often inserted into contracts as boilerplate language, yet they can significantly affect the outcome and efficiency of dispute resolution. Poorly drafted clauses can lead to confusion, delays, and even unenforceable awards. This blog explores best practices for drafting effective arbitration clauses tailored to Kenyan and international contexts.
1. Importance of an Arbitration Clause An arbitration clause determines whether disputes arising from a contract will be resolved through arbitration and sets the framework for how that arbitration will occur.
2. Common Mistakes in Arbitration Clauses
- Vague or incomplete terms
- Omitting the seat or venue of arbitration
- Failing to specify the rules or institution
- Ambiguity in scope of disputes covered
3. Essential Elements of a Solid Arbitration Clause
- Seat of Arbitration: Jurisdiction whose laws govern the arbitration process.
- Governing Law: Law applicable to the contract.
- Arbitration Rules: E.g., UNCITRAL, NCIA, or CIArb rules.
- Number and Method of Appointing Arbitrators
- Language of Proceedings
- Scope of Disputes
4. Sample Model Clause “This agreement shall be governed by the laws of Kenya. Any dispute arising out of or in connection with this contract shall be referred to and finally resolved by arbitration under the NCIA Rules, which rules are deemed to be incorporated by reference into this clause. The seat of arbitration shall be Nairobi, Kenya. The language of the arbitration shall be English. The number of arbitrators shall be one.”
5. Customizing Clauses to Fit Specific Contracts
- International Contracts: Include provisions for cross-border enforceability.
- Complex Projects: Consider multi-tiered clauses (e.g., negotiation → mediation → arbitration).
- Industry-Specific Needs: Choose arbitrators with sector expertise.
6. Enforceability and Legal Considerations The clause must not contravene any mandatory laws and should be consistent with the Kenyan Arbitration Act and international conventions.
7. Role of Legal Counsel Legal experts ensure the clause aligns with your interests, minimizes risk, and is enforceable in relevant jurisdictions.
8. Frequently Asked Questions
- What if the arbitration clause is missing? Courts may assume jurisdiction.
- Can arbitration be used for all types of disputes? Most, but not all (e.g., criminal).
- Is online arbitration valid? Yes, if agreed upon and recognized by applicable rules.
9. Arbitration Clause Review Checklist
- Clear identification of parties
- Chosen arbitration institution/rules
- Defined scope of arbitration
- Appointment process of arbitrator(s)
- Seat and governing law
- Language and procedural rules
Conclusion A well-drafted arbitration clause is a critical risk management tool. Businesses should treat it as a strategic component of their contracts, not an afterthought. By applying best practices and seeking expert legal guidance, you can ensure smoother, more predictable dispute resolution outcomes.