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Sample arbitration clause

Project: Sample arbitration clause

This is a sample arbitration clause which can be used in an ad hoc arbitration. The advantage of this clause is that:
  1. It imposes a cap on the arbitrator’s fees that the parties are willing to bear.
  2. It imposes pre-qualifications for the arbitrators – parties will also be able to appoint an arbitrator who, they believe, is able to appreciate the nuances of their dispute, because they have the ability to choose an arbitrator who is familiar with their industry.
  3. In case of default by the parties, a court will find it easier to appoint an arbitrator who is acceptable and affordable for the parties, due to the specified pre-qualifications.
  4. It imposes time limits on the constitution of the tribunal, issue of final award. Costs are imposed on a defaulting party for delays, so that disputes are decided quickly.
However, this clause does not provide for negotiation. In many commercial situations, negotiation provisions are not useful and used by the parties to delay resolution of the dispute by the tribunal. However, if the parties desire, they may add a provision allowing them to settle disputes by a 30-day negotiation period, failing which the arbitration provisions will kick-in.
Note that this clause also does not provide for an arbitral institution to oversee the process - institutional arbitration can be fairly standardized, professional and convenient for the parties.

Refer to the study materials for a sample institutional arbitration clause.

12.1 Any and all dispute/difference between [Party 1] and the [Party 2] including in relation to interpretation of this agreement shall be mandatorily referred to arbitration by a sole arbitrator. In case the parties are unable to agree upon a sole arbitrator within 15 days of the written notice of dispute being received by the other party, the dispute shall be decided by an arbitral tribunal comprising three members, with one arbitrator appointed by each Party, and the two appointees jointly selecting the third arbitrator. The process of appointment of the tribunal shall be completed within 1 month of the written notice being received by the other party.

12.2 The arbitrator shall be [insert qualifications – for example, a law graduate with experience of providing transactional advice in a corporate law firm of at least 3 years]. The fee for a single arbitrator shall be capped at INR 15,000, and that for a 3-member panel shall be capped at INR 30,000.

12.4 The Arbitrators shall not be limited by the Code of Civil Procedure, 1908 and the Indian Evidence Act and shall be free to chart out the procedure to be followed in arbitration.

12.5 Final award must be passed by the arbitrators within 60 days of the appointment of the sole arbitrator or the constitution of the tribunal, as the case may be.

12.6 The proceedings of arbitration and the award shall be made in English. In case of delays, the arbitrator shall have the power to award costs against the defaulting party. 

12.7 The venue of proceedings shall be in [insert place] and the arbitration shall be subject to The Arbitration & Conciliation Act, 1996 and rules framed thereunder and under the exclusive jurisdiction of the courts at [insert place].

12.8 The fees payable to the arbitrators (excluding any costs imposed for delay, but including arbitrator fees and costs but excluding any filing fee payable by a Party commencing the arbitration) shall be borne equally by the Parties.

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