Arbitration Provision
Contract Type:
NDA
Jurisdiction:
Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause. The number of arbitrators shall be one. The seat, or legal place, of arbitration shall be London, England. The language to be used in the arbitral proceedings shall be English. The parties agree that the arbitration agreement set out in this clause shall be governed by English law.
Explanation
This clause specifies that any disputes arising from the agreement will be resolved through arbitration rather than court proceedings. It establishes the rules and procedures to be followed for the arbitration.
In summary, the key points it sets out are:
1) Any dispute connected to the agreement will be settled through binding arbitration, including questions over the validity or termination of the contract itself.
2) The arbitration will follow the rules of the London Court of International Arbitration (LCIA). These rules are incorporated into the clause by reference.
3) There will be a single arbitrator.
4) The location or "seat" of the arbitration will be London, England. This establishes the procedural law that governs the arbitration proceedings.
5) The language used throughout the arbitration will be English.
6) English law will govern the arbitration agreement itself and how it is interpreted or applied.
The objectives of this type of clause are:
1) Providing for dispute resolution. It establishes a legally binding mechanism through which any disputes can be settled. Failure to specify a process could delay dispute resolution or make it difficult.
2) Choosing a preferred approach. The parties agree to arbitrate rather than litigate disputes in court, specifying the governing rules, administrators and other key details.
3) Certainty and efficiency. Specifying factors like the seat, language, number of arbitrators in advance creates predictability in the process should a dispute ever arise.
4) Severability. Expressly stating that the arbitration agreement can severable from the rest of the contract ensures it will remain valid and binding event if the contract itself is found invalid.
In summary, this clause establishes the agreement to resolve any contractual disputes through arbitration with certain specified terms already decided in advance by mutual choice of the parties. The level of detail aims to provide predictability, efficiency and certainty if the provision ever needs to be invoked.
Early contracts typically did not specify dispute resolution procedures. If disputes arose, they were resolved through litigation in court. Arbitration was less common historically.
As cross-border trade and commerce grew, litigation became problematic. Differences in legal systems and enforcement made resolving disputes through court difficult. Arbitration offered a solution.
Arbitration provides a neutral, alternative dispute process with a binding resolution, but allows the parties to specify key details. This flexibility and customization appealed to commercial parties.
Arbitration institutions and rules developed to facilitate the process. This included administering proceedings, suggesting standard clauses, and training arbitrators. Key institutions emerged and gained global standing, like the LCIA, ICC, and AAA.
Contract negotiation started focusing on specifying a customized arbitration agreement upfront. This included selecting preferred rules, seat, language, number of arbitrators and other details to suit the contract and parties.
Model arbitration laws and clauses also developed to provide a starting point for negotiations. Certain standards and norms developed within commercial sectors and industries.
Arbitration became widely used in high-value international commercial contracts. Provisions for legal severability of the clause also developed, so it would remain binding even if the wider contract was found invalid.
Today, arbitration clauses are very commonplace in commercial contracts. However, more complex agreements contain highly bespoke clauses to suit the specific circumstances. Litigation is typically a last resort, used only if a dispute is not arbitrable.
Arbitration clauses continue adapting to business needs. Changes include specifying types of disputes included (e.g. equitable relief), consolidating dispute resolution in multiparty contracts, and referencing latest institutional rules. But their purpose remains the same.
In summary, arbitration clauses emerged and gained widespread acceptance as commerce became increasingly globalized and complex. They provide a neutral dispute resolution process suited to international contracts where differences in legal systems can complicate litigation. Over time, significant standards and precedents developed but customization is also commonplace in line with parties' precise needs and commercial situations.
Their history is one of constant innovation and evolution, but at their core arbitration clauses still serve the same aims of stipulating a mutually agreeable dispute mechanism in advance.
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