Arbitration has emerged as an increasingly popular method of dispute resolution, particularly in commercial transactions and international disputes. This article aims to provide a comparative study of two key concepts in arbitration law: the arbitration clause and the arbitration agreement. While they may seem identical at first glance, there are significant differences between them, alongside a few noteworthy similarities.
We begin our discussion by defining these two concepts. An arbitration clause (also known as a ‘Scott v Avery clause’ in some jurisdictions) is a provision within a larger contract where parties agree to settle any future disputes through arbitration, rather than resorting to litigation in court. Conversely, an Arbitration Agreement is a separate, independent contract where parties agree to resolve their existing or future disputes by arbitration.
A fundamental similarity between the two is their shared purpose: to offer an alternative to the traditional court litigation process. Both the arbitration clause and agreement embrace the major benefits of arbitration, which include speed, privacy, flexibility, and a binding resolution that can be easily enforced both nationally and internationally.
Turning our attention to the differences, the primary distinction lies in their placement and existence within the legal framework. An arbitration clause is part of a broader contract, usually incorporated during the negotiation phase. In this setup, the parties anticipate and agree on how to resolve potential disputes that might arise during the execution of the contract.
In contrast, the arbitration agreement can be entered into either before a dispute arises or afterwards. It exists as a standalone agreement, dedicated solely to the resolution of disputes. Such an agreement is typically utilised when there’s a need for more detailed procedures, or when parties fail to insert an arbitration clause in their contract but later decide to arbitrate.
Both the arbitration agreement and the clause receive treaty-based recognition under the New York Convention of 1958, a pivotal multilateral treaty that promotes the recognition and enforcement of arbitral awards. However, the arbitration clause is somewhat dependent on the main contract’s legality. Should the primary contract become void, the arbitration clause may also be invalidated. Nonetheless, some jurisdictions recognize the ‘doctrine of separability’, which allows the arbitration clause to stand autonomously from the main contract. (The ‘doctrine of separability’ will be further analysed and discussed in future articles).
The arbitration agreement, on the other hand, is independent. Even if other agreements within the parties’ relationship are deemed void, the arbitration agreement remains intact, enabling dispute resolution to proceed.
Another distinguishing factor lies in the flexibility each offers. While the arbitration clause is generally succinct, the arbitration agreement allows for a more detailed outline of the process, appointment of arbitrators, and other specific elements concerning dispute resolution.
The choice between including an arbitration clause or signing an independent arbitration agreement depends on the nature of the commercial relation, potential risk perception, and the intricacies of procedural rules. It’s crucial to understand that, although these tools differ in approach, they share the same goal: to provide an effective, efficient, and equitable dispute resolution process. The suitability of each hinges on various factors; therefore, it’s always essential to seek tailored legal advice when considering incorporating an arbitration mechanism in a transaction or relationship.
In conclusion, possessing a clear understanding of these arbitration tools is paramount for parties aiming to safeguard their rights and interests within the complex domain of arbitration law.
