Customized designs of arbitration clauses

An arbitration clause is often regarded as a “midnight clause” in a contract negotiation, and is thus disregarded. However, initiation of arbitration proceedings is only based on the agreement between both parties to submit the dispute to arbitration, namely the arbitration agreement. If arbitration clauses are not carefully considered in entering into a contract, and a dispute subsequently arises, parties to the contract will probably be in a passive position.

Generally, parties concerned may consider directly invoking model arbitration clauses provided by the arbitration agency. The validity of the model arbitration clauses under the laws of the country is ensured, as they are provided by the arbitration agency.

For example, the model arbitration clauses of Langfang Arbitration Commission (LAC) comply with the provisions of the Arbitration Law in relation to the validity of arbitration clauses: “Any dispute arising out of or in relation to the contract shall be submitted to Langfang Arbitration Commission for arbitration, which shall be conducted in accordance with its arbitration rules in force at the time of applying for arbitration; the arbitration award is final and binding upon both parties.”

However, if the parties directly use a model clause in signing a contract, the arbitration shall be conducted only in accordance with the standard proceedings under corresponding arbitration rules, rather than reasonably using special proceedings under relevant arbitration rules to the maximum extent to meet the needs of the parties in dispute resolution. A shrewd contract drafter will individually design arbitration clauses based on the model clauses, and in consideration of possible disputes and losses.

The significance of individualized design of arbitration clauses lies in enabling parties concerned to actively participate in the matters and proactively agree to contents in relation to arbitration proceedings prior to the occurrence of a dispute, and to sufficiently achieve their autonomy of will and strive for more procedural rights.

Designing an arbitration clause that meets the needs of parties concerned requires an understanding of the demands of the parties for dispute resolution by arbitration.

Expedited resolution for parties concerned

This can be achieved by three methods. First, applicable arbitration proceedings shall be specified in an arbitration clause. For example, under the existing arbitration rules of the LAC, summary proceedings that are applicable as agreed may be heard by an arbitration tribunal comprising one arbitrator, which enables the sole arbitrator to individually make decisions without spending too much time negotiating with other arbitrators.

In accordance with the arbitration rules of the LAC, the final award shall be made within four months in the case of ordinary proceedings, or 75 days in the case of summary proceedings, following the date of formation of the arbitration tribunal. In the arbitration practices of the LAC, arbitration awards have been made within 65 days in the case of ordinary proceedings, or 27 days in the case of summary proceedings, on average.

Second, a waiver of relevant time limits and procedural rights. For minor and simple disputes, parties concerned may choose to waive relevant proceedings so as to improve the efficiency of arbitration. In the arbitration practices of the LAC, a batch of cases have been closed within one day after case filing, through signing agreements for summary arbitration proceedings.

Third, arbitration clauses shall specify the service method, especially service by electronic means, which can help avoid spending time on transportation, thus greatly improving the efficiency of arbitration.

High-level resolution for parties concerned

The level of an arbitrator has a material impact on the whole arbitration proceedings and arbitration awards. In agreeing on the qualification of an arbitrator, the occupational background, working experience, age, nationality and other factors of the arbitrator may be taken into consideration. However, it should be noted that at present, as a general rule, arbitrators in China shall be selected only from the register of arbitrators provided by the arbitration agency, and thus an excessively draconian agreement may lead to difficulty in selecting arbitrators. In addition, the method of forming an arbitration tribunal may be agreed without regard to arbitration rules.

Saving costs for parties concerned

In terms of the whole arbitration proceedings, arbitration costs are the total of those borne by parties concerned. Considering that both parties concerned may assume liabilities, the most economical way is to reduce the total arbitration costs. For example, agreements on a hearing by one arbitrator, or a written hearing, may help reduce arbitration costs.

Parties concerned may agree on the place of a hearing, language to be used in the arbitration proceedings and otherwise in advance, or consider an online arbitration. For a simple case with clear facts, reducing evaluation procedures and the number of witnesses to be called at the hearings, by reasonably combing through evidence, will also significantly reduce arbitration costs.

Winning in arbitration proceedings

“Winning” is a relative concept. If a party can achieve its expectations to the maximum extent through arbitration proceedings, it is a winning party. This is superficially and mainly reflected in the support rate for an award. The arbitration award may be more likely to be close to expectations of the parties concerned, if they agree on the methods for calculating losses, interest and otherwise in as much detail as possible, as well as the costs arising out of the arbitration, and reasonably plan arbitration proceedings, make points through reasonably organizing evidence, engaging arbitration lawyers, and taking necessary measures to advance the proceedings, using arbitration rules.

In addition to the above-mentioned matters that may be agreed upon, the scope of arbitration in an arbitration clause may be taken into consideration. If a transaction is subject to multiple contracts, arbitration clauses of the contracts may be agreed, for consistency, to avoid jurisdictional objections. In an international arbitration, the selection of the seat of arbitration, and the validity and enforceability of an arbitration award, shall be additionally taken into consideration, such as whether an arbitration can be treated in an amicable manner in the seat of arbitration, whether the local legal system is able to provide sufficient judicial support for arbitration proceedings, whether there are special provisions on the validity of an arbitration agreement, and whether the seat of arbitration is located in a New York Convention state, etc.

Li Fei is the deputy division director at the business division at Langfang Arbitration Commission. She can be contacted on +86 0316 7018822 or by email at lifei@lfac.org.cn

Wang Gongjing is head of the international business division at Langfang Arbitration Commission. She can be contacted on +86 0316 2336102 or by email at wanggongjing@lfac.org.cn

Tang Minli, an associate at AllBright Law Offices, also contributed to this article