Reading an arbitration clause before you sign it

An arbitration clause is usually the last clause negotiated and the first one that matters when a commercial relationship breaks down. Four terms in it carry most of the consequence.

The seat of arbitration determines which court supervises the proceedings. It is distinct from the venue, which is merely where hearings are held. Clauses that confuse the two produce preliminary litigation before the dispute itself is heard.

The number of arbitrators affects both cost and speed. A three-member tribunal for a modest claim can cost more than the claim is worth.

The scope of the clause decides what can be referred. A clause covering disputes "arising out of" the contract is read differently from one covering disputes "in connection with" it.

Finally, the appointment mechanism should be capable of operating when one party is uncooperative, since that is precisely when it will be needed.

This note is general information and is not legal advice.