Originally from Arbitration of International Disputes in New York

PREVIEW

Arbitration is a consensual recourse mechanism or remedy; its legitimacy is based on consent expressed by the parties.  The parties’ arbitration agreement represents a central aspect of arbitration because it provides both the basis and the extent of the parties’ consent to the jurisdiction or mandate of an arbitral tribunal charged with adjudicating a dispute or claim submitted to it.  It constitutes the primary source of arbitral jurisdiction: an arbitral tribunal derives its authority and legitimacy from the parties’ arbitration agreement. The arbitration agreement sets the arbitral process in motion. As a result of the contractual freedom that contracting parties enjoy, arbitration agreements come in many varieties and differ in form and length, as is highlighted in chapter 11 of this book. The FAA requires the existence of a valid, written agreement to arbitrate a dispute or claim.  This agreement in writing may be a separate, stand-alone agreement concluded between the parties after a dispute has arisen between them (commonly referred to as a “submission agreement” or, in French, compromis), or it may take the form of a compromissory clause contained in a private law contract between the parties expressing a prospective, or future-oriented, consent to arbitration (the terms “arbitration agreement” and “arbitration clause” are used interchangeably in this book).  While this constitutes the only formal requirement under the FAA, the importance of the writing requirement lies in the fact that implicit submission in principle is not recognized as a way of establishing arbitral jurisdiction. 

Given that the arbitration agreement expresses the consent of the parties and defines the scope, or outer limits, of the mandate entrusted to the arbitral tribunal in a given case, the dangers of a poorly drafted agreement to arbitrate are apparent.  A poorly drafted agreement may legally preclude arbitral jurisdiction altogether in a situation where parties prefer international arbitration over conventional litigation before the courts of a certain jurisdiction. At the very least, it likely will lead to court challenges and added legal fees, which defeats the purpose of selecting arbitration as the preferred method for dispute resolution. At the outset, the parties should investigate any mandatory or formal requirements that might affect the parties’ agreement to arbitrate future disputes under the legal regimes potentially applicable to their arbitration, including: (i) the national law of the jurisdiction from which each party originates (such law may have a bearing on the capacity or ability of the parties to enter into an arbitration agreement); (ii) the arbitration law of the formal seat, or place, of the arbitration (the lex arbitri; such law may govern the existence of the arbitral tribunal, the proceedings conducted by it, and possibly set-aside proceedings); and (iii) the law of each jurisdiction where enforcement of the arbitral award may be sought by the prevailing party (e.g., where assets of the losing party, or award debtor, are located).