Disputes
Five common mistakes when drafting an arbitration clause
Arbitration clauses are often added at the end of a contract, at the most tired moment of the negotiation. Yet when a dispute arises, it is the first clause anyone reads. Under the Code of Civil Procedure an arbitration agreement must be in writing, but being in writing is not enough on its own. These are the five mistakes we see most often.
1. Unclear intent
Wording such as “disputes shall be resolved by arbitration or by the courts” does not show that the parties truly excluded state courts. The validity of the clause becomes contestable, and months can be spent on jurisdiction before the merits are reached.
2. No institution or rules
The clause should state whether arbitration is institutional or ad hoc and, if institutional, whose rules apply. Model clauses from the Istanbul Arbitration Centre, the Istanbul Chamber of Commerce Arbitration and Mediation Centre or the ICC are a good starting point.
3. Seat and language left open
The seat determines which procedural law applies and where an annulment action is filed. The language directly affects cost, from translating evidence to conducting hearings. Disputes with a foreign element fall under the International Arbitration Law No. 4686.
4. Forgetting the number of arbitrators
If the parties have not agreed on the number, three arbitrators are appointed. For relatively small disputes, a three-member tribunal can make arbitration more expensive than litigation. Providing for a sole arbitrator below a certain amount can be a good solution.
5. Non-arbitrable matters
Disputes over rights in rem in immovable property and matters not subject to the parties’ free will cannot be arbitrated. Special rules also apply to lease, employment and consumer relationships. A general clause covering the whole contract may not work as expected for these matters.
If a lawsuit is filed
If the other side sues in court despite the clause, the arbitration objection must be raised as a preliminary objection together with the statement of defence. An objection not raised in time is not heard, and even a well-drafted clause can be rendered ineffective.
Sources
This publication provides general information and does not replace legal advice on a specific matter.