CH-D Wirtschaft 2/2025 International arbitration - Stumbling blocks in contract drafting
In international business transactions, many companies specifically opt for arbitration. It offers confidentiality, flexibility, and often advantages in terms of international enforceability. Careful contract drafting is essential to ensure that these advantages actually come into play in the event of a dispute. Particular attention should be paid to the arbitration clause. Contradictions, ambiguities, or gaps can lead to significant delays or even prevent proceedings altogether. This article highlights key stumbling blocks in the drafting of arbitration agreements in cross-border contracts.
Unclear or incorrect arbitration clauses
A common stumbling block is the so-called pathological arbitration clause. This refers to provisions that are unclear, contradictory, or incomplete and therefore lead to discussions about the composition or jurisdiction of the arbitral tribunal in the event of a dispute. Practical examples show that dispute resolution clauses often sound more convincing to laypersons than they actually are in terms of content:
The contract of an international consortium contained the following arbitration clause: "Swiss law shall apply exclusively to this contract. The place of jurisdiction is Meilen. Disputes between the partners concerning this contract shall be settled by an arbitral tribunal, excluding the ordinary courts where possible (...)."
The combination of state jurisdiction ("place of jurisdiction Meilen") and arbitration ("exclusion of the ordinary courts in favor of an arbitral tribunal") led the Federal Supreme Court to rule that there was no valid arbitration agreement in this specific case. As a result, after lengthy procedural disputes, the parties were referred to the ordinary courts.
In addition to the combination of state courts and arbitral tribunals, it also happens that the arbitration is missing or imprecisely designated, for example with formulations such as "Arbitration in Switzerland." In addition, there may be contradictory information regarding the arbitral institution or the number of arbitrators. Such clauses lead to additional clarification requirements or even to preliminary questions before the arbitral tribunal or court, which impairs the efficiency and speed of arbitration and thus the resolution of the dispute.
Practical tip: Use proven model arbitration clauses from recognized institutions, such as those of the Swiss Arbitration Center (Swiss Rules), the German Institution of Arbitration (DIS Rules), or the International Chamber of Commerce (ICC Rules). These clauses are available on the Internet and can be downloaded free of charge. So-called ad hoc arbitration proceedings, i.e., proceedings without any connection to an arbitration institution, are generally not recommended.
Choosing the arbitration institution: More than a mere formality
Whether ICC, DIS, Swiss Arbitration Centre, or another institution—the choice of arbitration institution shapes the entire proceedings. All institutions provide structure, clear rules, and administrative support. In the German-Swiss context, the question often arises: Should a German institution (e.g., DIS), a Swiss institution (e.g., Swiss Arbitration Centre), or rather an institution based in another country, such as the ICC in Paris, be chosen? All sets of rules provide a good basis, but differ in details – for example, in terms of costs or the role of the institution in appointing arbitrators.
Practical tip: Choose the arbitration institution with particular consideration of the contract language, the nationality and structure of the contracting parties, the anticipated amount in dispute, and the parties' familiarity with the respective rules.
How do I fill in the placeholders in the model arbitration clause?
If you have agreed on an arbitration institution with your contractual partner, the respective model arbitration clauses usually provide placeholders for the following information:
- Place of arbitration;
- Number of arbitrators;
- Language of the proceedings;
- In some cases: choice of applicable substantive law.
The following sections discuss the individual elements of an arbitration clause, with a particular focus on what to look out for.
Place of arbitration: A small decision with big consequences
The place of arbitration or seat of the arbitral tribunal is often misunderstood and underestimated. It does not determine the physical location of the hearing, but rather specifies which national law (the so-called lex arbitri) applies to the arbitration proceedings. Among other things, the lex arbitri regulates the extent to which state courts support the proceedings or whether and how an arbitral award can be challenged in a state court. In addition, the lex arbitri determines which formal and substantive requirements must be met in order for an arbitration agreement to be valid.
Practical tip: Choose the place of arbitration carefully. Clarify how arbitration-friendly the underlying state law is and what requirements must be met for a valid arbitration clause.
Composition of the arbitral tribunal: one or three persons?
The decision on the number of arbitrators has a significant impact on the duration, costs, and quality of the proceedings. While one person is sufficient for smaller claims, it is advisable to appoint a three-member arbitral tribunal for complex or large-volume disputes, not least in order to broaden the basis for decision-making. The rules of arbitration institutions take this into account by providing for an expedited procedure for smaller disputes, which is conducted by a single arbitrator.
Practical tip: Specify in the arbitration clause how many arbitrators are to be appointed. Consider the amount in dispute that would justify a three-member panel.
Language of the proceedings: An underestimated cost factor
In the event of a dispute, the lack of a provision governing the language of the proceedings can complicate the proceedings and make them more expensive. If nothing has been agreed and there is disagreement between the parties, the arbitral tribunal usually decides on the language of the proceedings, which can be disadvantageous for one party. Translation costs, communication problems, or strategic disadvantages are possible consequences.
Practical tip: Clearly specify the language of the proceedings in the arbitration clause.
Explicit choice of applicable substantive law
Some mandatory arbitration clauses stipulate that the substantive law applicable to the contract must also be determined. This is less a question of arbitration proceedings and more an important clarification of which law will be used to decide the dispute. If contracts do not contain an explicit provision on the applicable substantive law, this can lead to complex and lengthy preliminary issues in the event of a dispute.
Practical tip: Supplement the arbitration clause with a clear choice of law so that it is clear which law applies to any potential disputes.
Combination with mediation: Care with escalation clauses
Another option is to combine arbitration with mediation or other alternative dispute resolution procedures. Such multi-stage or escalation clauses can be useful, provided they are clearly structured and legally binding. Unclear deadlines, vague terms, or a lack of binding force, on the other hand, often lead to disputes. In the worst case, this can block the proceedings.
Practical tip: Clearly define which steps are to be taken in which order and whether they are to be mandatory or optional.
Conclusion: Arbitration clauses require attention – be careful with copy-paste
Careful drafting of the arbitration clause is not a minor issue, but an essential part of international contracts. Individually negotiated or "homemade" arbitration clauses often lead to problems. It is therefore recommended to follow the proven model arbitration clauses of recognized arbitration institutions. These are tried and tested in practice and efficient. Deviations are possible, but should only be made in justified exceptional cases and after sound legal advice.
