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Arbitral Clauses

Different Types of Defective Arbitral Clauses in the UAE

The term “pathological clauses” describes inadequate or poorly written arbitration provisions. Frederic Eisenman coined the concept in 1974, subsequently gaining popularity in international commercial arbitration. Defective arbitration clauses are infrequent. Defective Arbitral Clauses emerge when there is a flaw or inaccuracy in the contract or when the arbitration clause is being drafted.

Types of Defective Arbitral Clauses

Defective Arbitral Clauses may be of many distinct kinds:

  1. Invalidity

It is possible to discern substantive and procedural invalidity in the arbitration clause. The same factors render a contract unenforceable and constitute substantial grounds for invalidating an arbitration agreement. For Instance, issues with the expression of parties’ intention, a party’s incompetence, the invalidity of the content, and flaws in the structure of an arbitration clause. It must be proved concerning the arbitration clause, not the main contract. Only the arbitration agreements are specific in terms of procedural grounds.

  1. Inconsistency

Most national arbitrators and courts seek to interpret the arbitration clause when there is a glaring contradiction to determine if the parties’ intentions are clear to submit the issue to arbitration. The court could consider this kind of flaw when maintaining a provision that reflects the parties’ true purpose, even if it does not require arbitration. Instead, it specifies that the disagreement will be resolved via judicial proceedings rather than arbitration.

When the parties’ agreement to arbitrate conflicts and the name of a national court designated as having jurisdiction over such conflicts are included in the main contract’s dispute resolution clause, the arbitration clause is in conflict.

  1. Incapable

An arbitration clause is deemed ineffective when the parties do not explicitly state that arbitration is the method they intend to use to resolve their differences or in circumstances and matters. It is especially true if the parties are willing to resolve some of their disputes through arbitration and some of their disputes through court proceedings. It will be challenging to implement the arbitration in reality, even if it is still legitimate if any faults develop.

For InstanceAny dispute arising from this agreement will be resolved through arbitration. “The arbitration will be held in DIAC in Abu Dhabi.” When an arbitration clause lists the names of arbitrators, but one has already passed away by the time of the arbitration, or when the appointing authority or an arbitral institution chosen by the parties has ceased to exist, the arbitration clause cannot be enforced. There are many examples, such as the selection of an institution or a person as the appointing authority who is prohibited from acting in that capacity by its by-laws, and who is not required to act in that capacity and would prefer not to be involved in such matters.

  1. Inoperative

An arbitration agreement is ineffective when the parties’ intentions are apparent, but other external conditions render it so. For Instance, submitting the matter to the Local Court, the limitation period has expired, or the term for referring the matter to arbitration, as agreed by the parties in the agreement, has run out. The arbitration clause must be constructed using the standard clause and adding any additional pertinent material, as required by the institution or the applicable jurisdiction legislation, to prevent any errors.

  1. Incomplete arbitration clauses

In general, courts look for a clear desire to arbitrate. The arbitration clause must utilize required wording (such as “must” or “will”) to indicate the parties’ intention to submit conflicts to arbitration. The arbitration clause would be invalid if this weren’t the case.

  1. Referring to arbitrators who were not alive at the time of the dispute:

An arbitration clause may allow for the referral of a disagreement to an arbitrator, yet the arbitrator may be dead when the issue arises. It makes the arbitral clause defective.

Read More: Arbitration procedures and practice in UAE

Conclusion

Even the enforceability of the claim itself may be affected by how well the arbitration clause works. Parties could take care when drafting arbitration agreements to minimize or at least lessen these negative effects. There are several ways to avoid pathological clauses. Some of the popular techniques include the following:

  1. The regulations of arbitral organizations typically include a model arbitration clause. Given that these provisions are applicable anywhere around the globe, it is wise to employ them.
  2. The parties should be aware of the impact of their decision when selecting an arbitral institution on the arbitration procedures. In the absence of a conflicting agreement, the applicable arbitral rules can, for instance, provide for the appointment of three arbitrators.
  3. A minor value issue may not need the appointment of three arbitrators, which would result in exorbitant expenses and prolonged processes. The parties must carefully consider the selection of an arbitral seat, the arbitral institution, and other factors before they agree to an arbitration provision. 
  4. The arbitral panel may include required specifications that might be burdensome for one of the parties.

When writing a dispute resolution agreement or clause, the parties must consider the implications of their options in the arbitration clause with the arbitration Lawyer. Don’t hesitate to contact our professional Arbitration Lawyer at HHS Lawyers and Legal Consultants in Dubai for more information about the defective arbitral Clause.

Read More: Doctrine of Separability of Arbitration Clause under Arbitration Law

Hassan Humaid Al Suwaidi., LL.B. is a Senior Partner in HHS Lawyers. He has 20 years of experience dealing with high-value and complex cases. Frequently featured in local and international legal directories and commended for his ability to attain favorable outcomes for clients, Hassan has been involved in some of the largest legal settlements. A major part of his work is providing expert legal advice on UAE legislation and acting for individuals and businesses during disputes and litigation. Read more