The arbitration clause you copied is going to cost you

Arbitration clauses are the last thing drafted and the first thing tested. They sit at the end of the agreement, under a heading nobody negotiates, and they are usually inherited from whatever document the drafter had open last.

Then a dispute arrives and the clause has to do actual work. Here is where the copied ones fail.

"Any dispute shall be referred to arbitration"

That sentence, alone, is a problem. It commits the parties to arbitration and tells them nothing about how to start one.

Arbitration is a creature of agreement. There is no registry that notices your dispute and assigns you an arbitrator. Somebody has to be appointed, and if the clause does not say who appoints them or how, the parties have to agree on a name at the exact moment they have stopped agreeing on anything.

What a workable clause names:

1. How many arbitrators. One is cheaper and faster. Three is more robust for a large dispute and roughly triples the cost.
2. Who appoints, if the parties cannot agree. A named institution or office that will make the appointment when asked. This is the single most valuable line in the clause.
3. The seat. Not the venue, the seat. See below.
4. The rules. A named set, so the procedure is settled before it is needed.

A clause with those four things works. A clause without the second one can be stalled indefinitely by whichever party benefits from delay, and there is always one.

The seat is not the venue

The seat is the legal home of the arbitration. It decides which country's courts supervise the process, which law governs the arbitration itself, and where an award can be challenged. The venue is just where people sit while hearing it.

They are frequently confused and the confusion is expensive. A clause that says "arbitration shall take place in Harare" might mean the seat is Zimbabwe, or it might mean a hearing room, and which of those was intended becomes a preliminary dispute that has to be resolved before the actual dispute can be heard.

Say seat, and say it separately from any convenience about where hearings are held.

Zimbabwe's arbitration statute follows the UNCITRAL Model Law, which is why a Zimbabwean seat is a workable choice and why an award made here travels reasonably well. That is worth knowing before agreeing to somebody else's seat by default.

Arbitration is not automatically cheaper

This is the expectation that causes the most disappointment. Arbitration avoids the court roll, which is where its speed advantage comes from. It does not avoid cost.

In court the state pays the judge. In arbitration the parties pay the arbitrator, at an hourly or daily rate, plus the venue, plus the transcription, plus the institution's fee where there is one, plus their own practitioners exactly as they would in court.

For a substantial commercial dispute that is still frequently worth it: a decided outcome in months rather than years has a value that is easy to underestimate. For a small debt it is not worth it at all, and a clause that sends every dispute of any size to arbitration will produce a claim where the process costs more than the amount in issue.

The fix is a threshold. Below a stated figure, the parties go to court or to a specified summary process. Above it, arbitration.

Getting the award enforced

An award is not self executing. The party that wins still has to have it recognised and turned into something enforceable, and the party that lost has a limited window and limited grounds on which to resist.

Those grounds are narrow by design and mostly procedural: that a party was not given proper notice, that the tribunal exceeded what it was asked to decide, that the composition of the tribunal did not follow the agreement. Note what is not on that list. Being wrong is not a ground. An arbitrator who reaches a conclusion a judge would not have reached has still made an award.

That is the trade. Finality is the point of arbitration and it is also its risk, and it is a good reason to spend more effort on who is appointed than on almost anything else in the clause.

What to do with the clause in front of you

Open the agreement you are working on and read the last page. If the arbitration clause is one sentence, it is not finished. Add the appointing authority, name the seat, name the rules, and put in a threshold so small disputes go somewhere proportionate.

Four lines, added while everybody is still on good terms, and they are the four lines you will be most grateful for on the day you are not.