Arbitration clause: how to draft it in a contract

The Center’s model clause

Wording for a sole arbitrator:

“All disputes, disagreements or claims arising out of this contract or in connection with it, including those relating to its breach, termination or invalidity, shall be subject to final resolution by the Arbitration Center of the National Chamber of Entrepreneurs of the Republic of Kazakhstan “Atameken” in accordance with its Rules in effect.

The arbitral tribunal shall consist of one arbitrator.

The seat of arbitration shall be ______ (specify the city).

The language of the arbitration shall be ______ (specify the language).

This contract shall be governed by the substantive law of ______ (specify the country).”

For a panel of three arbitrators, write in the second line: “The arbitral tribunal shall consist of three arbitrators.”

Wording for a contract with a state company

If the counterparty is a state body, a state enterprise or a company in which the state directly or indirectly holds 50% or more of the voting shares, the arbitration agreement must contain the consent of the authorized body of the relevant sector or of the local executive body. Without it, the arbitral tribunal has no right to hear the dispute. The state company usually prepares and justifies the consent wording itself. A sample line:

“Consent to the conclusion of this arbitration agreement has been obtained from ______ (name of the authorized body) by letter dated __.__.____ No. ____.”

The state company sends the request for consent itself, and the body replies within 15 calendar days. If both parties are state bodies or belong to the quasi-public sector, the dispute cannot be referred to arbitration even with consent.

Wording with a pre-claim procedure

Many companies want to try to reach an agreement first. In that case, a written claim requirement is placed before the model clause:

“Before referring a dispute to arbitration, a party shall send the other party a written claim. If the dispute is not settled within ___ calendar days from the date of receipt of the claim, it shall be referred for resolution in accordance with the arbitration clause.”

It is better to set a specific period, usually 15 or 30 days. A vague “the parties shall take measures to settle the dispute through negotiations” with no time limit gives the respondent grounds to argue that the claimant came to arbitration too early.

Types of arbitration clauses

By who hears the dispute:

• an institutional clause names a permanent arbitral institution, and the dispute is heard under its rules. The Center’s model clause is of this type;
• an ad hoc clause, for arbitration of a specific dispute: the parties form the tribunal themselves and agree on the rules. Such a clause has to be drafted in much more detail.

By form: a clause within the contract or a separate arbitration agreement, including one for a dispute that has already arisen.

By structure:

• a multi-tier clause: first a written claim or negotiations, then arbitration;
• an alternative clause, in which the claimant chooses between arbitration and a court or between several arbitral institutions. The Law does not expressly prohibit it, and the arbitral tribunal may accept the claim. But once the award is made, the respondent may challenge it on the ground that the tribunal lacked jurisdiction, and the outcome will depend on the court. It is therefore safer to name a single arbitral institution.

If there is no clause

The dispute will go to a state court under the general rules of jurisdiction: open hearings, appeal, cassation. For a foreign counterparty, it also means a dispute in a foreign country’s court under that country’s rules. The parties can switch to arbitration even after the dispute has been brought before a state court: to do so, they conclude an arbitration agreement before the court renders its decision.

What the clause must contain

1. The exact name of the arbitral institution: Arbitration Center of the National Chamber of Entrepreneurs of the Republic of Kazakhstan “Atameken”, without abbreviations. The first mistake below shows why this matters.
2. The scope of disputes. The wording “all disputes, disagreements or claims arising out of the contract or in connection with it” also covers disputes over termination and invalidity of the contract.
3. Finality. The word “final” confirms that the award is not reviewed on the merits.

It is better to specify the number of arbitrators, the seat, the language and the applicable law right away. If they are missing, the gap is filled by the Center’s Rules: the dispute will be heard by three arbitrators, and the arbitral tribunal will determine the language and the seat. The Rules automatically become part of the clause, in the edition in force on the date the claim is filed.

Common mistakes

A name resembling another arbitral institution. “Arbitration Court of Astana”, “Astana Arbitration”, “Court of Arbitration at the NCE”. Kazakhstan has private arbitral institutions with similar names, and such wording may send the dispute to a different institution or open a dispute about which one was meant.

Two options to choose from. “Disputes shall be heard in arbitration or in the court at the claimant’s location.” The arbitral tribunal may accept such a claim, but the respondent may later challenge the award, citing the tribunal’s lack of jurisdiction. The clause itself becomes the subject of a dispute.

A contract of adhesion or a loan to an individual. In such contracts, a clause signed in advance is invalid. More on the arbitration agreement page.

A state company without consent. A clause without the consent of the authorized body will not allow the dispute to be heard in arbitration.

Foreign trade contract

With a foreign company, discuss three things. The language of the proceedings: Russian, Kazakh, English or another. Note that the claim is filed in Kazakh or Russian (if the parties have chosen English, the proceedings are conducted in English), and documents not in the language of the proceedings are submitted with a notarized translation. The applicable law: name a state, and the arbitral tribunal will apply its substantive rules, not its conflict-of-laws rules. The seat of arbitration: the city where the award is legally made; hearings can still be held online.

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