10 May Drafting Effective Arbitration Agreements [2005] 1 MLJ i-xcvi

Arbitration is the process by which a dispute or difference between two or more parties as to their mutual legal rights and liabilities is referred to and determined judicially and with binding effect by the application of law by one or more persons (the arbitral tribunal) instead of a court of law. 1

The purpose of the parties choosing arbitration, as against litigation, is that they expect a hand-picked expert tribunal to be able to resolve their dispute more proficiently, economically and expeditiously than the court. As compared to litigation, arbitration still is more rapid and less expensive. It provides for confidentiality of arbitral proceedings and neutrality of the forum. In international commerce, arbitral awards are generally more enforceable than municipal court decisions under the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards.

The primary objective of having an arbitration clause in a contract is to ensure that when a controversy arises between parties, neither one is able to avoid arbitration. There can be no arbitration at all without an effective and valid arbitration clause. The arbitration agreement is the keystone which leads to arbitration as no dispute can be decided by arbitration without it. All too often, arbitrators, arbitral institutions and the courts are called upon to consider whether a contractual clause endows jurisdiction on arbitrators to decide the dispute between them.

In such circumstances, the key question is whether the clause is in fact and in law a valid arbitration agreement with issues like the existence, validity, effectiveness, and scope of the arbitration clause being examined in great detail. The scope of the arbitration agreement is pivotal to the success of the arbitral process as it empowers parties to agree on a number of matters which deal with future disputes.