Keep the Arbitration Agreement Simple and Precise

The International Arbitration Law Blog has a post on the recent US Court of Appeals’ decision in the case of Polimaster Ltd. v. Rae Systems, Inc. where the badly drafted arbitration agreement caused mayhem. The malefic arbitration clause read as follows:

“9.1 In case of the dispute between the Licensor and the Licensee on the issues provided for by the present Agreement the Parties shall take every effort for their settlement by negotiations.

9.2 In case of failure to settle the mentioned disputes by means of negotiations they should be settled by means of arbitration at the defendant’s side .”

The problem with this was that if counter-claims were raised, they had to be conducted in the “defendant’s site”, that is, the place of the original plaintiff (defendant for the purpose of the counter-claims). But the proceedings on the claims had to conducted in the original defendant's site. Needless. 

 

Apart from this, a look at Clause 9.2 above would show that there was no crystal clear intent to arbitrate. The clause speaks about negotiations! Beware when you draft the arbitration clause. Keep it straightforward and precise.

The judgement can be accessed from here.
The post at the International Arbitration Law Blog contains a brief summary of the case. The said summary can be accessed from here. 

For further readings, see here.