Once the contract is signed and the project is underway, a clause that was meant to protect the business may end up becoming one of the main bottlenecks in the relationship.
In the infrastructure and construction sectors, arbitration is often an attractive alternative when technical expertise and speed in dispute resolution are desired. The problem is that an imprecise drafting of the arbitration clause can end up hindering the process even before the arbitration begins.
In practice, some mistakes appear more frequently. Here are four of them:
Empty or incomplete clause
Simply mentioning “arbitration” without defining the institution, number of arbitrators, seat, or applicable rules leaves everything open, generating unnecessary disputes over the procedure and causing delays.
Incompatibility among related contracts
Large projects involve multiple contracts. If each instrument provides for a different arbitral institution or set of rules, you may end up with parallel and conflicting arbitrations concerning the same economic transaction, multiplying costs and the risk of contradictory decisions.
Overly rigid procedures through the Civil Procedure Code
Many companies, out of caution or excessive concern, include in the arbitration clause a requirement to strictly follow the Civil Procedure Code. In arbitration, this can be a “self-inflicted setback.” By importing the rigidity of state court procedures, you may undermine the flexibility and speed that justified choosing arbitration in the first place. The result? A proceeding that is neither as agile nor as practical as expected.
Failure to tailor the clause to the contract
Copying generic templates without considering the type of dispute or the sector involved may render the clause ineffective, particularly in complex relationships that require specific rules.
A well-structured arbitration clause functions as a true risk management tool for your contract!
