The Risks of Drafting "Bad" Arbitration Clauses
- arbitrationblog
- Aug 20
- 6 min read

Arbitration is frequently lauded as a quicker, more confidential, and economical substitute for litigation.
But what happens when the very clause intended to simplify dispute resolution becomes the base of a dispute, delay, spiraling costs?
Arbitration clauses are frequently hidden at the conclusion of contracts, overlooked carefully in the rush to close deals. However, when conflicts occur, these clauses become crucial, and all parties will realize that each word within this clause holds significant importance and effect. Consequently, it must be drafted with great care.
If the arbitration clause is defective, it may result in misunderstandings, postponements, derail entire proceedings before they even begin, and potentially causing the invalidation of the entire dispute resolution procedure.
Such clauses are referred to as funny arbitration clauses, faulty arbitration clauses, bad arbitration clauses, or midnight conditions as they are drafted at the end of drafting the major clauses of contract, and their occurrence is more frequent and seen in practice more than one might expect.
What Makes an Arbitration Clause “Bad”?
A bad arbitration clause is more than a mere drafting mistake it constitutes a legal pitfall.
In practice common problems include:
• Ambiguous Language: The use of "may" instead of "shall" makes arbitration a matter of choice rather than compulsory.
For instance, if the arbitration clause is drafted as follow:
"Any dispute arising between the Parties in relation to this contract may be resolved through Arbitration upon a request made by either party. The Request must include a clarified claim.”
The Arbitration procedures is optional in this case, and that will create a dispute about the arbitration clause itself, if one of the parties’ resorts to State Courts and the other one resort to arbitration proceedings.
• Contradictory Clause: Incorporating both arbitration and court jurisdiction leads to uncertainty regarding the designated method of dispute resolution.
For instance, if the arbitration clause is drafted as follow:
"Any dispute arising between the Parties in relation to this contract shall be resolved through Arbitration and Courts.”
or
"Any dispute arising between the Parties in relation to this contract shall be resolved through Arbitration and then State Courts.”
The Arbitration procedures is optional in this case, and that will create a dispute about the arbitration clause itself, if one of the parties’ resorts to State Courts and the other one resort to arbitration proceedings.
• Non-Existent Arbitration Rules or Institutions: Referring to arbitral rules or arbitral bodies that don’t exist will create a dispute about the arbitration clause itself.
For instance, if the arbitration clause is drafted as follow:
"Any dispute arising between the Parties in relation to this contract shall be resolved through Arbitration according to Amsterdam Rules of Arbitration.”
or
"Any dispute arising between the Parties in relation to this contract shall be resolved through Arbitration according to Amsterdam Center of Arbitration.”
There are no Amsterdam Rules of Arbitration, nor is there an Amsterdam Center of Arbitration. As a result, a dispute shall arise concerning the arbitration clause itself.
• Specifying the Arbitrator name in the arbitration clause: Designating arbitrators who are deceased or incapable to act as arbitrators.
For instance, if the arbitration clause is drafted as follow:
"Any dispute arising between the Parties in relation to this contract shall be resolved through Arbitration by one arbitrator namely Mr. AAAA”.
If Mr. AAAA is deceased or has become unable to serve as a neutral Arbitrator due to new circumstances happened after the drafting of contract creates a conflict of interest, a dispute will consequently arise regarding the arbitration clause itself.
Another instance, if the arbitration clause is drafted as follow:
"Any dispute arising between the Parties in relation to this contract shall be resolved through Arbitration by one arbitrator ICC rules of arbitration are applied.”
The intentions of the parties regarding the application of the ICC rules are unclear. It is uncertain whether they intend to apply these rules without registering the case with the ICC Centre for administration by the ICC, or if the arbitrator will apply the ICC rules without such registration. Consequently, a dispute shall arise concerning the arbitration clause itself.
• Undefined or Conflicting Seat of Arbitration: The "seat" establishes the legal framework of the arbitration agreement (the Arbitration clause), so If it is ambiguous, Arbitrators and State Courts may struggle to enforce the clause.
For instance, if the arbitration clause is drafted as follow:
“Any dispute arising between the Parties in relation to this contract shall be resolved through Arbitration by one arbitrator according to UNCITRAL Rules, English language, and the venue is in Paris, France”
Distinguishing Between Seat and Venue: These terms are not interchangeable. The seat determines the governing law, while the venue simply indicates the physical location. Therefore, if the venue is referenced in the arbitration clause instead of the seat, it shall lead to a basis for dispute.
Another example of bad drafting arbitration clause:
“Any dispute arising between the Parties in relation to this contract shall be resolved through Arbitration by one arbitrator according to UNCITRAL Rules, English language, and the seat is in London”
It is unclear what they mean by referring to London as a seat; do they refer to London city in the United Kingdom or London city in Ontario in Canada?
Consequently, it is important to mention the country not only the name of the city.
Hints for Drafting Arbitration Clauses
A well-crafted arbitration clause is more than just boilerplate it can determine the efficiency, cost, and outcome of dispute resolution. Poor drafting can lead to uncertainty, delays, or even unenforceability. Here are some key considerations:
Recognize the Clause’s Strategic Importance
Never underestimate the power of an arbitration clause. It can shape your legal destiny when disputes arise. The clarity and precision of this clause often determine whether arbitration proceeds smoothly or becomes another battleground.
Ensure Mutual and Clear Intent
The clause must unambiguously express the parties’ agreement to arbitrate and exclude the option of litigating disputes in court. Avoid vague or conditional language that could cast doubt on the binding nature of the agreement.
Use Mandatory Language
Words matter. Phrases such as “shall be resolved by arbitration” are binding and enforceable, whereas “may be referred to arbitration” could be interpreted as optional, undermining the clause’s certainty.
Specify the Seat of Arbitration
The “seat” determines the procedural law governing the arbitration (lex arbitri) and the court with supervisory jurisdiction. Failing to specify it may cause procedural disputes and uncertainty. When specifying the seat, the city and the country must be mentioned.
State the Governing Arbitration Law
Clarify the applicable law that will govern the arbitration process. This is especially important when the seat and the governing contract law differ.
Select a Trusted Arbitral Institution (if institutional arbitration is chosen)
When opting for institutional arbitration, name only well-established institutions. Referencing a non-existent risk rendering the clause unworkable.
For Ad-Hoc Arbitration, Refer to Established Rules
If you choose ad-hoc arbitration (without an institution), adopt widely recognized procedural rules such as the UNCITRAL Arbitration Rules, the Arbitration World Index Rules, or the LMAA Rules for Maritime disputes. This helps ensure procedural efficiency and predictability.
Determine the Number of Arbitrators
Specify whether disputes will be resolved by a sole arbitrator or a tribunal (typically three arbitrators). Consider cost, complexity, and the nature of potential disputes when deciding
Provide a Clear Appointment Mechanism
Outline exactly how arbitrators will be appointed by the parties, an institution, or a designated appointing authority. Avoid “deadlock” scenarios by naming a fallback appointing authority if the parties fail to agree.
Anticipate Practicalities
Consider including provisions for:
The language of arbitration
Time limits for rendering the award
Allocation of arbitration costs
Confidentiality obligations
About the Author:
Eng. Dr. Kamal Adnan Malas
Holding dual degrees in Law and Civil Engineering.
Prof. Eng., Expert in Courts, International Arbitrator & Mediator
FIDIC: Served as a friendly reviewer for the 2017 FIDIC Yellow Book.
UAE Ministry of Justice-Dubai Courts: Recognized as listed Engineering Expert.
Arab Union for Investments and Real Estate: Head of Arbitration and Legal Affairs.
Dubai Municipality: Structural Designer.
Participated in over 130 arbitration cases both as counsel and as an arbitrator appointed by various institutions, including the ICC, DIFC-LCIA, UAE Courts, Abu Dhabi Arbitration Center, Dubai International Arbitration Center, and numerous International Arbitration Centers. Managed arbitration cases involving private parties (Ad-Hoc Arbitrations) in the Arabian Gulf and the UK, with total disputes exceeding USD 2 billion.
Submitted more than 1,200 technical reports for cases in Dubai Courts as a Court-appointed Engineering Expert, with total disputes also exceeding USD 2 billion.
Acted as a mediator in construction disputes involving amounts over USD 50 million.
Engaged in the following areas: Construction and Engineering disputes, Real Estate disputes, Maritime disputes, and Courier Services disputes.
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