Arbitration agreement
An arbitration agreement is an arrangement between parties to resolve disputes through arbitration rather than in court.
Explained – what is an arbitration agreement?
An arbitration agreement is a clause or standalone contract under which the parties agree that any disputes will be determined by arbitrators in arbitration. It can be incorporated as an arbitration clause in a wider contract or concluded as a separate agreement; in both cases it is referred to as an “arbitration agreement”. Arbitration is governed, for example, by the Swedish Arbitration Act (1999:116) and is often used in commercial arbitration, particularly in international commercial arbitration. A contract lawyer or an international arbitration lawyer can draft or review an arbitration clause to ensure it is legally robust. In short, if you are asking what is an arbitration agreement, it is the mechanism by which parties opt for arbitration proceedings instead of court litigation.
When is the question of an arbitration agreement relevant?
The question arises where parties want a swift, confidential and flexible form of arbitration dispute resolution without turning to the public courts. It is common in substantial commercial agreements, cross-border collaborations and complex projects where the parties want subject-matter expertise in the arbitration procedure. Parties also use arbitration agreements to avoid protracted court processes; they can be a strategic element of negotiations, especially where international arbitration lawyer input is valuable.
Points to consider when drafting an arbitration agreement
When drafting and using an arbitration agreement there are several aspects to address to ensure the agreement is effective and enforceable.
- Draft the arbitration clause clearly and unambiguously.
- Specify the number of arbitrators and how they will be appointed.
- State the seat of arbitration (place of arbitration) and, if relevant, the venue for hearings.
- Identify the applicable law and the language of arbitration.
- Allocate arbitration costs between the parties.
- Decide between institutional arbitration and ad hoc arbitration.
- Consider whether the arbitration should be subject to arbitration confidentiality.
A clear, well-constructed arbitration clause reduces the risk of procedural skirmishes and supports predictable arbitration proceedings.
Why is an arbitration agreement important?
An arbitration agreement allows the parties to shape how a dispute will be resolved. By agreeing to arbitration, parties can avoid lengthy court proceedings and obtain a more specialised determination. This is particularly valuable in sectors where technical or industry-specific knowledge is decisive, and where the advantages of arbitration often outweigh potential disadvantages of arbitration.
Confidentiality is another key aspect. As a rule, arbitration is confidential under the arbitration agreement, protecting trade secrets and business relationships. This can preserve trust between parties and facilitate continued cooperation even after a dispute.
From a business perspective, arbitration supports certainty and predictability, enabling parties to focus on core operations and reducing the risk that disputes affect stability and reputation. For organisations comparing options, understanding what is an arbitration agreement and how it operates under the Swedish Arbitration Act 1999 is fundamental.
Frequently asked questions on what is an arbitration agreement?
An arbitration agreement means the parties agree to resolve disputes by arbitration instead of in court.
It can be used where a fast, confidential and flexible process is preferred, for example in commercial arbitration and international commercial arbitration.
It must be in writing and clearly state that disputes are to be settled by arbitration. It should also address, among other things, the number of arbitrators, the seat of arbitration, the language of arbitration and the applicable law.
Advantages of arbitration include:
- Faster process
- Confidentiality
- Ability to appoint arbitrators with relevant expertise
- Flexibility of the arbitration procedure
- International enforceability of the award
Costs depend on arbitrators’ fees, administration and any institutional fees. While arbitration costs can exceed court fees, shorter timelines can offset the total spend.
An arbitration agreement is the parties’ advance commitment to arbitrate, usually concluded long before any dispute arises. The award is the final decision issued by the arbitrators after they have determined the dispute.
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