Short definition

Arbitration clauses state that if any disputes (disagreements) arise between the parties, a neutral third party (arbitrator) will make a final, legally binding decision. This means parties won’t go to a public court for a resolution. 

Why would a party choose arbitration?

1. Speed & efficiency – generally a single decision, faster than courts, and with limited appeals.
2. Expertise – arbitrators can be selected for sector knowledge (e.g. construction, energy, IT).
3. Confidentiality – hearings and filings are private - in public courts that is different.
4. International enforceability – under the 1958 New York Convention arbitral awards are easier to enforce in 160+ countries.

What does it usually include?

The clause typically spells out how arbitrators are chosen, but rarely who they actually are. Parties can opt for a single, multiple, or a panel of arbitrators. 

Typically included in the clause:

• Rules being enforced – e.g., NAI, ICC, UNCITRAL, or an ad‑hoc procedure.
• Seat (place of arbitration) – the legal home of the arbitration, such as Amsterdam, London, or Paris.
• Language – English, Dutch, or any other language the parties agree on.
• Number of arbitrators – one for straightforward matters, three for complex or high‑value disputes.
• Cost allocation – whether the losing party pays all costs or they are shared.

It can be beneficial to be clear on the procedures to choose the arbitrator(s) in order to avoid further conflict, whilst also choosing the appropriate arbitrator based on the details of the initial dispute.

What are potential drawbacks?

• Higher costs – arbitrator fees and institutional charges exceed most court fees.
• Limited appeal – factual or interpretative errors are hard to overturn.
• No binding precedent – fewer guideposts for future cases.

Where is the clause located?

This is typically a boilerplate clause that is tailored depending on the details of the agreement. It is found towards the end of the contract in or around the dispute resolution section. 

With Docfield, you can save your arbitration clause in the Clause Library and add smart fields identifiers or datapoints. That way, you can surface the clause automatically using conditional logic in your legal templates. This means the correct version of your arbitration clause (pre-filled to your liking) is dropped into your final agreement with a single click.