Arbitration Clauses 101: What Every International Contract Should Include Before You Sign

If your business works across borders, whether through suppliers, clients, or investors, you’ve probably heard about arbitration clauses. They appear in nearly every international contract, but few people stop to consider how crucial the wording really is until a dispute arises.

Arbitration clauses determine where, how, and under what rules disputes will be resolved. They can save your business time, money, and stress, but only if they’re drafted correctly.

At Ayala Law, we regularly represent clients in international business disputes, and we’ve seen how one poorly written clause can decide the fate of an entire case. Here’s what you should know before signing any international agreement.

What Is an Arbitration Clause in a Contract?

An arbitration clause is a section in a contract that requires parties to resolve disputes through arbitration instead of court litigation. Arbitration is a private dispute resolution process where an impartial arbitrator (or panel of arbitrators) makes a binding decision.

For international contracts, arbitration offers several advantages:

• Neutral Forum: Avoids one party having “home court” advantage.
• Enforceability: Arbitration awards can be recognized and enforced across borders under the New York Convention.
• Confidentiality: Proceedings are typically private, unlike court cases.
• Efficiency: Arbitration is often faster than court litigation, which can drag on for years in multiple jurisdictions.

But these benefits only hold if the clause is properly drafted.

Why Arbitration Clauses Are So Important in International Contracts

Without an arbitration clause, this becomes a legal tug-of-war. You might have to litigate in a foreign country under unfamiliar laws and procedures. A well-drafted arbitration clause answers those questions before a dispute happens, making your business relationship more stable and predictable.

Key Elements Every International Arbitration Clause Should Include

If you’re entering into any international agreement, your arbitration clause should clearly address the following:

1. Seat (or Place) of Arbitration

This determines which country’s arbitration laws apply. The “seat” is more than just geography; it dictates how the arbitration is conducted and which courts have oversight. For example, choosing Miami as the seat may mean Florida law governs the procedural aspects of the arbitration.

2. Governing Law

Specify which country’s substantive law will apply to the contract itself. This law governs the rights and obligations of each party. The governing law may differ from the seat of arbitration, but the distinction must be clear.

3. Arbitration Rules and Institution

Will your arbitration be handled by a specific organization? Common options include:

• ICC (International Chamber of Commerce)
• AAA/ICDR (American Arbitration Association / International Centre for Dispute Resolution)
• LCIA (London Court of International Arbitration)

Each has its own rules, procedures, and fees. Naming the institution helps avoid future uncertainty.

4. Number and Selection of Arbitrators

Most clauses specify one or three arbitrators. In high-value disputes, having three arbitrators (each party selects one, and they jointly appoint a third) ensures balance and fairness.

5. Language of the Arbitration

Always identify the language in which proceedings will be conducted, especially important for international contracts involving parties from non-English-speaking countries.

6. Confidentiality Provisions

Some arbitration rules provide for confidentiality, but not all do. If confidentiality is important to your business, include a specific provision requiring both parties to keep proceedings and awards private.

7. Costs and Fees

The clause can outline how arbitration costs and attorneys’ fees will be allocated. Some parties agree that the losing party will pay all fees, while others share costs equally.

Common Mistakes in International Arbitration Clauses

Even sophisticated businesses can make drafting errors that weaken their position. Some of the most common mistakes include:

• Vague or conflicting provisions, such as saying “disputes shall be settled in arbitration or court.”
• Omitting the seat or governing law, leaving major procedural questions unanswered.
• Failing to specify the arbitration institution, which can lead to disputes about who should oversee the process.
• Not aligning the arbitration clause with related contracts (for example, supplier agreements or financing documents).

Each of these mistakes can cause unnecessary delays and costs, or even invalidate the clause entirely.

How Arbitration Differs from Litigation for International Businesses

Aspect	Arbitration	Litigation
Decision Maker	Private arbitrator or panel chosen by the parties	Judge or jury in a public court
Confidentiality	Generally confidential and private	Public record and proceedings
Speed and Efficiency	Usually faster, with flexible scheduling	Can take years due to court schedules and appeals
Cost	Lower in some cases, though arbitrator fees apply	Court fees may be lower, but litigation often lasts longer
Appeal Rights	Limited—awards are rarely overturned	Parties generally have the right to appeal
International Enforceability	Easier to enforce abroad under treaties like the New York Convention	Harder to enforce internationally, varies by jurisdiction

For cross-border transactions, arbitration usually provides a smoother and more neutral process.

Why Businesses Should Have a Lawyer Draft Their Arbitration Clause

Arbitration clauses are deceptively simple, often just a few sentences long, but they carry enormous weight. A single missing term or unclear phrase can make your arbitration agreement unenforceable or disadvantageous.

An experienced international business attorney can ensure your arbitration clause aligns with your commercial goals, complies with applicable law, and reduces your exposure to unnecessary risk.

At Ayala Law, we help Florida and international clients draft, review, and enforce contracts that protect their interests at every stage of their business relationships.

Protecting Your Business Before You Sign

International business brings opportunity, but also complexity. Before signing any cross-border contract, take the time to review its dispute resolution clause. A properly structured arbitration agreement can save you years of litigation, protect your assets, and keep your business relationships on solid ground.

If your business operates internationally or is considering expanding abroad, contact one of our experienced attorneys in Miami at 305-570-2208.

You can also contact our founding attorney Eduardo A. Maura at eduardo@ayalalawpa.com.

Schedule a case evaluation online here.

[The opinions in this blog are not intended to be legal advice. You should consult with an attorney about the particulars of your case].