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Will poorly drafted arbitration clauses undermine Australia’s appeal as an arbitration hub?
Despite Australia’s growing recognition as a viable arbitration jurisdiction, the head of arbitration at a national law firm has cautioned that the country’s potential as an arbitration hub could be compromised by the pervasive issue of poorly drafted arbitration clauses.
Grace Robbie
Speaking on a recent episode of The Lawyers Weekly Show, Nastasja Suhadolnik, partner and head of arbitration at Corrs Chambers Westgarth, explored whether Australia’s emerging role as a prominent arbitration hub could be jeopardised by the growing concern over poorly drafted arbitration clauses that are not given the necessary time and attention they require.
In the same episode, she highlighted the escalating issue of hastily drafted and inadequately considered arbitration clauses, emphasising the severe consequences that can arise from such oversights.
Although the practice of arbitration in Australia initially had a slow start, Suhadolnik noted its remarkable popularity, with an increasing number of parties now embracing it as their preferred path for resolving disputes.
“It might have been slow, but certainly, the practice is growing, and the appetite among parties to choose arbitration is growing,” she said.
Suhadolnik highlighted how arbitration is not only gaining traction as the preferred choice for cross-border transactions involving Australian parties but is also increasingly becoming the go-to method for resolving disputes in key domestic sectors.
“Not only for cross-border transactions involving Australian parties but also for domestic transactions, in particular, in construction, energy and projects, transactions where you would otherwise face a protracted dispute resolution process or choosing litigation before courts,” she said.
She explained how Australia has made significant strides in positioning itself as an arbitration-friendly jurisdiction, with Australian courts increasingly willing to intervene and address defects in arbitration clauses.
“What we see is courts trying to remedy defects in drafting. So in that sense, courts in Australia have increasingly come out with decisions that give effect to an agreement to arbitrate and remedy the defect in that sense,” she said.
“Australia is known to be an arbitration-friendly jurisdiction, and that’s attracted a lot of attention to Australia as a potential seat for arbitrations.”
However, Suhadolnik warned that this leniency may have unintended consequences, as businesses forced into court to resolve issues arising from poorly drafted arbitration clauses could be dissuaded from opting for arbitration in the future.
“Now, the other problem is that parties who end up in court having to fight about how the arbitration clause is supposed to operate, or in that extreme scenario, having to actually litigate despite thinking they agreed to arbitration when they hadn’t validly agreed to it, those parties will be reluctant to embrace arbitration because it doesn’t produce the results they aspire to,” she said.
To maintain and strengthen Australia’s position as an attractive destination for arbitration, Suhadolnik asserts that the path forward hinges on placing a stronger emphasis on the quality and precision of arbitration clause drafting from the very beginning.
“Primarily, it’s those negotiating transactional documents that incorporate arbitration as the preferred dispute resolution mechanism and their advisors.
“It is for them to ensure that the clauses are appropriately drafted so that we don’t have to get to court, we don’t have to get the court’s persistence in facilitating a proper interpretation and fixing of defects in arbitration clauses,” she said.
