Getting It Wrong - Yet Another Arbitration Clause Fails The Test

Shareholders Agreements usually contain a dispute resolution clause, and particularly if the parties are from different countries that clause will often say that disputes under the Agreement are to be referred to arbitration. If an arbitration clause is not valid, under English law there will be no obligation to arbitrate because there is no valid agreement in writing to arbitrate as required by section 6(1) Arbitration Act 1996 ("the Act"). This means that a dispute between the parties needs to be resolved by litigation, often by the courts of a country which the parties had deliberately tried to avoid when they thought they had agreed in their contract to arbitrate somewhere else, usually somewhere neutral. There is also the added difficulty that, unlike arbitration Awards, the judgments of many courts are not recognised or enforced overseas in which case a successful claimant in court proceedings may never make any actual recoveries against the judgment debtor.