How to Draft an Effective Arbitration Clause in Your Commercial Contracts

A practical guide for UAE businesses to ensure enforceable and strategic dispute resolution

Introduction: Why Your Arbitration Clause Matters More Than You Think

Arbitration is often the preferred method of dispute resolution in commercial contracts, especially for businesses operating in or with partners from the UAE. It offers privacy, flexibility, and global enforceability. But here’s the catch: the arbitration clause in your contract needs to be carefully drafted to deliver those benefits.

A vague, ambiguous, or poorly worded clause can create unnecessary complications, delays, or even render the arbitration agreement unenforceable. On the other hand, a well-crafted clause can provide clarity, save time and money, and protect your legal position in the event of a dispute.

This guide walks you through the essentials of drafting an effective arbitration clause that holds up under UAE law and international standards.

1. Understand the Purpose of the Clause

The arbitration clause outlines how the parties will resolve disputes if they arise. Unlike other contract terms, this clause becomes operational only when something goes wrong. Yet it is one of the most consequential.

An effective arbitration clause:

Avoids jurisdictional uncertainty
Provides a clear dispute resolution path
Allows for predictability in process and cost
Prevents tactical delays or jurisdictional challenges
Makes enforcement easier—especially internationally

Drafting this clause at the contract negotiation stage is far easier and cheaper than trying to agree on dispute resolution after a conflict has already erupted.

2. Choose Arbitration Over Litigation for the Right Reasons

Before jumping into how to draft it, ensure that arbitration is the right dispute resolution mechanism for your transaction. Arbitration is usually preferred when:

There are cross-border elements or foreign parties
Confidentiality is important
You want a binding resolution without court appeals
You prefer to select experts as decision-makers
International enforcement of the award is likely to be needed

If these align with your business objectives, proceed to include a detailed clause in the contract.

3. Key Elements of an Effective Arbitration Clause

A solid arbitration clause should address the following components:

a. Clear Agreement to Arbitrate

Use simple and direct language that shows both parties agree to arbitrate disputes.

Example:
“Any dispute arising out of or in connection with this Agreement shall be finally resolved by arbitration…”

Avoid vague language such as “may be referred to arbitration” which creates uncertainty.

b. Scope of the Clause

Specify whether the clause applies to:

Disputes “arising out of” the contract
Disputes “in connection with” the contract
Both contractual and non-contractual claims

Best Practice: Use the broadest formulation to avoid debate over scope.

c. Seat of Arbitration (Legal Jurisdiction)

This determines which country’s laws govern the arbitration procedure and how the award may be challenged.

Common seats in the UAE:

Dubai (onshore UAE laws apply)
DIFC (common law jurisdiction)
Abu Dhabi (onshore or ADGM, depending on context)

The choice of seat has major implications for:

Procedural rules
Judicial intervention
Award enforcement

d. Institutional Rules

Specify the arbitration institution and the rules that will govern the procedure.

Common options in the UAE include:

DIAC (Dubai International Arbitration Centre)
ICC (International Chamber of Commerce)
LCIA (London Court of International Arbitration)
ADCCAC (Abu Dhabi Commercial Conciliation and Arbitration Centre)
UNCITRAL Rules (for ad hoc arbitration)

Example:
“…under the Rules of Arbitration of the DIAC, which rules are deemed to be incorporated by reference into this clause.”

e. Number of Arbitrators

Decide whether to appoint one or three arbitrators.

One arbitrator is cost-effective for simpler disputes.
Three arbitrators provide broader deliberation in complex, high-stakes cases.

Also, clarify how arbitrators will be appointed—by mutual agreement or through the institution.

f. Language of Arbitration

Specify the language of the proceedings to avoid confusion.

Example:
“The language of the arbitration shall be English.”

g. Governing Law

Clearly state the law that governs the contract itself (not just the arbitration procedure).

Example:
“This Agreement shall be governed by and construed in accordance with the laws of the United Arab Emirates.”

h. Place and Venue of Hearings

You can distinguish between the seat of arbitration and the place where hearings take place. For example, arbitration seated in Abu Dhabi can have hearings in Paris, London, or Dubai.

4. Sample Arbitration Clause (Model Template)

Here’s a balanced, enforceable clause suitable for commercial contracts in the UAE:

“Any dispute, controversy or claim arising out of or in connection with this Agreement, including any question regarding its existence, validity, or termination, shall be referred to and finally resolved by arbitration under the Rules of the Dubai International Arbitration Centre (DIAC), which Rules are deemed to be incorporated by reference into this clause.

The seat of the arbitration shall be Dubai, United Arab Emirates. The number of arbitrators shall be one. The language of the arbitration shall be English.

This Agreement shall be governed by and construed in accordance with the laws of the United Arab Emirates.”

5. Tailor the Clause to Your Industry and Risks

Generic clauses may be easy to insert, but customisation offers real value. Consider adding specific terms if your business operates in:

Construction

Include provisions on interim relief or expert determination before arbitration.

Technology / IP

Add clauses requiring arbitrators with technical or sector-specific expertise.

Cross-Border Trade

Consider clauses allowing for emergency arbitrators or expedited procedures.

Tailoring ensures the process matches the operational realities of your business.

6. Avoid Common Mistakes

Poorly drafted arbitration clauses are one of the leading causes of delay and procedural litigation. Here’s what to avoid:

Ambiguity: Phrases like “may go to arbitration” create uncertainty.
Conflicting clauses: Don’t have multiple dispute resolution mechanisms that contradict each other.
Missing essential elements: Omitting seat, rules, or number of arbitrators leads to procedural gaps.
Excessive complexity: Overly detailed clauses with too many options or fallback procedures often backfire.
Lack of alignment with UAE law: UAE courts may reject unenforceable or vague clauses, especially if public policy is affected.

Always have arbitration clauses reviewed by lawyers familiar with UAE arbitration laws and the chosen institutional rules.

7. Review Clauses Regularly

Business models, partners, and legal risks evolve over time. Arbitration clauses should be reviewed periodically—especially during contract renewals or major operational changes.

If your clause refers to an outdated institution (e.g., the now-defunct DIFC-LCIA), or uses procedural rules no longer in force, it may cause serious enforcement issues down the line.

Conclusion: A Few Lines That Can Save You Years of Trouble

An arbitration clause may only be a few lines long—but it can shape how disputes unfold for years. A clear, enforceable, and well-tailored clause can help you avoid court battles, control costs, protect your business relationships, and ensure global enforceability.

Don’t treat it as boilerplate. Treat it as a strategic tool.