The dispute resolution clause is negotiated last, when everyone is tired and wants to sign, and it is copied from whatever contract was to hand.
Then it becomes the most important clause in the agreement — because it decides where and how everything else gets argued about. A defective clause can add years and a great deal of money to a dispute before anyone reaches the merits.
What a workable clause must settle
Scope. That disputes "arising out of or in connection with" the contract go to arbitration. Narrow wording invites arguments about whether this particular dispute is covered — a satellite fight nobody wants.
Seat. The legal place of the arbitration, which determines the supervisory court and the procedural law. This is the single most consequential choice and the one most often left out. The seat is not the same as the venue where hearings physically happen.
Institution or ad hoc. Whether an institution administers the process under its rules, or the parties run it themselves. Ad hoc arbitration is cheaper on paper and frequently more expensive in practice, because every procedural disagreement has to be resolved from scratch.
Number of arbitrators, and how they are appointed. One is cheaper and faster; three is more robust for high-value disputes. What matters most is a mechanism that still works when the other side refuses to cooperate.
Language. Obvious in cross-border contracts, and routinely omitted.
Governing law, which is a separate question from the seat and should be stated separately.
The clauses that cause trouble
"Disputes shall be settled amicably, failing which by arbitration." No seat, no rules, no appointment mechanism. Every one of those has to be litigated first.
Naming an institution that does not exist, or naming its rules inaccurately.
Requiring a named individual as arbitrator, who by the time of the dispute is unavailable, unwilling or no longer neutral.
Mixing arbitration with a courts clause, so the contract simultaneously provides for arbitration and confers exclusive jurisdiction on a court. This contradiction is extremely common in contracts assembled from templates, and it guarantees a preliminary fight.
Multi-tier clauses with vague conditions — "after good faith negotiations for a reasonable period" — which create arguments about whether the precondition was satisfied before arbitration could begin.
Domestic arbitration in Pakistan
Domestic arbitration operates under the Arbitration Act 1940, a considerably older framework than modern arbitration legislation elsewhere. It involves more court supervision, including in relation to filing and enforcement of awards, than parties accustomed to other jurisdictions expect.
That is worth knowing at the drafting stage, because it affects whether domestic arbitration is genuinely faster than litigation for your kind of dispute. For some disputes it is. For others, the honest advice is that the courts will not be slower.
Enforcing a foreign award in Pakistan
Pakistan is a party to the New York Convention, given effect through the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011. A foreign award from a contracting state can be recognised and enforced through the High Court, subject to the limited grounds of refusal the Convention sets out.
This matters for two groups.
Foreign parties contracting with Pakistani counterparties should note that an award will generally be enforceable here — which makes a well-drafted clause seating arbitration in a Convention state genuinely valuable.
Pakistani parties should note that an award against them is enforceable, and that the grounds for resisting are narrow. They do not include disagreeing with the result.
Practical drafting advice
Use the model clause published by whichever institution you choose, and adapt it minimally. These clauses exist precisely because ad-hoc drafting goes wrong.
Match the mechanism to the value. A three-arbitrator institutional arbitration is disproportionate for a contract worth a modest sum; the costs can exceed the claim.
Check the clause against the rest of the contract for contradictions, particularly a leftover jurisdiction clause.
And consider enforcement at the outset: an award is only useful if it can be enforced where the counterparty's assets actually are.
When a dispute has already arisen
Even without a clause, parties can agree to arbitrate after a dispute has arisen. That is worth considering where both sides want confidentiality or speed — though agreement is naturally harder once relations have broken down.
Where you have an award, whether domestic or foreign, the questions are enforcement and any challenge to it. Both are time-sensitive.
How the firm can help
We draft and review arbitration and dispute resolution clauses — usually the cheapest advice a commercial client ever takes — and act in domestic and international arbitration proceedings.
We also handle what happens afterwards: recognition and enforcement of foreign arbitral awards through the High Court of Sindh, applications to set aside or remit, and interim measures in support of arbitration.
If you are negotiating a contract, have the clause looked at before signature. If a dispute has arisen under one, contact the firm with the agreement and we will tell you where it will actually be resolved.