CHAPTER II: ARBITRATION AGREEMENT
7. Arbitration agreement:
(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication 1
[including communication through electronic means] which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
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DETAILED EXPLANATION OF CLAUSE 7(1) – ARBITRATION AGREEMENT
Breaking it Down
The clause states:
“Arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
This definition contains several important elements, which we will explain in detail.
1. What is an Arbitration Agreement?
An arbitration agreement is a legal contract where two or more parties agree to settle their disputes using arbitration instead of going to court.
Arbitration is a private dispute resolution method where an independent third party (called an arbitrator) makes a decision that is legally binding.
Instead of filing a lawsuit in court, the parties will follow the arbitration process as agreed in the contract.
2. What Kind of Disputes Can Be Submitted to Arbitration?
The agreement can cover:
All disputes – The parties may agree that every possible dispute between them will be resolved through arbitration.
Certain disputes – The parties may specify only certain types of disputes that will go to arbitration. For example, they may decide that only financial disputes or quality-related disputes will be arbitrated, while other matters go to court.
3. Disputes That Have Already Happened or May Happen in the Future
The arbitration agreement applies to:
Past disputes – If the parties already have a disagreement, they can agree to settle it through arbitration.
Future disputes – The agreement may also cover any potential disputes that might arise later.
This means the arbitration agreement is proactive—it ensures that if any problem comes up in the future, arbitration will be the chosen method of resolution.
4. The Need for a Defined Legal Relationship
The disputes must arise from a “defined legal relationship.”
This means that the two parties must have some kind of recognized legal connection, such as a business contract, partnership, or employment agreement.
However, the relationship does not have to be contractual. Even if there is no formal contract, disputes from a legally recognized relationship can still be submitted to arbitration.
Examples of Legal Relationships:
✅ Contractual Relationship – Two companies sign a contract to do business together. If they have a disagreement, they resolve it through arbitration.
✅ Non-Contractual Relationship – A landowner and a neighboring factory have a dispute about pollution, even without a direct contract. If they agree, they can resolve the issue through arbitration.
Conclusion
An arbitration agreement is a written understanding between parties to resolve disputes through arbitration instead of court.
It can apply to past and future disputes.
It can cover all or only some disputes.
The disputes must come from a legal relationship, whether there is a formal contract or not.
This clause helps reduce legal costs and avoid lengthy court battles by ensuring that disagreements are settled efficiently through arbitration.
EXPLANATION OF CLAUSE 7(2) – FORMS OF ARBITRATION AGREEMENT
This clause states:
An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
This means that an arbitration agreement can exist in two ways:
As an Arbitration Clause Inside a Contract
The arbitration agreement can be included as a specific clause within a larger contract.
This is the most common way to include arbitration in business and legal agreements.
Example:
A company and a supplier sign a contract for the supply of raw materials.
The contract includes a clause stating that any disputes must be settled through arbitration.
If a dispute arises, both parties must follow the arbitration process as per the contract.
As a Separate Agreement
The parties can also sign a separate arbitration agreement instead of including it in their main contract.
This is useful if the parties decide later that they want to settle disputes through arbitration, or if they have multiple contracts but want one arbitration process.
Example:
Two businesses enter into a verbal or informal agreement for a joint venture.
Later, they sign a separate written arbitration agreement stating that any disputes will be resolved through arbitration.
Key Takeaways
Arbitration can be agreed upon in two ways – as a clause inside a contract or as an independent agreement.
If included in a contract, it becomes legally binding as part of that contract.
If separate, it is still binding as long as both parties have agreed in writing.
This flexibility allows businesses and individuals to choose arbitration at different stages of their relationship.
EXPLANATION OF CLAUSE 7(3) – ARBITRATION AGREEMENT MUST BE IN WRITING
This clause states:
An arbitration agreement shall be in writing.
What Does This Mean?
An arbitration agreement is only valid if it is written down.
A verbal (spoken) arbitration agreement is not legally enforceable.
The written form ensures that both parties have clear proof of their agreement.
Why Must It Be in Writing?
Clarity & Proof – A written document avoids misunderstandings about whether an arbitration agreement exists.
Legal Enforceability – Courts and arbitrators require written agreements to confirm that both parties willingly accepted arbitration.
Reference for Disputes – If a dispute arises later, the written document serves as evidence of the agreed arbitration process.
How Can It Be Written?
The next clause (7(4)) explains different ways an arbitration agreement can be written, such as in a signed document, emails, or legal statements.
Conclusion
A valid arbitration agreement must be in written form.
Spoken agreements about arbitration are not legally binding.
Writing protects both parties and ensures fairness in legal disputes.
EXPLANATION OF CLAUSE 7(4) – WHAT COUNTS AS A WRITTEN ARBITRATION AGREEMENT?
This clause explains what qualifies as a “written” arbitration agreement under the law.
Three Ways an Arbitration Agreement is Considered “In Writing”
(a) A Document Signed by Both Parties
The arbitration agreement is valid if both parties sign a written document that contains the arbitration terms.
This is the most formal and straightforward way to create a written arbitration agreement.
Example:
A company and a contractor sign a business contract.
The contract includes a section (arbitration clause) stating that disputes will be settled through arbitration.
Since both parties signed the contract, the arbitration agreement is legally binding.
(b) Exchange of Letters, Telegrams, or Electronic Communication
The arbitration agreement does not have to be in a single signed document.
It can be formed through written communication between the parties, such as:
Letters
Telex or Telegrams (older communication methods)
Emails, WhatsApp, or other electronic messages (modern digital communication)
As long as these communications provide clear evidence that both parties agreed to arbitration, it is legally valid.
Example:
Two businesses discuss a deal via email.
One party emails: “If any disputes arise, we agree to resolve them through arbitration.”
The other party replies: “Agreed.”
This email exchange serves as a written arbitration agreement even though there is no formal signed contract.
(c) Exchange of Legal Statements Where Arbitration is Not Denied
Sometimes, an arbitration agreement is proven through legal claims and responses.
If one party claims that there is an arbitration agreement and the other party does not deny it, it is treated as a written agreement.
Example:
A company sues another in court.
In its defense, the second company states: “This matter should go to arbitration as per our agreement.”
If the first company does not deny the existence of the arbitration agreement, the court may consider the arbitration agreement as valid and in writing.
Key Takeaways
A written arbitration agreement can exist in three ways:
A formally signed document between the parties.
An exchange of written communication (letters, emails, or electronic messages) that proves agreement.
Legal claims where arbitration is mentioned and not denied by the other party.
This ensures that even if there is no single signed document, arbitration agreements can still be recognized and enforced by law.
EXPLANATION OF CLAUSE 7(5) – ARBITRATION AGREEMENT BY REFERENCE
This clause states:
The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
What Does This Mean?
Sometimes, a contract does not directly include an arbitration clause.
Instead, it refers to another separate document that contains an arbitration clause.
If the contract is in writing and the reference to the arbitration clause is clear and valid, then it will be treated as part of the contract.
How Does This Work?
If three conditions are met, the arbitration agreement is valid by reference:
The contract must be in writing – The main contract itself should be in written form.
The contract must refer to another document – This document should contain an arbitration clause.
The reference must be clear enough – The contract should mention the arbitration clause in a way that makes it legally binding on both parties.
Example 1 – A Business Contract Referring to General Terms
A company signs a written contract with a supplier.
The contract states: “This agreement is subject to the arbitration clause mentioned in our Standard Terms and Conditions.”
The Standard Terms and Conditions (which are a separate document) contain an arbitration clause.
Since the contract refers to these terms, the arbitration clause becomes part of the contract and is legally binding.
Example 2 – A Government Tender with Arbitration Terms
A construction company signs a government contract to build a road.
The contract states: “All disputes shall be resolved as per the arbitration procedure mentioned in the Government Tender Document.”
Even though the arbitration clause is in the tender document and not the contract itself, it still applies because the contract clearly refers to it.
Key Takeaways
If a written contract refers to a separate document that has an arbitration clause, then that arbitration clause is valid.
The reference must be clear and strong enough to show that both parties intended to include arbitration.
This ensures that arbitration agreements can still be enforced even if they are not directly written in the main contract.
GIST OF ARBITRATION CLAUSE 7 IN SIMPLE ENGLISH
What is an Arbitration Agreement?
- It is an agreement between two or more parties.
- They agree to settle some or all of their disputes through arbitration instead of going to court.
- The disputes could be about a legal relationship, whether it is based on a contract or not.
Forms of an Arbitration Agreement:
- It can be a clause inside a contract.
- It can also be a separate agreement.
Must be in Writing:
- The agreement must be in written form.
What Counts as “In Writing”?
- A document signed by both parties.
- Exchange of letters, emails, telegrams, or other electronic communications that prove the agreement exists.
- If one party mentions the agreement in their legal claims, and the other party does not deny it, it counts as a written agreement.
Reference to Another Document:
- If a contract refers to another document that contains an arbitration clause, that reference itself is enough to make the arbitration clause part of the contract—as long as the contract is in writing.
This means that as long as the agreement is recorded in a proper way, arbitration will be used to resolve disputes instead of going to court.
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