That Arbitration Clause Won’t Save You: The Hidden Cost of Bad Boilerplates

Most founders think an arbitration clause is a box to tick. Something you copy-paste at the end of the contract. But the mess only begin to unfolds when that clause is badly drafted. 

There once was a founder who filed a claim for wrongful dilution. The clause had no seat, no institution, and no rules. They spent 3 months just fighting over where to arbitrate. And then there was the startup that got sued by a vendor. Their clause mandated arbitration under an obscure set of rules with no tribunal access in India. They ended up in parallel proceedings - arbitration and court, just to settle jurisdiction. Another day, another consulting firm wanting to resolve a delayed payment. The clause named an arbitral institution that no longer existed.

Every clause like this was signed by a lawyered-up party and a founder in a hurry.

Most common errors we see:

1. No seat or venue: Makes enforcement harder. Leads to confusion on whether Indian or foreign courts have jurisdiction.

2. Ambiguous rules: When parties don’t agree on the institution or rules, pre-arbitration becomes litigation.

3. No mention of number of arbitrators: Leads to disputes over panel composition, delaying proceedings.

4. One-sided clause: Unilateral rights to appoint arbitrators can render a clause invalid under Indian law.

5. Expired or non-existent institutions: Yes, this happens. Clauses referring to outdated or defunct bodies.

6. No pre-arbitration steps (like negotiation/mediation): Missed opportunity for informal resolution.

What we recommend:

1. Always specify:

• Governing law

• Seat of arbitration

• Number of arbitrators

• Arbitral rules and institution

2. Avoid:

• Outdated model clauses

• One-sided appointments

• Jargon without explanation

3. Build in:

• Time-bound negotiation/mediation window before arbitration

• Clear enforcement mechanisms

A Case From Our Observations

A founder lost 7 months in an investor dispute because the arbitration clause was silent on procedural rules. Every procedural step had to be contested. If the clause had simply said “arbitration under SIAC Rules with seat in Singapore,” the process would have started in 30 days.