Cross-border companies often treat the arbitration clause as a formality, copied from a precedent and negotiated last. That habit is expensive. The moment a dispute erupts, the clause becomes the first thing opposing counsel attacks, and a defectively drafted, or pathological, clause can trap a claim in years of jurisdictional litigation before anyone reaches the merits, or produce an award that no court will enforce. For businesses structuring transactions through Georgia, where courts apply the New York Convention as a matter of course, getting the clause right at signing is far cheaper than repairing it after a dispute begins.
A Contract Within a Contract
An arbitration clause is legally separable from the contract that contains it. In Fiona Trust & Holding Corp v Privalov, decided by the House of Lords in 2007, the Lords held that even allegations the entire charter agreements had been procured by bribery did not automatically void the arbitration clauses within them, and directed courts to construe arbitration clauses broadly, on the assumption that commercial parties intend all disputes arising from their relationship to be resolved in one forum. That presumption protects well-drafted clauses, but it cannot rescue a clause that never identifies a workable forum in the first place.
The Governing-Law Gap
The single most common pathology is silence on which law governs the arbitration agreement itself, as distinct from the main contract. In Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb, the UK Supreme Court held in 2020 that where a contract has an express or implied choice of governing law, that law will normally extend to the arbitration agreement even if the seat of arbitration lies elsewhere; only where the contract itself is silent on governing law does the law of the seat step in.
Left unaddressed, this gap invites a satellite dispute over validity and scope before a tribunal can even be constituted. The fix is simple: state the law governing the arbitration agreement expressly, inside the clause itself, rather than leaving it to inference.
A Tribunal’s Word Is Not Final
Parties sometimes assume that once a tribunal rules on its own jurisdiction, the matter is settled. It is not. In Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs, Government of Pakistan, an ICC tribunal seated in Paris found that the Government of Pakistan, though a non-signatory, was bound by an arbitration agreement. The UK Supreme Court refused to enforce the resulting award in 2010, holding that a tribunal’s own view of its jurisdiction carries no conclusive weight before an enforcing court, which is entitled to reach its own independent conclusion under the New York Convention. Clauses that leave ambiguous which affiliates, subsidiaries, or successors are bound create exactly this risk, discovered only after an award has already been won and then lost at the enforcement stage.
Common Pathologies to Eliminate
- Naming an arbitral institution that no longer exists or has since merged
- Providing for both litigation and arbitration over the same disputes without a clear priority
- Omitting the seat, leaving the procedural law open to challenge
- Multi-tier clauses (negotiation, then mediation, then arbitration) without defined triggers or deadlines
- Silence on the number of arbitrators and the appointment mechanism
- Attempting to bind affiliates or successors without a clear contractual basis
A Pre-Signature Checklist
Before signing, confirm:
- The seat and its courts’ track record on enforcement;
- The institution and its current rules;
- An express governing law for the arbitration agreement itself;
- Broad scope language such as “any dispute arising out of or in connection with this agreement”;
- The number of arbitrators and the appointment method;
- The language of proceedings;
- And, for corporate groups, an explicit mechanism binding the intended affiliates.
Conclusion
Courts test the arbitration clause independently, precisely when a company can least afford delay. NOMOS GEORGIA advises international businesses, investors, and technology companies on drafting and reviewing arbitration clauses for cross-border contracts, and on enforcement strategy before the Georgian courts.
Have your clause reviewed before you sign it, not after a dispute begins.
