The most important clause may be the one nobody expects to use
When negotiating a major commercial agreement, businesses naturally focus on economics.
Price.
Payment.
Delivery.
Performance.
Liability.
Termination.
Then, somewhere near the end of the document, appears a dispute-resolution clause.
It is often copied from an older contract with limited discussion.
That can be an expensive mistake.
A dispute clause determines where, how and sometimes how efficiently a future commercial dispute will be resolved.
It deserves the same strategic attention as the commercial terms that created the transaction.
Arbitration begins with the contract
Under Kenya's Arbitration Act, an arbitration agreement may form part of the main contract or exist as a separate agreement, and the arbitration agreement must be in writing. Kenyan law also provides a mechanism through which court proceedings concerning a matter covered by an arbitration agreement may, subject to the statutory requirements, be stayed and the parties referred to arbitration.
That makes the drafting of the original clause critically important.
A clear clause creates a defined road.
A defective clause may create an additional dispute about how the actual dispute should be resolved.
1. Define which disputes go to arbitration
Consider language covering disputes:
- arising under the agreement;
- arising out of the agreement;
- connected with the agreement;
- relating to termination;
- concerning validity or interpretation.
Different formulations can produce different arguments about scope.
For complex commercial relationships, parties should think about whether they want a narrow arbitration mandate or a broad one capable of capturing related disputes.
2. Decide the seat deliberately
The juridical seat of arbitration is not simply the city where people attend hearings.
It has significant legal consequences for the framework surrounding the arbitration and the role of national courts.
Businesses involved in cross-border transactions should therefore avoid selecting a seat casually.
The choice should be deliberate and consistent with the transaction's broader dispute strategy.
3. Decide how the tribunal will be appointed
One arbitrator or three?
Who appoints them?
What happens if one party refuses to participate in the appointment?
Does an arbitral institution make the appointment?
The Arbitration Act itself contains mechanisms dealing with arbitrator appointment in various circumstances, but a properly structured clause can reduce unnecessary procedural friction.
For a straightforward commercial claim, a sole arbitrator may offer efficiency.
For a technically complex or extremely high-value dispute, parties may prefer a three-member tribunal.
There is no universal answer.
4. Institutional or ad hoc arbitration?
Businesses should decide whether an arbitration will be administered under a recognised institution's rules or conducted on an ad hoc basis.
Institutional arbitration may provide established procedures for appointments, administration and procedural questions.
Ad hoc arbitration can offer flexibility but requires the drafting and management framework to be sufficiently clear.
Again, the correct choice depends on the transaction.
The danger is making no conscious choice at all.
5. Think about the governing law separately
The law governing the underlying contract and the seat of arbitration are related concepts but should not simply be assumed to mean the same thing.
Cross-border contracts should expressly address applicable law.
A transaction involving parties, assets and performance obligations across several countries becomes unnecessarily complicated when the contract leaves this fundamental question unresolved.
6. Consider interim protection
Some disputes cannot wait for a final award.
A party may urgently need to protect assets, preserve evidence, prevent a particular action or maintain the commercial position while arbitration proceeds.
The dispute-resolution structure should therefore be considered alongside the possibility of urgent interim measures.
Dispute planning is not only about the final hearing.
It is also about what happens during the months before it.
7. Build an escalation mechanism where the relationship deserves preserving
Not every commercial disagreement should immediately trigger formal arbitration.
For long-term relationships, parties may consider a staged mechanism such as:
Stage 1: good-faith negotiation between designated executives.
Stage 2: mediation or structured settlement discussions.
Stage 3: arbitration if the dispute remains unresolved.
This can create an opportunity to preserve commercially valuable relationships without removing the right to formal adjudication when settlement fails.
However, escalation clauses themselves need careful drafting so that they do not create uncertainty about when arbitration may properly commence.
8. Do not copy dispute clauses across unrelated transactions
A construction project, shareholder agreement, international supply contract and professional-services engagement do not necessarily require the same dispute-resolution architecture.
Yet businesses frequently recycle clauses from unrelated contracts.
The result can be a clause designed for another transaction, another jurisdiction or another commercial risk profile.
A dispute clause should be designed, not inherited.
Contract negotiation is the first stage of dispute strategy
The best time to plan a commercial dispute is when nobody expects one.
At that point:
- relationships are still constructive;
- neither party knows who might eventually be claimant or respondent;
- both sides can design a balanced procedure;
- commercial leverage can still be used to negotiate appropriate protections.
Once a dispute exists, most of those advantages have disappeared.
The arbitration clause at the end of a contract may occupy only a few paragraphs.
Its consequences can determine years of litigation strategy, cost and commercial leverage.
There is nothing boilerplate about that.
How KDH Advocates can assist
KDH Advocates advises on commercial agreements, dispute-resolution strategy, arbitration and complex commercial disputes.
Our approach combines transaction planning with dispute experience so that contracts are drafted not only for the day they are signed, but also for the circumstances in which the commercial relationship may be tested.
A strong dispute strategy starts before the dispute exists.
This article provides general information only and should not be treated as legal advice concerning any particular contract or dispute.