In today’s global business landscape, the number of cross-border commercial disputes has risen sharply. According to recent industry data, the volume of international arbitration cases increased by more than 30% in the years following the COVID-19 pandemic, as companies faced new risks and interruptions to global supply chains.^[1] As companies expand internationally and transactions grow more complex, resolving disputes efficiently, fairly, and confidentially becomes critical. The arbitration agreement has become an essential tool for resolving complex commercial disputes outside traditional courts.

What is an arbitration agreement?

An arbitration agreement is a legally binding contract in which the parties agree to resolve their disputes through arbitration rather than litigation. It can be a standalone document or a clause within a broader contract. By entering into an arbitration agreement, parties consent to submit any future or existing disputes to one or more arbitrators whose decision is generally final and enforceable internationally under the New York Convention.^[2] This ensures that arbitral awards hold significant practical power and can be recognized and enforced in most jurisdictions worldwide.

WHY ARBITRATION?

1.1 Expertise and Neutrality

Arbitrators are typically experts in the dispute’s subject matter, offering specialized knowledge that generalist judges may lack.^[3] Parties have the opportunity to strategically select arbitrators with the technical or industry-specific expertise most relevant to their case. This selection process can significantly expedite complex proceedings. For example, in a dispute between two energy companies over the interpretation of a complex engineering contract, the parties appointed an arbitrator with decades of experience in energy infrastructure projects. His insight into industry practices and technical considerations allowed both parties to quickly resolve key points of contention and reach a fair outcome in a fraction of the time a general court process might have required. Arbitration also enables parties to choose a neutral setting and arbitrators, reducing concerns over local favoritism.

1.2   Flexibility and Confidentiality

Arbitration procedures can be customized to meet parties’ needs, offering adaptability in schedules, procedures, and evidentiary standards. Unlike court proceedings, arbitration is private and secure, safeguarding sensitive commercial information and protecting business reputations. Confidentiality in arbitration is not just a procedural benefit; it plays a critical role in minimizing reputational risk for businesses.^[4] Public court cases can expose sensitive disputes and harm brands, as seen in several high-profile litigation battles that dominated headlines and damaged corporate images.^[5] For executives, the potential cost of brand damage from public exposure often far exceeds the cost of the dispute itself, making the confidentiality of arbitration proceedings an important strategic priority.^[6]

1.3   Enforceability

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards guarantees that arbitration awards are recognized and enforceable in over 170 countries, making arbitration a viable option for international disputes.^[7] However, enforcement is not always automatic. Local courts in some jurisdictions may delay enforcement or refuse it on certain grounds, such as if enforcement would violate that country’s public policy.^[8] For example, some courts may find that an award conflicts with local laws or national interests and therefore will not recognize it. To mitigate such risks, parties should carefully draft the arbitration agreement and ensure that the chosen seat of arbitration is in a country known for supporting the enforcement of arbitral awards. Additionally, gathering legal intelligence on the enforcement landscape of counterparties’ jurisdictions before commencing arbitration can help parties plan for successful enforcement.

1.4  Efficiency

Although not always faster, arbitration frequently avoids the lengthy delays associated with crowded court systems. It usually limits the opportunities for appeal, providing finality to disputes.

2. KEY ELEMENTS OF AN EFFECTIVE ARBITRATION AGREEMENT

2.1   For an arbitration agreement to be effective, it must include certain key elements. To maximize the benefits of arbitration, the agreement itself must be carefully drafted, and to achieve this, the following model clause prompts serve as a practical checklist:

i.  What types of disputes will be covered by this arbitration agreement?

ii. Which arbitration rules and which seat of arbitration will govern the proceedings?

iii. How many arbitrators will there be, and what process will be used to select them?

iv. What language will the proceedings be conducted in, and where will they take place (physically or virtually)?

v. What confidentiality measures should be included to ensure that the process and outcome remain private?

3. ESSENTIALITY OF AN ARBITRATION AGREEMENT

Like all legal procedures, arbitration may present challenges for businesses. The financial value or investment of a business in the transaction may be high, especially in large or complicated cases. This may impact the costs of arbitration and may lead to complex or lengthy arbitration proceedings. In such instances, a carefully drafted arbitration agreement allows parties to address many potential issues in advance. Having a carefully curated and tailored arbitration agreement, therefore, becomes essential and imperative in commercial transactions entered into by businesses to ensure that all important aspects of the settlement process are taken into consideration and covered by the arbitration agreement. This invariably allows the parties to agree on the modalities for resolving their dispute and the key elements to be addressed in the agreement.

CONCLUSION

The arbitration agreement is central to resolving commercial disputes. It offers a flexible, neutral, and respected process, giving businesses confidence and control. More than a legal tool, it is a strategic asset in vital business relationships. As a practical next step, businesses should consider reviewing their existing contracts to ensure their arbitration agreements are clear, comprehensive, and enforceable. Taking this action today can help safeguard your interests and strengthen your business relationships for the future.

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^[1]Born, G. B. (2021). International Commercial Arbitration (3rd ed.). Kluwer Law International;

 Kuner, Christopher, Transborder Data Flows and Data Privacy Law (Oxford, 2013; online edn, Oxford Academic, 26 Sept. 2013), https://doi.org/10.1093/acprof:oso/9780199674619.001.0001, accessed 23 Feb. 2026; See also (n.d.). International Arbitration After the Pandemic. https://www.fticonsulting.com/insights/reports/international-arbitration-after-pandemic;

^[2] Born, G. B. (2025). International Arbitration: Law and Practice (4th ed.). Kluwer Law International.

^[3] Haderspock, B. (June 1, 2024). Guiding Principles of Commercial Arbitration and Its Advantages Compared to Traditional Litigation. American Bar Association. https://www.americanbar.org/groups/dispute_resolution/resources/just-resolutions/2024-june/guiding-principles-commercial-arbitration-advantages-compared-to-traditional-litigation/

^[4] (2025). Confidentiality in Arbitration and Private Settlement of Commercial and Investment Disputes. AO2 Law Firm.https://ao2law.com/wp-content/uploads/2025/03/Confidentiality-in-Arbitration-and-Private-Settlement-of-Commercial-and-Investment-Disputes.pdf

^[5] Wisdom, S. (August 7, 2024). Impact of Lawsuits and Litigation on Brand Image. https://www.supplywisdom.com/resources/impact-of-lawsuits-and-litigation-on-brand-image. See also Hall, A. (August 7, 2024). Risks From Public Filings in High-Profile Business Lawsuits. https://aaronhall.com/risks-from-public-filings-in-high-profile-business-lawsuits/

^[6] (2021). Confidentiality and Transparency in International Commercial Arbitration. Michael Edwards. https://michaeledwards.uk/confidentiality-and-transparency-in-international-commercial-arbitration/; See also (2020). Confidentiality in Arbitration: Balancing Transparency and Privacy. Michael Edwards. https://michaeledwards.uk/confidentiality-in-arbitration-balancing-transparency-and-privacy/InsertBack

^[7] (1958). Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958). United Nations Commission on International Trade Law (UNCITRAL). https://uncitral.un.org/en/texts/arbitration/conventions/foreign_arbitral_awards

^[8] (June 1, 2022). Enforcing an award? Contrary to sanctions, an issue of public policy. Wikborg Rein Advokatfirma AS. https://www.wr.no/en/news/enforcing-an-award-contrary-to-sanctions-an-issue-of-public-policy

Written by Ayoola Senbanjo for The Trusted Advisors

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