The hidden cost of arbitration clause

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Many contracts still default to foreign arbitrators charging sterling or dollar fees while missing crucial local contexts in their decisions.

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Our legal system now treats arbitration as more than just a contract term. It's a vital part of how we deliver justice in Kenya. Yet businesses keep tripping over their own feet at the drafting stage.

They toss in arbitration clauses, dreaming of quick, cheap solutions to disputes. Instead, they get costly procedural headaches that make them wonder why they chose arbitration in the first place.

This matters particularly now as Kenya cements its position as a regional commercial hub. Our arbitration landscape has matured, handling increasingly sophisticated disputes from complex construction claims to intricate technology battles and shareholder fights.

Yet, puzzlingly, many contracts still default to foreign arbitrators charging sterling or dollar fees while missing crucial local contexts in their decisions.

I've witnessed the real impact in arbitration rooms. Take a recent construction dispute that spiralled from Sh5 million into a Sh12-million shilling headache. Why? The clause insisted on three arbitrators when one expert worked.

Before touching on the dispute, each arbitrator demanded half a million in preliminary fees, not counting travel costs, venue hire and administrative support.

In contrast, another construction case using a thoughtfully drafted clause wrapped up in six weeks, costing just Sh3 million with one arbitrator and virtual hearings.

These copied clauses hit small enterprises hardest. When arbitration costs explode, these businesses face an impossible choice: drop valid claims or risk financial collapse pursuing them.

This reality directly challenges Article 48 of our Constitution, which promises access to justice for all. When arbitration becomes a luxury only big businesses can afford, we've failed this constitutional promise.

The technical complexities in copied clauses transform arbitration from an accessible alternative to litigation into an expensive obstacle course.

The real headache often starts at preliminary meetings. Instead of agreeing on basic procedures, parties find endless ways to stall.

Poorly written clauses give them plenty of ammunition. Even experienced arbitrators tread cautiously, knowing their decisions might face court scrutiny. Client funds drain away with each tactical delay, procedural argument and pointless debate.

Different industries face unique challenges that standard clauses can't address. A technology dispute requires different handling than a construction conflict or a shareholder battle.

Yet time and again, I see clauses that ignore these realities, appointing generalist arbitrators for specialised disputes and expecting them to navigate complex technical issues without relevant expertise.

This mismatch creates endless explanations, expensive delays and frustrated parties who choose arbitration precisely to avoid such inefficiencies.

Look at our Constitution's promises under Article 159: dispute resolution that works for everyone. It's not just words on paper. It's a commitment to accessible justice. But walk into any small business owner's office and you'll hear how badly drafted clauses turn this promise into an expensive mirage.

Fixing these issues requires embracing local realities. Match arbitrator expertise to your industry, cap fees to prevent nasty surprises, set clear deadlines for appointments and awards, include virtual hearing options and tackle procedural rules head-on in your clause rather than leaving them for heated debates later.

Technology keeps changing how we handle disputes. We can manage entire arbitrations without printing a single page or booking a flight.

But flip through most commercial contracts and you'll find arbitration clauses frozen in time. For Kenya to truly own its spot as a regional dispute hub, we need agreements that embrace these advances, not fight against them.

The pandemic forced us to embrace virtual hearings and electronic submissions. Many discovered these tools not only cut costs but also improved efficiency.

Yet drafted clauses often fail to capitalize on these lessons learned. They lock parties into traditional physical proceedings when hybrid or virtual options serve better.

Things have changed dramatically since Kenya first passed its Arbitration Act in 1995. We've grown, adapted and borrowed what works from around the world while keeping what matters for our market.

Our framework today stands proud: modern yet practical, international yet distinctly Kenyan. Now, if only the arbitration clauses crossing my desk would show the same evolution.

Let's be clear about what's really at stake here. Every time a dispute gets bogged down by a poorly drafted clause, it ripples through our economy.

Businesses hold back investments. Growth plans stall. Getting dispute resolution right isn't optional for our small and medium enterprises, the real engines of Kenya's growth. It's the difference between thriving and barely surviving.

Remember, contracts reveal their true worth not in good times but during disputes. A carefully crafted arbitration clause can light the way through darkness. That hour spent thoughtfully drafting can prevent weeks of procedural warfare and save millions in unnecessary costs.

The writer is a Partner and Head of Dispute Resolution, Maina & Onsare Partners Advocates.

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