drafting international arbitration clauses november 2012
TRANSCRIPT
Drafting International Arbitration Clauses
November 2012
Gary B. Born
Wilmer Cutler Pickering Hale and Dorr LLP
Why Plan For Disputes?
• Commercial certainty and procedural advantage
– Obtain favorable forum for resolution of disputes
– Preclude litigation in unfavorable fora
– Avoid parallel litigation in competing fora
– Increase predictability
• Leverage in commercially resolving future disputes
• Avoid unnecessary delays in resolving disputes
• Maximize enforceability of company’s rights
Drafting International Arbitration Agreements Critical Elements
• Arbitration or Forum Selection Agreement?
• Institutional or Ad Hoc Arbitration?
Arbitral Institution (if any) and its Rules
• Scope of the Arbitration Clause
• Situs (or Seat) of the Arbitration
• Appointment of and Number of Arbitrators
• Language of the Arbitration
• Choice of Law Clause
• Other Modifications
Choosing the Institution
• Does the institution exist?
• Is it experienced and reputable?
• Is the institution independent or is it controlled – directly or indirectly
– by the State?
Institutional Arbitration Clauses
• The starting point can be the model arbitration clause of the
chosen institution
– ICC – www.iccwbo.org
– LCIA – www.lcia-arbitration.com
– AAA – www.adr.org
• It may be necessary or desirable to amend the institution’s
clause. Proceed with caution.
• Does the clause properly name the intended institution and its
rules?
• Does the parties’ agreement – considered as a whole – name
more than one institution?
Drafting International Arbitration Agreements A Badly Drafted Clause
“For all claims or disputes arising out of this agreement which could not
be amicably settled between the parties, is competent the arbitrage for
export trade at the Federal Chamber of Commerce in Beograd. In the
case that the buyer is accused, the Chamber of Commerce in New
York is competent.”
Drafting International Arbitration Agreements A Badly Drafted Clause
“All disputes arising in connection with the present agreement shall be
submitted in the first instance to arbitration. The arbitrator shall be a
well-known chamber of commerce (like the International Chamber of
Commerce) designated by mutual agreement between buyer and
seller.”
Drafting International Arbitration Agreements Model ICC Clause
“All disputes arising out of or in connection with the present contract
shall be finally settled under the Rules of Arbitration of the International
Chamber of Commerce by one or more arbitrators appointed in
accordance with the said Rules.”
Drafting International Arbitration Agreements Model UNCITRAL Clause
“Any dispute, controversy or claim arising out of or relating to this
contract, or the breach, termination or invalidity thereof, shall be settled
by arbitration in accordance with the UNCITRAL Arbitration Rules as at
present in force.
[(a) The appointing authority shall be …
(b) The number of arbitrators shall be…
(c) The place of arbitration shall be...
(d) The language[s] used in the arbitration shall be…]”
Drafting International Arbitration Agreements
Critical Elements
• Arbitration or Forum Selection Agreement?
• Institutional or Ad Hoc Arbitration?
• Arbitral Institution (if any) and its Rules
Scope of the Arbitration Clause
• Situs (or Seat) of the Arbitration
• Appointment of and Number of Arbitrators
• Language of the Arbitration
• Choice of Law Clause
• Other Modifications
Scope of the Clause
What Can the Arbitrator Decide?
• Scope of the arbitration agreement defines the jurisdiction of the
arbitrators
• Broad scope v. narrow scope
• Some courts hold that “arising under” language does not encompass
tort, statutory or other non-contractual claims
• Compare to scope of choice-of-law clause
Scope of the Clause
What Can the Arbitrator Decide?
• Specific exclusions possible for particular types of claims, e.g.
enforcement of IP rights, pricing adjustments, etc.
– “All disputes arising out of or relating to this Agreement, except
‘Licensed Mark Disputes’ (as defined below), shall be finally resolved by
arbitration…”
– Such provisions should be combined with forum selection clause
• Multiple parties or contracts: Are they covered? Should they be?
• Are all relevant agreements covered by the arbitration clause? “All
disputes relating to this Agreement …”
Drafting International Arbitration Agreements Modified Model ICC Clause
“Any disputes, claims or controversies arising out of, relating to or in
connection with the present contract, including any question regarding
its formation, existence, validity, enforceability, performance,
interpretation, breach or termination, shall be finally settled under the
Rules of Arbitration of the International Chamber of Commerce by one
or more arbitrators appointed in accordance with the said Rules.”
Drafting International Arbitration Agreements
Critical Elements
• Arbitration or Forum Selection Agreement?
• Institutional or Ad Hoc Arbitration?
• Arbitral Institution (if any) and its Rules
• Scope of the Arbitration Clause
Situs (or Seat) of the Arbitration
• Appointment of and Number of Arbitrators
• Language of the Arbitration
• Choice of Law Clause
• Other Modifications
Where to Arbitrate?
[We] are reviewing a contract that proposes to have disputes arbitrated by XYZ Associates of Washington DC. The arbitration would take place in Bermuda, and the law governing the arbitration proceeding would be the Bermuda International Arbitration Act of 1993. Does anyone have an opinion as to whether there is anything unusual, desirable, or undesirable about this provision? Thanks.
Yes. My opinion is that arbitration in Bermuda is very desirable. Especially if it's a long arbitration.
not this time of year; it's hurricane season.
Why Is the Arbitral Seat Important?
• Exclusive forum for annulment actions
• Exclusive forum for judicial appointment / removal of arbitrators
• Standards of arbitrator’s independence and impartiality
• Enforcement of arbitration agreement
• Choice of law governing arbitration agreement
• Judicial non-interference
• Judicial support for arbitral process (e.g., provisional measures,
disclosure)
• Legal standards for fairness / conduct of arbitral proceedings
• Effect on selection of presiding arbitrator, arbitral procedures, choice
of law
Importance of the New York Convention
• United Nations Convention on Recognition and Enforcement of
Foreign Arbitral Awards (New York Convention, 1958)
• Under the New York Convention (and most national laws) there are
very limited bases for challenging an agreement or award
Importance of the New York Convention
• Ratified by over 145 countries
• Palestine is not a signatory to the Convention, but awards rendered
in Convention countries are enforceable in other Convention
countries
• Most of the countries in the Middle East have ratified the Convention
(notable exceptions include Yemen and Iraq)
Preferred Arbitral Seats
• Country that has implemented the NY Convention
• With national legislation hospitable to and supportive of international
arbitration:
– enforceability of arbitration agreements
– freedom of parties to choose counsel and arbitrator(s)
– minimal judicial review of awards
– minimal supervision of arbitrators and judicial interference
– court assistance in aid of arbitration
– (UNCITRAL Model Law)
• Appropriate logistics / infrastructure
• Beneficial or neutral forum for particular party
• Political stability and judicial independence
Number of times
agreed by the
parties
Number of times
fixed by the
Court
Total
FRANCE 109 15 124
SWITZERLAND 79 7 86
UNITED KINGDOM 66 4 70
UNITED STATES 42 2 44
GERMANY 24 3 27
SINGAPORE 23 1 24
CHINA 11 3 14
MEXICO AUSTRIA
12 11
1 2
13 13
UNITED ARAB EMIRATES
8 4 12
BRAZIL 11 0 11
Places of Arbitration in ICC Proceedings 2010
Other Factors In Choosing Arbitral Seat
• Effect on choice of presiding / sole arbitrator
• Effect on choice of co-arbitrators
• Effect on procedures, language and conduct of arbitration
• IMPORTANT: Exercise caution in any agreement selecting
“procedural law” of the arbitration
Drafting International Arbitration Agreements Modified Model ICC Clause
“Any disputes, claims or controversies arising out of, relating to or in
connection with the present contract, including any question regarding
its formation, existence, validity, enforceability, performance,
interpretation, breach or termination, shall be finally settled under the
Rules of Arbitration of the International Chamber of Commerce by one
or more arbitrators appointed in accordance with the said Rules. The
[place][seat] of the arbitration shall be [London, England][Singapore].”
Drafting International Arbitration Agreements
Critical Elements
• Arbitration or Forum Selection Agreement?
• Institutional or Ad Hoc Arbitration?
• Arbitral Institution (if any) and its Rules
• Scope of the Arbitration Clause
• Situs (or Seat) of the Arbitration
Appointment of and Number of Arbitrators
• Language of the Arbitration
• Choice of Law Clause
• Other Modifications
Number of Arbitrators
• Agree on the number of arbitrators (1 or 3; not 2, 4, 5)
• Unless disputes are likely to be small, it is generally preferable to
have three arbitrators
• Possibility of tiered approach (1 arbitrator for small disputes; 3
arbitrators for larger disputes (e.g., >$3 million)
• Agree on procedure to appoint chair
• Consider the institutional default rule -- the leading institutional and
UNCITRAL Rules contain acceptable procedures for the
appointment of arbitrators
Drafting International Arbitration Agreements
Modified Model ICC Clause
“Any disputes, claims or controversies arising out of, relating to or in
connection with the present contract, including any question regarding
its formation, existence, validity, enforceability, performance,
interpretation, breach or termination, shall be finally settled under the
Rules of Arbitration of the International Chamber of Commerce by three
arbitrators appointed in accordance with the said rules.* The place of
the arbitration shall be London, England.”
* Consider providing that the party appointed arbitrators can nominate the
chairman.
Drafting International Arbitration Agreements
Critical Elements
• Arbitration or Forum Selection Agreement?
• Institutional or Ad Hoc Arbitration?
• Arbitral Institution (if any) and its Rules
• Scope of the Arbitration Clause
• Situs (or Seat) of the Arbitration
• Appointment of and Number of Arbitrators
Language of the Arbitration
• Choice of Law Clause
• Other Modifications
Language of Arbitration
• Essential element
• Affects clients’ ability to monitor / participate and choice of counsel
• Affects choice of arbitrators and presiding arbitrator
• Bilingual proceedings possible, but cumbersome
• Agreement regarding translation possible fall-back
Drafting International Arbitration Agreements
Critical Elements
“Any disputes, claims or controversies arising out of, relating to or in
connection with the present contract, including any question regarding
its formation, existence, validity, enforceability, performance,
interpretation, breach or termination, shall be finally settled under the
Rules of Arbitration of the International Chamber of Commerce by three
arbitrators appointed in accordance with the said rules. The place of the
arbitration shall be London, England. The language of the arbitration
shall be English.”
Drafting International Arbitration Agreements
Critical Elements
• Arbitration or Forum Selection Agreement?
• Institutional or Ad Hoc Arbitration?
• Arbitral Institution (if any) and its Rules
• Scope of the Arbitration Clause
• Situs (or Seat) of the Arbitration
• Appointment of and Number of Arbitrators
• Language of the Arbitration
Choice of Law Clause
• Other Modifications
Choosing the Governing Law
• There can be multiple laws “governing” aspects of a contract and
related disputes. E.g.:
– The law or rules governing the substantive issues in dispute (including
mandatory laws in the place of performance and at the seat of
arbitration)
– The law governing the arbitration agreement
– The law(s) governing recognition and enforcement of an award
• Here, referring to the law or rules governing the substance of a
dispute – also referred to as the applicable law / substantive law /
proper law / law governing the underlying contract
Choosing the Governing Law
ICC Data 2009
• 12% of contracts no choice of law
• 88% of contracts parties chose the law:
– in 10 contracts the parties opted for non-State laws (CISG, UNIDROIT,
ICC Incoterms and EC law)
– State law chosen in all other contracts
• When law of a State was chosen, choices covered laws of 91
different States (English 14.3%, Swiss 13.1%, French 7.2%, US
7.1%, German 6%, Brazilian 2.6%).
• Parties often choose the law of a third country
Choosing the Governing Law
Queen Mary Data 2010
• If they can, parties want to choose their own law
• When they can’t, surveys show –
– English
– Swiss
– NY
– French
– US law (other than NY)
– Other
Choosing the Governing Law
• The law chosen should be a developed, stable and commercially
sophisticated law -- and accessible
• The law should be beneficial or neutral
• Scope should be broad and match dispute resolution clause
• May determine important construction / interpretation principles
Choosing the Governing Law
• Avoid references to “General Principles of Law” or similar
formulations. These are uncertain and raise enforceability issues
• Avoid references to multiple laws
• Consider in advance the effects on the parties’ substantive
agreement (including “implied terms” or “mandatory rules”)
– may affect the commercial balance of the agreement and more (e.g.,
invalidity)
– mandatory law may address insolvency, competition, other regulatory
matters, including tax/VAT, environment, health, safety,
labor/employment
Governing Law Clause
“This Agreement, and any disputes, claims or controversies in relating
to or in connection with this Agreement, including any question
regarding its formation, existence, validity, enforceability, performance,
interpretation or termination, shall be resolved in accordance with the
laws of the [ADD] without regard to its conflict of laws rules.”
The International Arbitration Agreement and Governing Law Clause
“Any disputes, claims or controversies arising out of, relating to or in connection with the
present contract, including any question regarding its formation, existence, validity,
enforceability, performance, interpretation, breach or termination, shall be finally settled
under the Rules of Arbitration of the International Chamber of Commerce by three
arbitrators appointed in accordance with the said rules. The place of the arbitration shall
be London, England. The language of the arbitration shall be English.”
“This agreement will be governed by and any disputes, claims or controversies in
connection with this Agreement, including any question regarding its formation,
existence, validity, enforceability, performance, interpretation or termination, shall be
resolved in accordance with the laws of the State of New York without regard to its
conflict of laws rules (other than Section 5-1401 of the General Obligations Law of the
State of New York).”
Drafting International Arbitration Agreements
Other Possible Elements
• Formalities, Capacity, Validity and Sovereign Immunity
• Arbitrator Qualifications and Selection
• Preliminary and Interim Measures
• Discovery/Disclosure and Evidentiary Rules
• Pre-arbitration Notice and/or ADR, i.e., negotiation, mediation, etc.
• Confidentiality
• Interest
• Costs and Legal Expenses
• Accelerated Timeframes/Fast-track
• Consolidation and Joinder
• Right of Appeal/Judicial Review
Drafting International Arbitration Agreements
Other Possible Elements
• Formalities, Capacity, Validity and Sovereign Immunity
Method of Selection, Qualifications, Nationality and Independence of
Arbitrators
• Preliminary and Interim Measures
• Discovery/Disclosure and Evidentiary Rules
• Pre-arbitration Notice and/or ADR
• Confidentiality
• Interest
• Costs and Legal Expenses
• Accelerated Timeframes/Fast-track
• Consolidation and Joinder
• Right of Appeal/Judicial Review
Arbitrator Qualifications and Selection
• Possible to agree that the arbitrators should have particular legal
expertise, industry / technology-specific experience, nationality,
language skills, and other qualifications (or selected by third party
appointing authorities (institutes, etc))
• IMPORTANT:
– Be sure that qualifications are appropriate for all potential disputes that
could arise
– Be careful not to unduly restrict the pool of potential arbitrators
• Consider nationality requirement for presiding/sole arbitrator
• General requirements of neutrality / independence and impartiality --
policed by disclosure obligations
Drafting International Arbitration Agreements
Other Possible Elements
• Formalities, Capacity, Validity and Sovereign Immunity
• Arbitrators Qualifications and Selection
• Preliminary and Interim Measures
Discovery/Disclosure and Evidentiary Rules
• Pre-arbitration Notice and/or ADR
• Confidentiality
• Interest
• Costs and Legal Expenses
• Accelerated Timeframes/Fast-track
• Consolidation and Joinder
• Right of Appeal/Judicial Review
Discovery / Disclosure
• Common law and civil law systems apply different standards to pre-
trial discovery / disclosure
• In international practice, wide-ranging US-style discovery typically
not available – depositions generally not available
• Possible to broaden or narrow the scope of disclosure available to
the parties in the arbitration agreement -- consider own future
position
• Increasingly harmonized standards: IBA Rules of Evidence in
International Arbitration (revised 2010)
Discovery / Disclosure
Broad clause:
“The parties shall be entitled to engage in discovery as provided by the
U.S. Federal Rules of Civil Procedure.”
Narrower:
“At the request of a party, the Tribunal shall have the discretion to order
the disclosure to specified documents. Such a request shall identify the
documents with a reasonable degree of specificity and establish the
relevance [and materiality] of the documents to the arbitration.”
Exclusion:
“The parties shall not be entitled to discovery, and the Tribunal shall
have no power to order discovery of documents, [oral testimony] [or
other materials].”
Drafting International Arbitration Agreements
Other Possible Elements
• Formalities, Capacity, Validity and Sovereign Immunity
• Arbitrators Qualifications and Selection
• Preliminary and Interim Measures
• Discovery/Disclosure and Evidentiary Rules
Pre-arbitration Notice and/or ADR, i.e., negotiation, mediation, etc.
• Confidentiality
• Interest
• Costs and Legal Expenses
• Accelerated Timeframes/Fast-track
• Consolidation and Joinder
• Right of Appeal/Judicial Review
Pre-Arbitration Clauses
Caught in a Loop?
• Read carefully -- is there a risk that the added procedure (i.e., fast
track, carve out, ADR provisions) will result in a “procedural loop” or
divest the tribunal of jurisdiction?
• Are there (reasonable) time limits?
• Is there a mechanism for resolving impasses?
Pre-Arbitration Clauses A Badly Drafted Clause
“All disputes arising in connection with the present agreement should
be resolved by negotiation and friendly settlement. If this method or
resolution should be impracticable, the disputed questions shall be
decided in accordance with the Rules of the ICC in Paris. In the event
the proceedings were not able to decide the question for any reason
whatsoever, the judicial courts of the injured party shall decide the
dispute on a legal basis.”
Pre-Arbitration ADR Clause A Model Clause
“All disputes relating to this Agreement shall be referred to
management representatives of the parties for resolution. If such
representatives are unable to resolve any dispute(s) referred to them
within [30] days of referral, either party may submit such dispute(s) to
arbitration in accordance with the provisions of Article [__] hereof.”
Pre-Arbitration ADR Clause A Model Clause
“If a dispute, controversy, or claim arises out of or relates to this
contract, the parties agree to first submit it to mediation administered by
the American Arbitration Association under its Commercial Mediation
Rules before resorting to arbitration. Thereafter, any unresolved
dispute, controversy, or claim arising out of or relating to this contract
shall be referred to arbitration administered by the American Arbitration
Association in accordance with its Commercial Arbitration Rules.”
Drafting International Arbitration Agreements
Other Possible Elements
• Formalities, Capacity, Validity and Sovereign Immunity
• Arbitrators Qualifications and Selection
• Preliminary and Interim Measures
• Discovery/Disclosure and Evidentiary Rules
• Pre-arbitration Notice and/or ADR
Confidentiality
• Interest
• Costs and Legal Expenses
• Accelerated Timeframes/Fast-track
• Consolidation and Joinder
• Right of Appeal/Judicial Review
Confidentiality
• Not necessarily provided by national law
• Not provided for by many arbitral rules. (Cf. LCIA Rules Art. 30,
CAM Rules Art. 8, WIPO Rules Art. 73-76)
• What is confidential? Regulatory limits (e.g., SEC requirements)?
• Consider need for separate confidentiality undertaking covering:
– fact of dispute / arbitration
– information disclosed during arbitration
– arbitration award
– settlement discussions
Confidentiality
“The parties to an arbitration shall keep the arbitration confidential and
shall not disclose to any person, other than those necessary to the
proceedings, the existence of the arbitration, any information submitted
during the arbitration, any documents submitted in connection with it,
any oral submissions or testimony, transcripts, or any award unless
disclosure is required by law or is necessary for permissible court
proceedings, such as proceedings to recognize or enforce an award.”
Drafting International Arbitration Agreements
Other Possible Elements
• Formalities, Capacity, Validity and Sovereign Immunity
• Arbitrators Qualifications and Selection
• Preliminary and Interim Measures
• Discovery/Disclosure and Evidentiary Rules
• Pre-arbitration Notice and/or ADR
• Confidentiality
• Interest
Costs and Legal Expenses
• Accelerated Timeframes/Fast-track
• Consolidation and Joinder
• Right of Appeal/Judicial Review
Costs and Expenses Loser Pays
“The prevailing party shall be entitled to recover its [reasonable] costs,
including administrative fees and expenses, arbitrators’ fees and
expenses, and fees and expenses of legal representation, incurred in
the arbitration proceedings.”
OR
“The arbitral tribunal shall award to the prevailing party, if any, all of its
costs and fees. ‘Costs and fees’ mean all reasonable pre-award
expenses of the arbitration, including the arbitrators’ fees,
administrative fees, travel expenses, out-of-pocket expenses such as
copying and telephone, court costs, witness fees, and costs of legal
representation in the arbitration.”
Costs and Expenses Parties Bear Own Costs
“Notwithstanding any provision to the contrary in the [ICC Arbitration
Rules], each party shall bear its own costs and expenses, including
fees for legal representation.”
OR
“The fees and expenses of the arbitrators shall be borne in equal
shares by the parties. Each party shall bear the fees and expenses of
its legal representation in the arbitration. The arbitral tribunal shall not
reallocate either the fees and expenses of the arbitrators or of the
parties’ legal representation.”
International Arbitration
Trends
• Increasing use of specialized international arbitration practices
made up of common law and civil law lawyers
• Increasing range of subjects being arbitrated -- e.g., competition law
(antitrust) and IP
• Broader use of arbitration worldwide -- Latin America, Eastern
Europe, China, Middle East
• Increasing use of arbitration in disputes with State entities and in
international investment disputes -- BITs, ICSID, NAFTA
• Multiple parties or contracts
International Dispute Resolution
Gary Born
Wilmer Cutler Pickering Hale and Dorr LLP
London
+44 (0)207 872 1000