Drafting International Arbitration Agreements

11/23/2010 COMMENTS (0)

Litigation attorneys are sometimes asked to draft (or review) an arbitration clause to be included in an agreement memorializing a commercial transaction.  Particularly where this request comes in the context of an international deal, the lawyer must pay particular attention to certain aspects of the agreement or risk lengthy litigation and other adverse consequences the client hoped to avoid.  Recognizing that there is no shortage of learned texts on the subject of drafting arbitration clauses, and with the easy availability of this detailed literature in mind, set out below in not particular order are some thoughts on those issues experience demonstrates should, at the absolute minimum, be at the top of one’s mind when considering an arbitration agreement in the international context. 

VENUE 

This is about more than simply where the arbitration will be held, although that issue is important in itself as excessive travel times and expenses may pose a real difficulty.  Of primary importance in selecting the venue, however, is to choose a forum in a country that is a party to the New York Convention (and Panama Convention, if a Latin American transaction) so that you have some comfort that the award will be given enforcement in a number of countries.  Moreover, the forum’s law should recognize agreements to arbitrate as valid, and the courts should not unnecessarily interfere with the arbitral proceedings.  Consider as well the availability of provisional measures from the local courts in cases where such relief to preserve the status quo may be needed.  The law on the availability of such relief differs from place to place.  Leading arbitral venues are New York, London, Stockholm, Paris, and Hong Kong. 

ARBITRATORS   

 The ability to choose the arbitrator or arbitrators that will hear the dispute is a distinct advantage arbitration holds over litigation.  Consider not only the number of arbitrators (one is typical for a small case; three is quite typical for a large case), but also whether the arbitrators should have to hold certain qualifications (such as experience with the law of a certain jurisdiction or certain technical expertise).  Be careful, however, not to so narrowly define such pre-qualifications that finding an arbitrator becomes an impossible task. 

LANGUAGE 

Parties should not underestimate the importance of hammering out an agreement on the governing language before a dispute arises.  Although arbitration rules typically allow arbitrators to decide the issue if the parties fail to reach agreement, a proceeding in a language other than the one your client speaks will be cumbersome and stressful for both of you.  At the very least, if your client’s preferred language cannot be agreed upon, try to agree that simultaneous translation of all proceedings into your client’s language will be available for all oral hearings, translations will be provided of written submission on a timely basis, and try to arrive at an agreement on cost sharing as translation costs can be significant. 

CHOICE OF LAW 

 Parties are free to specify the law that will specifically govern the arbitration clause in an agreement.  While such a choice of law is not common, adding such a clause may be advisable in certain situations, such as where the substantive law chosen to govern the agreement may not be as favorable to arbitration as one would like.  In such a circumstance, an explicit choice of the law of the place selected as the venue of the arbitration, for example, may be appropriate. 

DISCLOSURE 

 Lawyers practicing in the United States are used to very broad discovery.  Lawyers from civil law jurisdictions are not accustomed to discovery and common features of the United States’ legal system, depositions in particular, are unheard of in their legal tradition.  It is perhaps for this reason that discovery in international arbitration is typically quite constrained and, while limited production of specific documents is occasionally ordered, depositions are not ordinarily permitted absent agreement of the parties.  To the extent that broader discovery is likely to be necessary given the circumstances of a particular transaction, or, conversely, the parties want to eliminate discovery in the interest of saving time and costs, the parties should make the requisite provision in the arbitration agreement. 

 REASONED DECISION  

Consider whether or not to specifically provide that the award be reasoned — i.e., that it contain a recitation of the facts and reasoning on which it is based.  In some legal systems, an unreasoned award is not enforceable. 

 DRAFT AWARD   

Once an award is issued and final, it is difficult to obtain a change in it, even to correct simply minor errors that could complicate enforcement.  Consider providing in the arbitration agreement that the award will be issued in draft form initially and that the parties will be permitted a set amount of time to suggest corrections, after which the award will be issued in final form.  This procedure is not meant to allow the parties to reargue the substance of a draft award with which they do not agree.  Rather, it is just a means to weed out scrivener’s and other minor errors. 

ENTRY OF JUDGMENT 

 United States courts have held at various times that a court may not enter judgment on an arbitral award unless the arbitral agreement specifically provides for it.  Thus, if there is any chance the courts of the Untied States will be needed to compel enforcement, insist upon an entry of judgment clause in the agreement. 

 ALLOCATION OF COSTS AND ATTORNEYS' FEES  

Different legal systems handle the award of costs and attorneys’ fees differently, so arbitrators from place to place may have different comfort levels awarding costs and attorneys’ fees for or against a party.  To ensure that such awards are available, or to stipulate an allocation of costs and attorneys’ fees, the parties may want to spell out their agreement in this regard in the arbitration agreement. 

 MEDIATION  

Most arbitral institutions have mediation procedures designed to compliment the arbitration procedure.  Agreeing to participate in pre-arbitration mediation may resolve disputes more quickly and at less cost than arbitration.  Mediation is also arguably less adversarial than arbitration and may help preserve the relationship between the parties, an important factor, particularly if the agreement contemplates — or stems from — a long term relationship. 

The recitation above is by no means an exhaustive listing of the factors and issues counsel need to consider in evaluating or drafting an agreement to arbitrate.  No single posting of this sort could capture all of those issues.  However, the above discussion reflects those issues that, properly addressed, could alleviate a number of the problems that lead to delays due to post-dispute negotiations and collateral litigation.