INTERNATIONAL ARBITRATION 1/3LY
TECHNICAL 25
DRAF T ING AN EFFECT I VE
Arbitration agreements can often be overlooked at the time of concluding a commercial contract; but it is important to get the dispute resolution mechanism right as it sets out the parties’ choices about how any dispute will be resolved. Arbitration agreements therefore must be carefully drafted and tailored to the nature of the contract and the parties’ requirements. An enforceable arbitration agreement must, under English law, comply with the usual requirements of contract formation such as capacity of the parties and an intention to create legal relations. This is particularly the case as the arbitration agreement is ‘separable’ from the main contract and can stand alone even where the underlying contract is voidable or void. In order to be enforceable an arbitration agreement must contain an agreement to arbitrate and a choice of seat. Under the English Arbitration Act 1996, an arbitration agreement means an agreement to submit to arbitration present or future disputes (whether contractual or not), and any such an agreement must be in writing. In practice however, arbitration agreements need to be more sophisticated and provide for at the minimum, the seat of arbitration, any applicable institutional rules, the tribunal’s composition and the applicable law of the arbitration agreement (which may or may not be the same as that of the underlying agreement). Parties often also provide for a multi-tiered dispute resolution mechanism formalising an agreement to try to settle the dispute failing which arbitration will be commenced. FORUM OR ‘ SE AT ’ The forum or legal place of the arbitration, widely referred to as the ‘seat’, is critically important to the enforceability of your arbitration agreement and often the success of your arbitration as a dispute resolution process. The law of the seat of arbitration governs the procedural law of the arbitration and, usually, the courts of the seat support the arbitration process both by respecting the arbitrators’ authority and acting when the tribunal is unable to do so. Choosing a seat enables the parties to choose a neutral forum to resolve their disputes away from the national courts of either contracting party. Importantly, the seat is the where the arbitral award is ‘made’ for the purposes of enforcement. It is key for an award to be made in a contracting state to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards as this enables the award to be enforced (subject to limited exceptions) in over 150 countries worldwide.
ARBI TRAL INS T I TUT ION Arbitrations may be conducted without the involvement of an arbitral institution either under national law or under a set of rules such as the UNCITRAL arbitration rules. In practice however, the structure and support of a set of arbitral rules and an institution enables the arbitral process to run most efficiently. Parties may even consider adopting any of the sample arbitration clauses provided by each of the institutions for reasons of convenience and certainty as to the effectiveness of their agreement. While there are a vast number of arbitral institutions globally, it is advisable to provide for an institution which has a strong track record and is globally recognised such as The International Chamber of Commerce’s International Court of Arbitration (ICC) and the London Court of International Arbitration (LCIA) in Europe and the Hong Kong International Arbitration Centre (HKIAC), Singapore International Arbitration Centre (SIAC) in Singapore and China International Economic and Trade Arbitration Commission (CIETAC) in Asia. COMPOS I T ION OF THE TRIBUNAL The arbitration agreement should provide the mechanism for the appointment of the tribunal. Often this is done by providing institutional rules which all have a mechanism for appointment, including when a tribunal will consist of one or three members. The parties may however provide for this in their agreement if they choose to do so. Parties may wish to determine the background of the arbitrator depending on the nature of the contract i.e. should he/she be a lawyer, an engineer, an accountant. In practice, these preferences can be stated at the time of appointing the tribunal when the nature of the dispute is known, although it may be difficult to insist upon it at that stage APPL I C ABLE L AW Usually the law of the arbitration agreement will be the same as the law of the underlying contract. It is however possible to provide for a different law to apply to the arbitration agreement and, in circumstances where it is not clear whether the law of the underlying contract applied to the arbitration agreement this can lead to further dispute. In practice, it is therefore advisable to make the law of the arbitration agreement clear.
MULT I -T IERED DI SPUTE RESOLUT ION PROV I S ION Parties should consider including a multi-tiered dispute resolution agreement. Under such provision, the parties can, for example, agree to mediate, negotiate, or refer any dispute to a dispute board failing which arbitration would be commenced. The aim is to reach a quick resolution of the conflict before formal proceedings and save time and expenses. An effective dispute resolution clause is therefore the culmination of a number of important decisions which should be taken into account at the outset of the contract. With broad discretion lying in their hands, it is advisable that parties fully consider all the different tools available, conduct a careful risk analysis and ensure that they provide for an effective and fully functional dispute resolution mechanism that best corresponds to their needs. T IP S : Choose your law governing the contract and law governing the dispute carefully, they need not be the same but usually are. If choosing an arbitral seat choose a recognised jurisdiction with arbitration-friendly courts. Multi-tiered clauses can encourage parties to settle disputes and ‘move on’ without destroying the relationship, allowing a project to be completed without walk-outs and tools being downed. If one party holds the balance of power, consider a unilateral agreement enabling the dominant party to hold the dispute in a jurisdiction and forum of their choosing. In multi-party or multi-contract situations consider incorporating an umbrella agreement to save time and money arguing over jurisdiction(s) if a dispute arises.
ARBI TRAT ION CL AUSE : KE Y CONS IDERAT IONS
BY DEEPA KHANDIA , A SSOCIATE AT CLYDE & CO
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