International CommercialArbitration ArbitrationAgreement. DraftingArbitrationAgreement
ArbitrationAgreement “A poorly drafted dispute resolution clause is worse than no clause at all.” ICDRGuide to Drafting Dispute Resolution Clauses JUDr. Tereza Kyselovská, Ph.D.
ArbitrationAgreement • „Most partiesrespect most internationalarbitrationagreements most ofthetime.“ Prof. Henkin JUDr. Tereza Kyselovská, Ph.D.
ArbitrationAgreement • Function and purpose • Derogationofstatecourts • Rightsofparties • Rightsofarbitrators JUDr. Tereza Kyselovská, Ph.D.
DraftingEffective and BindingAA • The Four Purposes of an Effective Arbitration Agreement: • Define what is arbitrable; • Whichdisoutes are covered. • Commit to resolve disputes through arbitration; • Minimizedilatorycourtactionsto avoidarbitration. • Provide rules for arbitration; • Provide for entry of judgment. John Townsend, Drafting Arbitration Clauses, Dispute Resolution Journal, vol.58, No.1, Feb-Apr 2003 JUDr. Tereza Kyselovská, Ph.D.
Arbitrationagreement - types • Arbitrationclause • In a contract, beforedispute • Submissionagreement JUDr. Tereza Kyselovská, Ph.D.
Essentialelements • Consentoftheparties • Determinationofthelegalrelationship JUDr. Tereza Kyselovská, Ph.D.
Doctrineofseparability • Arbitrationclauseisvalid, evenifthemaincontractisfound invalid • UNCITRAL Model Law, Art. 16: • The arbitral tribunal may rule on its own jurisdiction, including anyobjections with respect to the existence or validity of the arbitration agreement.For that purpose, an arbitration clause which forms part of a contractshall be treated as an agreement independent of the other terms of the contract.A decision by the arbitral tribunal that the contract is null and voidshall not entail ipso jure the invalidity of the arbitration clause. JUDr. Tereza Kyselovská, Ph.D.
Validity • Consenttparbitartionshouldbefreely, knowingly, and competentlygiven • Arbitrationagreementshallbe in writing and signed • New York Convention, Art. II JUDr. Tereza Kyselovská, Ph.D.
Validity • Art. II Para 1,2 New York Convention • Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. • The term "agreement in writing" shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. JUDr. Tereza Kyselovská, Ph.D.
Validity • The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. JUDr. Tereza Kyselovská, Ph.D.
Validity • In writing, signatureoftheparties • Moderncommunicationtechnologies? • ArbitrationAgreement as part ofcommertialterms and conditions? • ArbitrationAgreementconcludedthroughpracticesorusagesbetweenparties? • ->needforinterpretation • UNCITRAL – electroniccommunications JUDr. Tereza Kyselovská, Ph.D.
Validity • Interpretationof Art. 2 II New York Convention • UNCITRAL Model Law, Art. 7, Para 3, 4: • An arbitration agreement is in writing if its content is recorded in anyform, whether or not the arbitration agreement or contract has been concludedorally, by conduct, or by other means. JUDr. Tereza Kyselovská, Ph.D.
Validity • The requirement that an arbitration agreement be in writing is met byan electronic communication if the information contained therein is accessibleso as to be useable for subsequent reference; “electronic communication”means any communication that the parties make by means of datamessages; “data message” means information generated, sent, received orstored by electronic, magnetic, optical or similar means, including, but notlimited to, electronic data interchange (EDI), electronic mailtelegram, telexor telecopy. JUDr. Tereza Kyselovská, Ph.D.
Validity • Art. VII Para 1 New York Convention: • The more favorableright • Appliesprimarily to arbitralawards, but… • The provisions of the present Convention shall not affect the validity of multilateral or bilateral agreements concerning the recognition and enforcement of arbitral awards entered into by the Contracting States nor deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon. JUDr. Tereza Kyselovská, Ph.D.
Validity • UNCITRAL • UN Convention on the Use ofElectronic Communications in International Contracts • UNCITRAL Model Law on ElectronicContracts JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitralAgreement • New York Convention, Art. II Para 1 • „… in respectof a definedlegalrelationship, whethercontractualor not“ JUDr. Tereza Kyselovská, Ph.D.
Scope • What causes of action or claims? • Contractual • Tort (non-contractua) • Statutory • Antitrust • Distributorship • Unfair and Deceptive Trade Practices JUDr. Tereza Kyselovská, Ph.D.
Clauses • AlldisputesarisingunderthisAgreement/Contract vs. • Alldisputesarisingunderor in connection(related to) withthisAgreement/Contract JUDr. Tereza Kyselovská, Ph.D.
“All Disputes” clause • “Any controversy, dispute, or claim arising out of, relating to or in connection with this contract or the performance, enforcement, breach, termination or validity thereof, including the determination of the scope of the contract to arbitrate, shall be determined by arbitration . . .” JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • “any dispute arising out of or relating to the lease between WTC and TMI” is not as broad as: • “any dispute between them or claim by either party to the contract against each other” Telecom Italia, SpA v. Wholesale Telecom Corp., 248 F.3d 1109 (11th Cir.2001) • Court in this case ruled that tortious interference claim was not within the scope of the arbitral clause in the agreement (thefirstone). JUDr. Tereza Kyselovská, Ph.D.
Scope • Arbitrability • Has to be a subjectthatthestateconsidersappropriate to bearbitrated • E.g. – validity of patent vs. disputesarisingoutofanagreement to license a patent JUDr. Tereza Kyselovská, Ph.D.
Scope • New York Convention, Art. II Para 3 • The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. JUDr. Tereza Kyselovská, Ph.D.
Scope • Null and void – lackofconsentdue to fraud, duress, misrepresentation, undue influence, waiver;e.g.stateagency • Inoperable – res iudicata, revoked by parties, expirationoftime limit • Incapableofbeingperformed – contradictorylanguage JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • Claims against parent corporations, affiliates, officers, employees – bindingnonsignatories • Group ofcompanies • Equitableestoppel (U.S.) – to preclude a party fromenjoyingrights and benefitsunder a contractwhileavoidingitsburdens and obligations • Veil Piercing – parent – subsidiaryrelationship – oneis alter ego oftheother JUDr. Tereza Kyselovská, Ph.D.
DraftingtheArbitrationAgreement • To avoid „pathologicalclauses“ • Welldraftedclausemayhave a significantimpact on howwellpartiesresolvetheirdispute • BUT • Leftuntilthe end ofnegotiations • Oftendifferentclausesortheirtexts in offer and acceptnace and/or in commercialterms and conditions • Too much creativity JUDr. Tereza Kyselovská, Ph.D.
ArbitrationAgreement • “Start with the end in mind” ->Impose time limit. • “The parties shall use their best efforts to resolve by negotiation any dispute, controversy or claim that may arise between them in connection with or arising out of this Agreement.In the event the parties cannot resolve directly any such dispute, controversy or claim, then such dispute, controversy or claim shall be submitted to arbitration in accordance with the rules of the American Arbitration Association in force on the date of this Agreement.” JUDr. Tereza Kyselovská, Ph.D.
Essentialrequirements • Intentoftheparties to go to thearbitration • Proposedtopics: • Choiceofarbitrators JUDr. Tereza Kyselovská, Ph.D.
Scope • Factors to Consider in Choosing Institutional Administrator vs. Proceeding Ad Hoc • Credibility/enforceability • Cost Factors • Administrative costs • Arbitrators’ fees • Sole Arbitrator or Panel of Three • NumberofArbitrators, selectioncriteria • Appointingauthority in case of ad hoc arbitrators (UNCITRALArbitrationRules – Secretary General ofPCAattheHague) JUDr. Tereza Kyselovská, Ph.D.
AAA Approved Clauses - Future • Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial [or other] Arbitration Rules [including the Optional Rules for Emergency Measures of Protection], and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. JUDr. Tereza Kyselovská, Ph.D.
AAA Approved Clauses- Existing • We, the undersigned parties, hereby agree to submit to arbitration administered by the American Arbitration Association under its [Commercialor other] Arbitration Rules the following controversy: [describe briefly]. We further agree that a judgment of any court having jurisdiction may be entered upon the award. JUDr. Tereza Kyselovská, Ph.D.
ICC Clauses • 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. JUDr. Tereza Kyselovská, Ph.D.
ICC Clauses - Obligation to submit dispute to ICC Expertise, followed by ICC Arbitration as required • ‘In the event of any dispute arising out of or in connection with clause [X] of the present contract, the parties agree to submit the matter, in the first instance, to administered expertise proceedings in accordance with the Rules for Expertise of the International Chamber of Commerce. If the dispute has not been resolved through such administered expertise proceedings it shall, after the Centre’s notification of the termination of the expertise proceedings, 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 of Arbitration.’ JUDr. Tereza Kyselovská, Ph.D.
Standard LCIA Clause • Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause. JUDr. Tereza Kyselovská, Ph.D.
ArbitrationAgreement • Place ofarbitration - > LEXARBITRI • Lexarbitri governs: • Arbitrability, formalrequirements, arbitrators, proceduralissues, relationshipbetweencourts and arbitrators, arbitralawardetc. • Specify seat of arbitration, situs, in a country that: • Allows the arbitration of the type of disputes that may arise in the contract, and • Has ratified the New York Convention JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • Substantivelaw • Nationallaw • International conventions – UN Convention on ContractsforContractsfor International SaleofGoods (CISG) • Lex mercatoria – 3 doctrines • Conflictoflawrules JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • Language • Lingua franca – English • Arbitrationclausemaybechallenged • Translationcosts • Discovery • Rules on taking evidence – IBARules on Taking Evidence in International CommercialArbitration JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • InjunctiveRelief • Manufacturer agrees that in the event any breach by Manufacturer of any of the provisions of this Agreement which would cause immediate and irreparable injury to the Distributor, the Distributor shall be entitled to injunctive relief and any or all other remedies applicable at law or in equity in any court of appropriate jurisdiction. JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • Punitive Damages? • Create Gap? Two approaches • AAA Rule 28(5)-International Context • Punitive damages NOT allowed unless Agreement says otherwise • But in U.S. context: Arbitrators allowed to award punitive damages unless Agreement says otherwise. Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52 (1995). • Is it waivable? JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • Will arbitration clause be effective after termination of the contract? • Anarbitration agreement contained in an expired fixed-term contract "can be said to arise under the contract only where it involves facts and occurrences that arose before expiration, where an action taken after expiration infringes a right that accrued or vested under the agreement, or where, under normal principles of contract interpretation, the disputed contractual right survives expiration of the remainder of the agreement." Litton Financial Printing Division v. NLRB, 501 U.S. 190, 205 (1991)(emphasis added). JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • MultistepDisputeResolutionClauses • Legalfees and costs • Confidentiality • ExpandedJudicialReview – isitpossible to waive in advancethejudicialchallenge? • Waiver to Stateimmunity • Specificationofprocedure – e.g. documentsonly – no finalhearing • ‘Fast track’ arbitration – be realistic and specify consequences if time limits not met JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • Identify Choice of Law • Law of Arbitration • Governing Substantive Law JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • Consent to personal jurisdiction of courts where the arbitration is to be held and enforced may be desirable, particularly if one party is a government or government-owned entity • Confidentiality Issues • Address Discovery? JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • Interim Relief • To preserve status quo • Arbitral tribunal powers • National court powers JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • Consider requiring compulsory negotiation or non-binding mediation prior to a binding arbitration • Principals must participate • Short time period JUDr. Tereza Kyselovská, Ph.D.
ScopeofArbitrationAgreement • Multipartyormulticontractarbitration JUDr. Tereza Kyselovská, Ph.D.
Pathologicalclauses • Arbitrationagreementswhose are unclearorinconsistent • “At least 30 percent of cases have a threshold dispute over arbitrability due to poor drafting of the arbitration clause.” • “Some70-80 percent of all arbitration clauses are pathological in some way.” JUDr. Tereza Kyselovská, Ph.D.
Pathologicalclauses • lack of expertise among the contract negotiators • imperfect compromises over which rules and institutions to apply • poor translations of otherwise good clauses • natural tension between the parties’ need for simplicity versus their desire to customize the arbitral process to suit the parties’ needs • the occasional tendency to over-lawyer the language of a dispute clause • Failure to takeadvicefromlocallawyersattheseat/forum JUDr. Tereza Kyselovská, Ph.D.
Pathologicalclauses • „The cardinal rule of drafting an international arbitrationagreement is to avoid the type of ambiguity and equivocation that will later delight a party wishing to drag its feet.” (William W Park, 1997 • “English law-arbitration, if any, London according ICC Rules.” Arab-AfricanEnergyCorp. v. OlieproduktenNederland, B.V.2Lloyd’sRep JUDr. Tereza Kyselovská, Ph.D.
Pathologicalclauses • Misnamedinstitutions and rules • Clausesthatappointonearbitaralinstitution to administerproceedingsundertherulesof a differentinstitution • Over-specificity ofarbitratorrequirements JUDr. Tereza Kyselovská, Ph.D.