The ultimate shield – strategies for a ‘good fit’ dispute resolution regime

December 2019  |  SPECIAL REPORT: INTERNATIONAL DISPUTE RESOLUTION

Financier Worldwide Magazine

December 2019 Issue

International commercial arbitration has been revolutionised in the modern era, defined by the expanding number of stakeholders, which includes arbitral institutions, arbitrators, academics, counsel, third-party funders and expert consultants.

As the 2018 ‘International Arbitration Survey’ by White & Case LLP and Queen Mary University of London posits, studying the “evolution” of this legal process is paramount to understanding where the future of the dispute resolution regime lies. In a period of progress, it is helpful to assess the metrics that remain the same – 97 percent of responders to the IA Survey confirmed that “international arbitration is their preferred method of resolving cross-border disputes, either as a stand-alone method or in conjunction with alternative dispute resolution (ADR)”, similar to the 2012 and 2015 IA surveys.

With so many buttressing the practice, what is the best way to define an effective dispute resolution strategy? Are there certain terms that should be included in arbitral clauses so as not to fall down the rabbit’s hole of inefficiency? Are step or multi-tiered escalation clauses that include consultation, conciliation or mediation a necessary component to winnow the issues presented and is it better to engage in this prior to or in parallel with arbitration? This article aims to serve as a guide responding to these questions, highlighting sources of information, and providing recommendations, acknowledging that no one regime can defend against all battles, anticipated or otherwise.

Hear ye, hear ye: arbitral institutions lead the way

In the business of international disputes, arbitral institutions stand as surveyors at the frontlines of good and bad clause drafting – having to effectuate the parties’ written, pre-dispute agreement (at times embracing their mutual, post-dispute consent to activate a workable arbitration clause). Accordingly, it is no wonder that each institution offers suggested, standard language, a potential life raft in the eleventh hour drafting of arbitration agreements to close the deal. Below are pre-dispute sample clauses from four preferred arbitral institutions for cross-border disputes with a US seat.

The ICC International Court of Arbitration (ICC) headquartered in Paris, and through its New York case management office (SICANA), provides: “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”.

The international arm of the American Arbitration Association (AAA), the International Centre for Dispute Resolution (ICDR) headquartered in New York, states: “Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be determined by arbitration administered by the International Centre for Dispute Resolution in accordance with its International Arbitration Rules (emphasis added to denote difference from ICC clause)”.

The CPR International Institute for Conflict Prevention and Resolution headquartered in New York offers: “Any dispute arising out of or relating to this contract, including the breach, termination or validity thereof, shall be finally resolved by arbitration in accordance with the International Institute for Conflict Prevention and Resolution (CPR) rules for administered arbitration of international disputes by (a sole arbitrator), (three arbitrators, of whom each party shall designate one, with the third arbitrator to be appointed by CPR), (three arbitrators, of whom each party shall designate one, with the third arbitrator to be designated by the two party-appointed arbitrators), (three arbitrators to be appointed in accordance with the screened appointment procedure provided in Rule 5.4), (three arbitrators, none of whom shall be designated by either party). Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The seat of the arbitration shall be (city, country). The language of the arbitration shall be (language) (emphasis added to denote differences from ICC and ICDR clauses”.

JAMS, headquartered in California, and through its New York case management office, suggests: “Any dispute, controversy or claim arising out of or relating to this contract, including the formation, interpretation, breach or termination thereof, including whether the claims asserted are arbitrable, will be referred to and finally determined by arbitration in accordance with the JAMS International Arbitration Rules. The tribunal will consist of (three arbitrators), (a sole arbitrator). The seat of the arbitration will be (location). The language to be used in the arbitral proceedings will be (language). Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof (emphasis added to denote differences from ICC, ICDR, and CPR clauses)”.

Indeed, whether general or specific, each leads the disputing parties unequivocally to: (i) arbitration; (ii) under a certain institution; and (iii) pursuant to a set of administered rules. Where more general, the administered rules provide necessary presumptions to fill gaps, addressing, e.g., number of arbitrators, venue and language. Special attention should be paid to inclusion of the seat and the applicable law to the contract and to the arbitration clause, items where institutions underscore party autonomy in lieu of gap-filling. The administered rules also guide the audience to the particularities of the institution, e.g., the JAMS rules confirm arbitration as the final recourse, suggesting other episodes (or processes) in the life of the pre-arbitration dispute, where their case metrics are strong in mediation.

Many arbitral institutions also provide sample multi-tier dispute resolution clauses, with access to mediation throughout the course of proceedings and in parallel to arbitration (in-line with mediation pilot programmes introduced in the courts, e.g., by the New York Task Force on Commercial Litigation in the 21st Century, considering every case as a potential candidate for mediation and as a means to free limited court resources in favour of amicable settlement). It is prudent to borrow and include aspects of such clauses, to activate engagement avenues in advance of arbitration, mindful that requiring several preliminary steps prior to arbitration can easily cause a deluge of inefficiency that runs the purse and clock with little benefit. Responders to the IA Survey affirmed, “ADR is generally resorted to only in cases where there is a contractual mandate to do so, i.e., through multi-tiered escalation clauses”. The majority of responders also confirmed that “[u]nless the dispute resolution clause compels the parties to attempt amicable resolution, arbitrators will not refer the parties to ADR at any stage of the proceedings”. Perhaps the advent of the 2018 Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules) will play a role in clarifying the application of these pro forma sample clauses in practice, reencouraging the tribunal to assist in amicable settlement (Rule 9) absent objection from the parties.

It is important to consider that the number of procedural rules is increasing at a rapid rate, expanding the comprehensiveness and complexity as the number of institutions administering cases across the globe expands to accommodate for geographic diversity (e.g., pan-national, national, regional). Careful selection of the arbitral institution and corresponding procedural rules (which may now include access to optional, appellate rules per the AAA-ICDR) within the dispute resolution regime is an important detail not to be overlooked, alongside differing institutional cost structures (e.g., ad valorem vs. hourly arbitrator compensation) depending in the size and type of case.

Audentes fortuna luvat

Fortune favours the bold, in so much to say, basic protections should be addressed with vim and vigour pre-dispute when each party arguably operates from a position of greater strength. For example, confidentiality (i.e., non-disclosure of specific information to the public) is a source of great dissonance as there is no uniform or absolute approach within international arbitration.

Many of the arbitral rules previously listed provide for confidentiality as between the arbitrators and the institution (i.e., institutional staff), but do not speak to confidentiality as between the parties. The seat and governing law serve as critical sources of information regarding confidentiality as to duty (whether they support or reject implied confidentiality), scope and context. For a protected regime, a confidentiality clause can be inserted in a dispute resolution clause, or failing that, mutually agreed by the parties in a protective order that the tribunal can certify once empanelled.

Selection of the seat is also of utmost importance, with review of any applicable, mandatory rules and the history of award set-aside by the courts at the seat that can affect the efficacy of future awards enforced at the seat. In parallel, the governing law of the contract and of the arbitration clause should be researched, selected and clearly specified, with an advantage to those jurisdictions that are pro-arbitration and generous in their interpretation of any pathological or defective elements.

Other details for a best fit regime include deciding on the number of arbitrators and method of selection (particularly in multi-party, multi-contract disputes, so as to not leave this to the chance of an institution’s procedural rules), to streamline the selection process. In an abundance of caution, it is also best to include language that the award is final and binding on the parties, even where provided in most institutions’ procedural rules, and the appropriate jurisdiction to enter judgment on the award so as to avoid disputes regarding the appropriate enforcement forum.

Begin again

Drafting a best fit dispute resolution regime is a thoughtful process that should begin internally within a business pre-contract, reviewing sample language to assess key concerns and to leverage for best protection depending on the type and nature of the dispute. In practice, the drafting often becomes an emergent contingency plan to close a deal, and this is where errors can arise even with the best of intentions.

Remember to confirm that where an institution is cited within the arbitration clause, it names the actual institution conducting business and not a modified name of this institution that may lead to court proceedings for clarity of intent. Check also that the institution cited handles cases as the parties prefer (ad hoc vs. administered). And, as a safeguard, select a seat and applicable laws that favour use of dispute resolution to resolve disputes, leaving arising queries to the jurisdiction of the arbitral tribunal.

 

Rekha Rangachari is an executive director at the New York International Arbitration Center (NYIAC). She can be contacted on +1 (646) 240 4607 or by email: rrangachari@nyiac.org. Kabir A.N. Duggal is a senior associate at Arnold & Porter Kaye Scholer LLP. He can be contacted on +1 (212) 83 7141 or by email: kabir.duggal@arnoldporter.com.

© Financier Worldwide

BY

Rekha Rangachari

New York International Arbitration Center (NYIAC)

Kabir A.N. Duggal

Arnold & Porter Kaye Scholer LLP

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