Arbitration Do's and Don'ts

When faced with a transaction in which the arbitration of potential future disputes would offer advantages over court litigation or other forms of dispute resolution, a critical first step is to create a workable, enforceable arbitration agreement. In most instances, this agreement will be the “arbitration clause” included in the contract. A poorly drafted arbitration clause can create time-consuming and costly delays to the arbitration process.

Arbitration agreements must be drafted carefully, and expert advice should be sought on all but the most straightforward two-party, single-contract cases. For U.S. parties involved in cross-border transactions, an arbitration agreement may be more appealing than court litigation because of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) under which awards may be enforced abroad with relative ease. The New York Convention currently has 137 signatory countries. No analogous treaty currently exists for court awards rendered in the United States.

DO’S

� Do make sure you have a clear, unequivocal agreement to arbitrate. A clause that does not firmly commit the parties to arbitrate their disputes may not be enforceable.

� Do consider the dispute resolution clause early in negotiations.

� Do consider whether to include a formalized pre-arbitration procedure (e.g. negotiation and mediation). Consider timing and costs and specify the process to be followed.

� Do make an informed choice between institutional arbitration (e.g. International Court of Arbitration or American Arbitration Association) and ad hoc arbitration (e.g., under the United Nations Commission on International Trade Law Arbitration Rules), having considered which type of arbitration best suits the parties and the types of dispute that might arise.

� If you are not familiar with the proposed arbitration rules, do read them or seek advice.

� Do specify the “seat” or formal place of the arbitration. This should be a place:

— Where arbitration agreements are enforceable;
— Where the types of claim likely to arise are arbitrable;
— Where the laws and courts are pro-arbitration (rather than where there are likely to be sources of intervention and delay);
— That has ratified the New York Convention on the Recognition and Enforcement of Arbitral Awards (see www.uncitral.org for a list of signatories; check for reservations); and
— Where recourse can be made to the courts for interim orders and other supportive measures.

� Do specify an odd number of arbitrators who are to decide the dispute (usually one or three), the manner of appointment and, if it will be an ad hoc arbitration, an appointing authority.

� Do specify the language of the arbitration.

� Do consider the intended scope of the agreement to arbitrate (e.g., for a typical broad arbitration clause, “any dispute, claim or controversy arising out of or in connection with”).

� If it is not dealt with elsewhere in the parties’ agreement, do specify the governing law.

� Do make sure any waiver of judicial review or appeal of decisions of the tribunal is adequately provided for under any arbitration rules that apply. If not, do draft suitable waivers.

� If it is a multiparty or multicontract situation, do consider providing for joinder or consolidation of disputes.

� If contracting with a sovereign state or agency, do consider providing for a waiver of sovereign immunity (jurisdictional and execution).

� If it is a contract for the supply of essential services do consider providing for the obligations under the contract to continue pending any award.