ARBITRATION & DISPUTE RESOLUTION CLAUSES
A successful international arbitration depends on many things – the selection of qualified arbitrators, the acumen and experience of arbitration counsel, a proper choice of lex curiae, and an arbitration-friendly situs of the hearing. One things that is often an afterthought is the arbitration clause or agreement itself. The problem is not arbitration counsel; every arbitration counsel knows the importance of the arbitration clause. Indeed, many rue the arbitration clauses they are forced to work with. The problem is that almost always, contracts and joint venture agreements are drafted by transaction counsel, smart people who know business to be sure, but not always wise in the ways of international or domestic arbitration.
Should You Leave Arbitration for the End?
Too often, the transaction lawyer leaves the arbitration clause for the end. It’s the eleventh hour. Months of negotiations have hammered our the smallest business details. The deal is ready to go through. All that’s needed is the arbitration clause. The parties are on friendly terms. The deal is good for everyone. The arbitration clause will probably never get used. What could possibly go wrong? If transaction counsel is in a big firm, he calls up his partner down the hall and asks for an arbitration clause.
After all, it should take only a few minutes. Or, counsel, tries to draft the clause herself, relying on widely available forms and sample clauses, or upon vaguely recollected snippets from law school, or a CLE program. One common mistake along this line is referencing a know set of court rules, such as the Federal Rules of Civil procedure. Doing so discards one great advantage of arbitration, which is the ability to make rules that are specific and advantageous to the dispute between the parties. (And, unfortunately, too many arbitrators acquiesce in the parties’ election, instead of using the moral suasion of the tribunal to help the parties choose something better.)
The result may be adequate for some simple transactions, But, in more sophisticated and international (and everything is international today) transactions, the result tends to be a clause that does not take into account the most recent developments in arbitration or alternative dispute resolution, is either too broad or too narrow, is centered around the arbitration law of one country at the expense of another.
Good Dispute Resolution Starts at the Beginning
The law and practice concerning escalating alternative dispute resolution clauses, med-arb/arb-med, dispute boards, expert fact finding, joinder, consolidation and intervention, emergency arbitration, and the use of master dispute resolution protocols, to name a few areas, have all seen major developments in the last eighteen months alone. Anyone who attempts to draft a dispute resolution provision without a solid foundation in the relevant law and practice is courting failure in the long run. Too many times have my arbitration colleagues lamented to me, “Had they only spent a little more time and only a little more money on the arbitration clause at the beginning, they wouldn’t be here now!”
Good dispute resolution does indeed start at the beginning. Make sure that the arbitration or dispute resolution clause is properly drafted by someone with experience as an arbitrator, and who has made a point of keeping up with the developments in this area of practice. Spend time with him, don’t wait for the last minute, and he will provide you with a clause that will serve your clients well today and tomorrow.