TipsTraps and Pitfalls

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Trips, Traps And Pitfalls:What In-house Counsel Should Know About International Commercial Arbitration

In-house Corporate Counsel Forum 2006

David Kreider ©Chartered Arbitrator andGeneral CounselVodafone New Zealand

26-27 October 2006Auckland

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Why “International Commercial Arbitration”?

• Business is increasingly international, but suing or being sued in an unfamiliar foreign court when disputes arise is difficult and expensive. International commercial arbitration is increasingly “the only game in town” for resolving cross-border disputes.

• Companies that are “in-the-know” agree in their contracts to submit disputes to arbitration in a city located in a neutral third jurisdiction – Geneva, Paris and London are most often selected, but increasingly also, Stockholm, Singapore, Hong Kong and Dubai, among others.

• The New York Convention on the recognition and enforcement of foreign arbitral awards, 1958 (“New York Convention), has been termed “the most important international treaty in the history of commercial law”.

• 138 countries have signed the New York Convention, obliging each to ensure that their national courts enforce foreign arbitral awards on terms at least as favorable as are accorded domestic court judgments.

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A High-level Legal Overview• The New York Convention requires that national courts of signatory

states:– Compel parties to perform their arbitration agreements, unless such

agreements are “null and void, inoperable, or incapable of being performed” (Art. II); and,

– Recognize and enforce “binding” foreign arbitral awards, unless such awards offend the “public policy” of the enforcing country; pertain to matters not “arbitrable” under the laws of the enforcing country or the laws of the state where the award was made; or where it is proved that the "losing" party was denied natural justice (Art. V).

• The United Nations Commission on International Trade Law Model Law on International Commercial Arbitration, 1985 (“Model Law), has been adopted as their domestic arbitration laws by some 60 jurisdictions. Doing so implements the requirements of the New York Convention.

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The Role Of Arbitral Institutions• A variety of global (the ICC and LCIA), specialty (ICSID and WIPO),

and local and regional (SCC, SIAC, HKIAC and DIAC), arbitration centers administer arbitration cases according to their own sets of rules.

• The institutions charge a fee, which in the case of the ICC in Paris, is paid up front and calculated as a percentage of the amount in dispute. Hence, institutional arbitration comes at a price.

• But as opposed to ad hoc arbitrations, where the parties must agree all aspects of the proceedings (place or “seat” of the arbitration, no. of arbitrators, method of appointment, appointing authority, nationality of sole arbitrator or chairman, language to be used, and cetera), the institutional rules present a self-contained system of “default” rules.

• The institutions have helpful administrative staff, hearing rooms and other services, to ensure the arbitration runs efficiently.

• An institution’s imprimatur can assist enforcement (e.g., ICC Court of Arbitration “scrutiny” of draft awards under Art. 27 of its rules).

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Drafting The Arbitration Agreement• “Arbitration is a process involving too few lawyers at the beginning, and too

many at the end”.

• Note the recommended ICC arbitration clause:“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”.

• A preface to the ICC rules further recommends: “Parties are reminded that it may be desirable for them to stipulate in

the arbitration clause itself the law governing the contract, the number of arbitrators and the place and language of the arbitration. The parties’ free choice of the law governing the contract and of the place and language of the arbitration is not limited by the ICC Rules of Arbitration”.

• Standard institutional clauses will go far in avoiding the “pathological” arbitration clause.

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Interim and Conservancy Measuresand Multiple-Party Situations

• Be sure that the arbitration law of the "seat" of the arbitration, or your arbitration agreement or incorporated rules, permits a party to apply to the national court for interim or conservancy measures (injunctive relief). This is especially important during the period before the time that the tribunal is constituted (See, e.g., ICC Rules, Art. 23(2)).

• Arbitration cases involving more than two parties are increasingly common, but generally require the consent of all parties. Typically, all parties to related or "back-to-back" contracts agree that a single tribunal will hear all related disputes at the same time, but issues such as the selection of the arbitrators are fraught with difficulty. This is an area for experts. Seek advice.

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The Pros And Cons Of International Commercial Arbitration

Strengths• The parties can select an

“impartial” and “independent” decision-maker of their choice.

• The “seat” can be a neutral location, and hearings can often be held in any convenient location.

• Parties may select anyone to represent them.

• Hearings are private, and possibly confidential, and less formal than court hearings.

Limitations• Arbitrators lack the coercive

powers of national courts, which may be helpful in dealing with intransigent parties.

• Parties may wish to openly and publicly assert their legal rights or establish a binding precedent in certain types of cases (e.g., an intellectual property dispute).

• The case for litigation in the national courts is much stronger for purely domestic disputes.

• Inability to join unwilling third-parties.

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How Disputes are (Generally) Handled• Arbitration is commenced by serving notice on the opposing party, or

the Secretariat of the arbitral institution, along with the requisite fees.

• At a Preliminary Meeting, the parties’ agree a timeline for making oral and written submissions and a procedure for presenting evidence at the hearing. Counsel have considerable leeway to agree procedures that will best suit the particular case.

• The IBA Rules on the Taking of Evidence in International Commercial Arbitration (“IBA Rules of Evidence”), have become the de facto standard for presenting lay and expert witness evidence.

• Compulsory disclosure of documents is limited; oral examination of lay witnesses is limited to cross and re-direct; and experts are often “hot tubbed”, or a neutral expert appointed.

• Awards are "final" and rarely challenged. More than 90% of ICC awards are paid without the need for post-award enforcement proceedings.

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What to do?• Consider using the recommended standard arbitration clause text

available on the web sites of reputable arbitral institutions.

• Consider specifying that all disputes will be resolved under the rules of one of these institutions.

• Get expert advice before making amendments to the recommended text.

• Get expert advice when selecting an “arbitration-friendly”, neutral location or “seat” to be specified in your arbitration clause.

• Get expert advice if your contract or future dispute may involve more than two parties.

• Get expert advice before including a “tiered” or “escalation” provision in your contract.

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What not to do?• Do not fail to agree with the opposing party about which arbitrator(s) to

appoint, or abandon the enormous advantage of selecting the decision-maker for your case (so-called “concierge arbitration”).

• Do not expect to conduct an international commercial arbitration case as you would a trial in the New Zealand courts. To do so would be to abandon the flexibility allowed by the arbitration laws (“lex arbitri”) of most jurisdictions and the rules of the arbitration institutions that allow you to agree procedures that best suit the needs of your case.

• Do not fail to obtain advice from a solicitor experienced in international commercial arbitration when drafting an international arbitration provision, or when faced with a cross-border dispute.

• This presentation is intended as a guide only. It is not intended to be relied upon in lieu of legal advice.

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