Dispute Resolution Clauses II: How to Choose Arbitration - Chapter 19 - International Arbitration Checklists - 3rd Edition
Originally from International Arbitration Checklists - 3rd Edition
For too long, parties to international commercial contracts have included recycled arbitration clauses alongside other boilerplate provisions without giving proper thought to whether the clause is appropriate for the parties, the particular contract, or the types of disputes most likely to arise under it. As cross-border commerce has become the way of the future, international arbitration has increasingly become the mechanism of choice for trans-national businesses looking for particularized resolution of their commercial disputes. With that, the words parties choose to construct the arbitration clauses in their contracts have become ever more important, and a corresponding level of attention must be given to ensure that those clauses provide the international dispute resolution mechanism that the parties believe they bargained for.
This chapter is not intended to suggest that arbitration clauses become the focus of contractual negotiations. Even a litigator understands that at the front end of a deal, the last thing the parties want to discuss are their potential future disputes. Nor does this chapter suggest that arbitration clauses must increase in complexity and length. The standard one or two paragraph arbitration clause is still appropriate for many transactions.
Most contracting parties, however, do not understand all the implications of an abbreviated arbitration clause nor do they realize that they may contractually tailor most aspects of future arbitrations. Use of the typical one or two paragraph arbitration clause will generally result in an informal process where strict rules of evidence are not applicable and motion practice and discovery depend largely upon the make-up of the arbitration panel. The parties are always free to agree upon more specific procedures even after the dispute arises or the arbitration begins. It is much more difficult, however, to agree on such terms after a dispute occurs than it is at the outset of a relationship.
There is no optimal arbitration clause that will fit the broad range of possible international commercial disputes. The provisions set forth in this checklist are not applicable to all situations and may be undesirable for many parties. Some of these clauses often benefit only one of the contracting parties that is attempting to foresee future disputes. Thus, when drafting the arbitration clause, the parties should consider the nature of the transaction as they consider the options set out in this checklist.