Originally from Dispute Resolution Journal

Drafting deficiencies in forum-selection clauses too frequently result in arbitrability challenges. These jurisdictional challenges present a substantial impediment to realizing the traditional goals of an international arbitration award, which are speed, economy and finality. The author illuminates some of the most glaring drafting problems and the jurisdictional traps they cause. He also suggests viable alternatives.

In the United States, as in many other countries, the parties to a commercial contract are largely free to fashion their dispute resolution agreements as they see fit. This recognition of “party autonomy” is one of the principal characteristics that makes arbitration, particularly for cross-border disputes, so attractive. It allows parties to determine at the outset of their commercial relationship the dispute resolution processes they will use, a suitable forum where any future disputes will be heard, and the procedures uniquely fitted to their needs.

During the negotiation of the dispute resolution clause, the parties have an opportunity to take control of that process—an opportunity that many parties frequently ignore, only to later face the consequences. However, parties who try to take a control of their dispute resolution clauses often leave open issues or fail to draft the clause with sufficient precision, which creates jurisdictional problems later on.

It is axiomatic, of course, that arbitration is a consensual process requiring agreement of the parties. As the U.S. Supreme Court observed 40 years ago in a series of cases known as the “Steelworkers Trilogy,” “Arbitration is a matter of contract and thus a party cannot be required to submit to arbitration any dispute that the party did not agree to submit.”1 As explicated by the federal courts, a person may not be required to arbitrate a dispute arising from a contract “when ordinary contract principles indicate [that person] has not agreed to do so.”2 For this reason, the legal systems that grant deference to the parties’ right to choose arbitration essentially recognize a private law-making process. In doing so, the legal system generally tries to serve the arbitral goal of finality (that is, the tribunals’ ability to provide closure by issuing a final and binding award) by allowing an appeal of, or a challenge to, enforcement of an award only on very narrow grounds. All of the grounds for vacatur essentially are based on something the parties did not bargain for—such as an arbitrator ruling on an issue that was not appropriately submitted to arbitration, and thereby exceeding his or her authority. Because the grounds to challenge awards are narrow, parties have an incentive to challenge the propriety of the arbitration at the front end (referred to here as a “jurisdictional challenge” to the arbitration) in order to preserve the legal basis for later attack when (and if) an award is issued. In this way, the groundwork is laid for one party’s subsequent attempt to vacate the award, or to provide some leverage in settlement negotiations if that party loses the arbitration. Thus, a significant aspect of the so-called “litigation trend” in arbitration is an increasing propensity for parties to make early jurisdictional challenges to the arbitration itself.