Originally from Arbitration of International Disputes in New York

PREVIEW

11.1  Introduction

While thinking ahead is important in all forms of dispute resolution, it takes on added importance in international arbitration in light of the fact that international arbitration is a consensual recourse mechanism involving cross-border aspects.  Effectively managing an international arbitration requires considering a number of special questions at the outset of the process. The process starts with the negotiation and drafting of the arbitration clause or agreement. 

It always must be kept in mind that arbitration is a creature of contract  and that an arbitration agreement is “a specialized kind of forum selection clause”  expressing the consent of the parties and defining both the basis and the extent, or outer limits, of arbitral jurisdiction. The arbitration agreement is the cornerstone of the arbitration process, an essentially consensual process characterized by party autonomy.  An arbitral tribunal’s authority or mandate (i.e., arbitral jurisdiction) derives entirely from the terms of the arbitrating parties’ contract: the parties’ agreement creates the arbitration, and the parties have an opportunity to shape the arbitral process to their particular needs through their arbitration agreement. Thus, there are endless possibilities for the parties to craft or shape a future arbitration in the arbitration agreement itself in the exercise of freedom of contract.  For this reason, an arbitration clause should be more than the rote recitation of boilerplate language. Boilerplate language, if containing defects (e.g., a flawed arbitration clause from an unrelated contract that is “copied-and-pasted” into a new contract), can perpetuate drafting errors, which likely will come to light only in the event that the clause containing the boilerplate language is invoked after a dispute has arisen, with potentially dire consequences. In drafting an arbitration clause, the parties should adopt a forward-looking strategy: they should envision the most likely future dispute under the contract or their relationship and draft the arbitration clause to protect their interests in the best possible way. This calls for careful and precise drafting.

Even though an arbitration clause may be shielded from defects in the Container Contract through arbitration-preferring doctrines such as the separability doctrine in the United States,  defects in the arbitration clause still may prove fatal, or they may make a clause unworkable in practice, if the defective clause is invoked in connection with a future dispute. For this reason, parties should devote considerable attention to drafting the arbitration clause during contract negotiations. As will be highlighted in the final section of this chapter, a poorly drafted arbitration clause presents several dangers. First, it may preclude arbitral jurisdiction altogether. Second, and at the very least, it likely will lead to court challenges in collateral litigation and added legal fees in the future. Third, it reduces predictability of the time, expense, and outcome of an eventual arbitration.