INTRICACIES OF DISPUTE RESOLUTION CLAUSES WITHIN INTERNATIONAL BUSINESS AGREEMENTS –
KEY DRAFTING CONSIDERATIONS
by Philip E. Cutler
Cutler Nylander & Hayton, P.S.
1191 Second Avenue , Suite 1650
Seattle, WA 98101
Telephone: (206) 340-4600
Facsimile: (206) 340-4646
© 2010, Philip E. Cutler
Phil Cutler is a principal in the Seattle law firm Cutler Nylander & Hayton, P.S., where his practice emphasizes trial and appellate practice and dispute resolution, including mediation and arbitration, primarily in commercial and business matters, including antitrust and product distribution; corporate and complex commercial litigation; intra-corporate disputes; employment; government relations; and licensing and protection of intellectual property. As principal outside general counsel for a major manufacturer of consumer electronics goods during the 1980s and into the 90s, Mr. Cutler was responsible for advising the client on issues relating to the national and international distribution of its products and for drafting and annually updating the client’s distributor and rep agreements as well as the sales force’s employment agreements. He has been active for many years in the ADR activities of the Federal Bar Association of the Western District of Washington, serving as chair or co-chair of the FBA’s ADR Committee from 1985-1998; Mr. Cutler is a charter member of the WSBA and KCBA ADR Sections; he was 1998-99 chair of the WSBA ADR Section and 2002-2003 chair of the KCBA ADR Section; from 2003-2008 he served as Membership Chair of the ABA Dispute Resolution Section and a member of the Section’s Council from 2005-2008. Mr. Cutler is a member of the American Arbitration Association’s Commercial Arbitration, Mediation and Large Complex Case panels and serves frequently as arbitrator or mediator in complex commercial cases. He has been presenter at, or authored or contributed to, a variety of seminars and publications in the fields of alternative dispute resolution and international business relationships, and authored the chapter on Alternative Dispute Resolution for Doing Business in Washington State (WSBA Int’l Practice Sec., 1996, 2003 and 2010 eds.). Mr. Cutler obtained his undergraduate degree from Georgetown University (1970) and graduated with honors from Northwestern University School of Law in 1973.
INTRICACIES OF DISPUTE RESOLUTION CLAUSES WITHIN INTERNATIONAL BUSINESS AGREEMENTS -KEY DRAFTING CONSIDERATIONS (1)
by Philip E. Cutler
I. OVERVIEW OF DISPUTE RESOLUTION METHODS –
THE DISPUTE RESOLUTION CONTINUUM
A. Resolving disputes efficiently and effectively is a key consideration of business people everywhere. It is an especially important consideration in international business transactions and relationships where each party faces the prospect of resolving disputes in a foreign land, under foreign rules. Counsel’s role is to assist the client in determining the most appropriate dispute resolution method for the types of disputes likely to arise.
B. Dispute resolution methods are either adjudicative….the parties vest a third party with the responsibility and power to resolve their disputes….or non-adjudicative….the parties negotiate a resolution themselves, either directly or with the assistance of an intermediary or facilitator. Regardless of which type of dispute resolution is utilized, it is critical that all parties have confidence in the method of dispute resolution, in the institutional forum under whose auspices the method of dispute resolution is to be supervised, and in the person or persons directly involved in the dispute resolution process.
C. Methods of dispute resolution can be depicted as a series of alternatives on a continuum ranging from negotiation to litigation. As one moves across the continuum, the dispute resolution method becomes more adversarial and adjudicative, i.e., the parties surrender to a third party more power, and in arbitration and litigation, all power, to resolve the dispute. (2)
Negotiation……………………… is a process whereby disputants communicate directly with each other about the issues in disagreement in order to reach a settlement of their differences.
Mediation……………………….. is a process whereby an impartial third party (the mediator) facilitates communication between negotiating parties which may enable the parties to reach a settlement.
ENE………………………………. early neutral evaluation is a process whereby a person experienced in evaluating disputes of the type presented is chosen by the parties to evaluate the case, narrow the issues, assist in case planning and management and, if appropriate, assisting in settlement discussions.
Settlement Conference………. is a process whereby an impartial legal professional (most often a judge) conducts an informal assessment and negotiation session with the parties and their lawyers and may advise the parties on the law and suggest a settlement.
Mini-Trial……………………….. is a process whereby a representative of each party with settlement authority (generally a senior executive) listen, sometimes in the presence of a neutral facilitator, to a summary of the evidence and then attempt to negotiate a settlement of the dispute.
Summary Jury Trial………….. is a process whereby summary presentations of the evidence and law are made in complex cases before a jury empaneled to make findings which may or may not be binding. A judge, active or retired, commonly presides. After the parties are advised of the jury’s verdict, they meet – often with a mediator – to explore opportunities for settlement in light of the jury’s findings.
Med-Arb………………………… mediation-arbitration is a process whereby an impartial third party facilitates communication between negotiating parties and, failing settlement, receives evidence and issues a binding decision.
Arbitration……………………… is a process whereby one or more impartial third parties hear and consider the evidence and testimony of the disputants and issue a decision (the “award”) which is usually binding and not appealable on the merits.
Litigation/Trial………………… is a process whereby an impartial judge or jury receives evidence presented by the disputants and issues a binding, enforceable court order.
D. It is critical that counsel and the client thoroughly understand the nature of the business relationship to be created, the types of disputes which may arise and the considerations important to each party in resolving them, the cultural differences which may be important to both the client and the foreign trading partner, and the dispute resolution options available both domestically and in the foreign country. The relative advantages and disadvantages of each method of dispute resolution must be carefully evaluated and the method, or series of methods, that most appropriately addresses the needs of not only the client but the foreign trading partner should be selected.
II. CHOOSE AN APPROPRIATE METHOD OF DISPUTE RESOLUTION
A. It is a reality of business life (indeed, any human endeavor), that disagreements are likely to arise during the course of any business relationship. Thus, counsel will always provide contractually for an adjudicative method of dispute resolution. Wise counsel will also consider and – if appropriate – provide for – one or more non-adjudicative methods of dispute resolution, either as a separate stage in the dispute resolution process or as an adjunct to the chosen adjudicative dispute resolution process.
B. In assessing what dispute resolution mechanism(s) to specify in the contract, it is critical that counsel
- thoroughly understand
- the nature of the business relationship to be created;
- the types of disputes which may arise and the considerations important to each party in resolving them; and
- the dispute resolution options available and the relative advantages and disadvantages of each;
- carefully evaluate dispute resolution options against the foregoing factors; and
- select the method, or series of methods, that most appropriately addresses the needs of the client.
C. As the dispute resolution section is frequently the last item to be negotiated in a contract, the temptation is to turn back to and adopt verbatim the dispute resolution section from a prior business contract. Counsel should resist that temptation: it is never wise to do so.
III. ADJUDICATIVE DISPUTE RESOLUTION — LITIGATION vs. ARBITRATION
A. Adjudicative Options
1. In terms of adjudicative resolution, the choices are between arbitration proceedings (3) or judicial proceedings, the latter frequently through the national courts of the foreign trading partner’s country. Foreign law should be consulted as some countries require arbitration of disputes in international contracts. In some countries, however, arbitration agreements will not be enforced and disputants are required to resort to that country’s judicial system for resolution of disputes.
2. While the U.S. company trading abroad would, in most cases, prefer judicial dispute resolution to take place in the United States, that option is often not available as many countries prohibit such forced jurisdiction. The more developed western countries tend to have acceptable civil justice systems, often with specialized commercial courts, in which business disputes can be resolved fairly, quickly and efficiently. Counsel should be aware, however, that even in these countries substantial differences may exist between those civil justice systems and the United States court system.
3. Arbitration is often a preferable method of dispute resolution, particularly where the foreign civil justice system is not well developed or the foreign courts are relatively unsophisticated in commercial matters, or where significant delays in commercial dispute resolution in those forums may be experienced. (4) Resolving a dispute through arbitration may also offer a more certain means of enforcement of the resulting decision. Too, if appropriate resolution of business disputes is likely to require a decision-maker with specialized experience, or where privacy and confidentiality of the proceedings is desired, arbitration may be the option of choice.
4. Foreign substantive law may also restrict the type of relief available and foreign procedural law may restrict the course of the judicial proceedings. Arbitrators are frequently not so constrained.
5. Finally, when the other contracting party is a foreign government or government agency, counsel should be attentive to issues of sovereign immunity and how both U.S. and foreign law treat those issues. As a general rule, in order to be effective under U.S. law, any waiver of sovereign immunity must be express and unequivocal, particularly if a U.S. court may be called upon to enforce the adjudicative dispute resolution option chosen. See, e.g., Pan American Co. v. Sycuan Band, 884 F.2d 416 (9th Cir. 1989) (U.S. Indian tribe not subject to suit or arbitration unless waiver of sovereign immunity is express and unequivocal; mere agreement to arbitrate is insufficient evidence of waiver). However, foreign as well as U.S. law on waiver of sovereign immunity should be consulted as to the precise steps which the government or government agency must take to waive any immunity.
Note: Any form of adjudicative dispute resolution is an expensive process and, because the parties have vested a third party or parties with authority to decide the dispute, an uncertain process as well. It is costly to clients not only directly, in terms of the money expended on lawyers’ fees and litigation or arbitration costs, but also indirectly: clients must devote significant time and energy to prosecution (or defense) of the case. In the business context, this diversion of effort from “the business” of the business is expensive. In all contexts, litigation or arbitration is often emotionally draining as the parties must relive the dispute, even tedious details of it – and, due to the breadth of discovery available (and almost always pursued) in traditional U.S. litigation, with unrelenting frequency as well. Too, what a judge (or arbitrator or panel of arbitrators) or jury may do with a dispute is often uncertain: the client may win, but it also may lose – or not “win” as much as it hoped for. Moreover, court proceedings, and their outcomes, are public; even arbitration awards become public when proceedings are begun to enforce the award. Finally, litigation or arbitration is often an unsatisfactory way to resolve a dispute and achieve closure to it.
Consider, therefore, requiring some form of non-adjudicative ADR process (e.g., negotiation, mediation), either as a separate stage in the dispute resolution process or as an adjunct to the chosen adjudicative process. While these consensual methods of dispute resolution are always available to the parties, even after a dispute has ripened to the point of a party seeking an adjudicative solution, expressly providing for such processes in the dispute resolution section may show the foreign trading partner the U.S. company’s good faith and commitment to attempting to resolve any disputes by way of negotiation.
1. All lawyers are familiar with traditional litigation, at least as practiced in their jurisdiction. While it has pluses and minuses, it is predictable even in its unpredictability: lawyer and client know that a judge, generally randomly selected by the court, will preside over and decide the dispute (or preside over a jury which will decide the dispute) using well-established evidentiary rules at a trial generally conducted many months, or even years, after the dispute has erupted. Although the cost of invoking the court’s jurisdiction is nominal, as court filing fees are rarely more than a few hundred dollars, savvy trial counsel can wear down her opponent’s resolve (and deplete its bank account) by aggressive motions practice and burdensome discovery in U.S. courts. Finally, the court’s judgment or the jury’s verdict is rarely the last word as appeals to ever-higher courts can consume years – and thousands more dollars. Nonetheless, litigation is a tried and true method of dispute resolution and, indeed, may be the method of choice in particular circumstances. If it is the choice, it should be made knowledgeably and with due regard to the consequences of having chosen it.
2. While litigation – at least as we experience it in United States courts – can be an acceptable dispute resolution mechanism, governed as it is by a large body of familiar (to us) rules and substantive law, the judicial systems of many other countries are either under-developed or unsuited to handle the resolution of complex commercial disputes, particularly disputes involving “foreign” businesses. Too, other countries do not commonly provide for the wide-ranging (and generally expensive and burdensome) discovery prevalent in U.S. courts. For these reasons, many international business contracts specify arbitration as the method by which disputes will be adjudicated.
C. Arbitration (5)
1. Like litigation, the purpose of arbitration is to decide a dispute. While it shares some characteristics with litigation, there are also important differences.
- While arbitration is voluntary in the sense that parties must have agreed at some point to submit a dispute to arbitration, once arbitration has been selected as the dispute resolution mechanism, no party may ordinarily unilaterally withdraw from the process without consequence.
- Although the arbitrator is not a judge, he or she functions in much the same manner as does a judge and determines whether or not a claim should be allowed and, if so, in what amount or under what circumstances. The arbitrator receives evidence, albeit not necessarily constrained by strict evidentiary rules, and decides the facts and the law, ultimately making an “award.” As in litigation, there is a “winner” and a “loser”, oftentimes with attendant publicity about, and financial or other consequences to, who won and who lost. Unlike litigation, the arbitrator’s award is most often final and binding – traditional appellate review is unavailable in the United States and the grounds for vacating an arbitral award are extremely limited. (6) Appellate options for foreign arbitral awards may be similarly limited.
- The arbitration process is generally more confidential than a court proceeding. However, while almost all arbitration hearings are “closed” (members of the public are not admitted, nor is any public record kept of the proceeding), the arbitration award, once filed, becomes a matter of public record.
- An arbitration award may generally be filed in court and, once confirmed by the court, becomes a judgment with the same force and effect as a judgment which results from a trial.
2. While arbitration is frequently used as a stand-alone method of resolving disputes – whether internationally or in domestic situations – it may be used either as the last stage in dispute resolution (with mediation or some similar ADR method preceding it) or as an aid to settlement negotiations (when the arbitral result is non-binding or binding only if a trial de novo is not timely demanded).
3. Parties choosing arbitration over traditional litigation generally place a high priority on the following characteristics of arbitration:
- More-neutral forum…..not generally of concern in domestic disputes, but of tremendous concern in international disputes where national courts may well favor, consciously or unconsciously, the “native” party – to the concurrent disadvantage of the U.S. party;
- Opportunity to select the decision-maker(s)…..under the rules or procedures of most institutional ADR providers the parties are provided with a list (with biographies) of potential arbitrators, from which the parties are free to stipulate to an arbitrator or arbitration panel…..or the parties can strike some names and the institution makes a selection from among those names which have not been stricken;
- Confidentiality…..the parties and the arbitrator(s) control access to the arbitration proceeding; the general public is not ordinarily admitted; arbitration papers are not “public” documents;
- Reduced legal expenses…..parties need not have a lawyer; “discovery” is generally much more limited than in litigation; “motions practice” is discouraged;
- An early opportunity to present evidence…..case backlogs in state and federal courts may mean a trial date is a year or more after filing the papers initiating the case; if there is significant delay in arbitration, it is most often caused by (or at the request of) the parties as the arbitrator(s) are generally willing to schedule a hearing within a few months at most;
- An expeditious decision…..the rules of most institutional ADR providers require an award within 30 days after the hearing-as-a-whole is closed; and
- Finality…..the grounds for vacating an arbitral award are extremely limited in the U.S. (9 U.S.C. §10; RCW 7.04A.230; Section 23 of the Revised Uniform Arbitration Act in states which have adopted it); traditional appellate review is unavailable under either state or federal law. (7) While the disappointed party may appeal a U.S. trial court’s confirmation of an award, appeal prospects are generally dim; with respect to international arbitrations, recognition and enforcement of arbitral awards is (with respect to signatory nations) governed by the New York or Panama Conventions (see note 5, above).
4. While arbitration is frequently used as a stand-alone method of resolving disputes – whether internationally or in domestic situations – it may be used either as the last stage in dispute resolution (with mediation or some similar ADR method preceding it) or as an aid to settlement negotiations (when the arbitral result is non-binding or binding only if a trial de novo is not timely demanded). Especially in the context of international business transactions and relationships, arbitration is the adjudicative dispute resolution mechanism of choice.
D. Why Not Automatically Opt For Arbitration?
Obviously, to the extent the foregoing factors are high on the client’s priority list, counsel should seriously consider arbitration as the alternative to litigation. The benefits of arbitration do not come without cost, however. Among issues counsel and the client should consider are:
- Higher filing fees…..all institutional ADR providers require payment of a filing fee in excess of state or federal court filing fees (8) (e.g., AAA filing and case service fees range from $975 (for cases in which the claim is for $10,000 or less) to $11,450 (for cases in which the claim is for $1 million – $5 million), to $14,200 (for claims between $5 million and $10 million)). Fees for arbitrations administered by foreign arbitral institutions such as the International Chamber of Commerce Court of Arbitration can be considerably higher. Filing fees are generally a non-issue for consensual arbitration under a federal court-annexed arbitration program such as that in the Eastern (ED WA LR 16.2(g)) and Western Districts of Washington (WD WA LR 39.1(d)).
- The parties compensate the decision-maker, the “system” does not…..arbitrators are paid for their services, generally at their normal billing rates (most U.S. arbitrators charge, like lawyers, by the hour; many non-U.S. arbitrators charge by the day); for complex cases involving several days (or weeks) of hearings-on-the-merits or numerous discovery spats, this cost can be substantial, particularly if the case is heard by a three-member arbitration panel. (9) Be aware that some ADR provider organizations (such as, in the international context, the International Chamber of Commerce Court of Arbitration) set the compensation of arbitrators based on a sliding scale determined by the amount in controversy. Too, foreign-based arbitrators’ fees are commonly higher than U.S.-based neutrals, particularly those in the Pacific Northwest.
- Discovery may be more limited than in litigation…..one of the key differences between arbitration and traditional litigation is the breadth of “discovery” available in arbitrations, a difference which can be a boon or a curse. In traditional litigation, once the case is commenced the parties begin, as they have every right to do under federal or state rules of civil procedure, what is known as the “discovery” process – each side sends the other many sets of detailed questions to which they want answers (interrogatories) and requests for many, many categories of documents (requests for production), then subjects both party-witnesses and non-parties to lengthy question-and-answer sessions (depositions). By contrast, in arbitration the parties get whatever “discovery” they’ve contracted for in their arbitration clause (either specifically or by incorporation of an ADR-provider organization’s rules) and whatever the arbitrator decides is appropriate under the circumstances. It is essential that counsel think through the types of discovery the client is likely to require and to expressly provide for it in the dispute resolution section. Obviously, the more the provided-for discovery resembles the full-blown discovery available in traditional U.S. litigation, the less benefit the client will realize in cost-savings and the greater the potential for delay in finally resolving the dispute through hearing. Foreign trading partners are generally wary of – and resistant to – the sort of wide-ranging discovery commonly permitted in U.S. courts. The rules of foreign arbitral institutions generally provide significantly less discovery – if any is permitted at all – than U.S. institutions such as the AAA and its international counterpart the ICDR.
- Opportunities to reverse an adverse arbitration decision are exceedingly limited…..generally, only arbitrator misconduct is ground for a U.S. court to vacate or refuse to confirm an award – errors of law or fact are not, as a general rule, grounds for vacating an arbitral award. (10) If the client’s business is such that an adverse result in an arbitration proceeding could have serious consequences with respect to the client’s disputes with others similarly situated, counsel will want to balance the benefits of arbitration against the possibility that principles of collateral estoppel will be used offensively in other situations. Special rules (namely the New York or Panama Conventions) apply with respect to recognition and enforcement of international arbitration awards. See note 5, above.
- Washington’s statutes of limitation do not apply in arbitration….. Broom v. Morgan Stanley, 169 Wn.2d 231, 240-245, – P.3d – (2010). Faced with this decision, the Washington Legislature may correct the anomaly that SOLs apply only in court proceedings. In the absence of correction by the Legislature, provide for a contractual statute of limitations.
IV. NON-ADJUDICATIVE DISPUTE RESOLUTION — MEDIATION
A. Mediation is not, of course, the only non-adjudicative method of dispute resolution. It is, however, the most popular such method and is therefore treated in more detail here.
B. In mediation (11) , the services of an independent neutral…the mediator…are employed to assist the parties in negotiating settlement of a dispute.
The mediator attempts to facilitate an out-of-court settlement between the parties by identifying key considerations and interests of the parties, by building upon areas of common agreement and by challenging the parties and their lawyers to think critically about the case, potential outcomes, and the business and other risks which attend continued pursuit of the dispute (or the lawsuit, if one has been filed).
In most states in the United States the mediation process is confidential, either by statute or court rule (12); no information disclosed to the mediator during the mediation process may be revealed outside the mediation setting (or even to the opposing side without consent).
Although all parties are expected to come to the mediation prepared to negotiate in good faith, mediation is an entirely voluntary undertaking; no party is required to agree to a settlement. The terms of any settlement reached are decided and agreed-upon by the parties (most often with advice and counsel of their attorneys), not the mediator.
The mediator is not a judge and does not function like a judge. Nor is the mediator the lawyer for any party. While the mediator may, in the course of the mediation, give the parties and their lawyers his or her opinion or best judgment, based on experience, as to a matter in dispute, the mediator does not decide who is right and who is wrong, nor does the mediator “decide” any of the issues in the dispute. There is no “loser” in a mediation.
If a settlement of the dispute results, it is because the parties decided that a settlement on the terms agreed-to was more advantageous, overall, than the continued expense and uncertainty of litigation. Unless the parties decide to publicize the terms of the settlement, those terms remain confidential.
C. While mediation can be used as a stand-alone ADR method, it is commonly used either as the first stage in dispute resolution (with either litigation or arbitration following) or as an adjunct to either a pending lawsuit or arbitration proceeding. Mediation (or conciliation, as it is frequently known internationally) is an especially attractive method of dispute resolution in countries in which businesses are not especially litigious or in which the adversarial system of dispute resolution is disfavored.
D. In some countries mediation is required as an initial step in the dispute resolution process. Additionally, some countries display an historical antipathy toward non-consensual adjudicative dispute resolution. Consider adding mediation or some other form of informal, direct party-to-party dispute resolution as a prerequisite to adjudicative dispute resolution. Pre-arbitration conciliation can be either informal (the dispute is referred first to senior management, then to the parties’ respective chief executive officers) or formal (using a mediator). Some possible clauses:
Before [proceeding to invoke adjudicative dispute resolution of any dispute covered by] [demanding arbitration of any dispute under] this section, the parties shall first….
In the event of any dispute, claim, question, or disagreement arising from or relating to this Agreement or any party’s performance or alleged breach thereof, the parties shall [each designate a senior executive, who shall] use their best efforts to settle the dispute, claim, question or disagreement. To this effect, they shall consult and negotiate with each other in good faith and, recognizing their mutual interests, attempt to reach a just and equitable solution satisfactory to both parties. If they do not reach such a solution within a period of 60 days, then, upon notice by either party to the other, all disputes, claims, questions, or differences shall be finally settled by arbitration…..
If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by [mediation] [conciliation] administered by … before resorting to [arbitration under this section][, litigation, or some other dispute resolution procedure].
E. When including a pre-arbitration negotiation or mediation clause, consider whether the parties should be required to continue to perform the contract pending negotiation or mediation. Also, consider tolling applicable statutes of limitation during the negotiation or mediation phase – or expressly providing that such statutes are not tolled. If negotiation or mediation prior to entering into an adjudicative dispute resolution proceeding is contractually required, be careful to follow the dictates of the clause before seeking adjudicative dispute resolution so as not to impair your client’s ability to proceed with arbitration or litigation.
F. Mediation clauses can address qualifications of the mediator, how the mediator is selected, how mediation fees and expenses are allocated, locale of the mediation or negotiation, time limits to complete the mediation or negotiation, and similar ministerial – but nonetheless important – concerns.
G. Mediation can ordinarily be begun on a “submission” basis, even in the absence of a clause requiring it. In “submitted” mediations, all parties agree to submit a particular dispute to mediation under the rules of a particular provider (e.g., AAA Mediation Rules) or on terms described in the submission agreement.
H. Finally, whether or not to submit a dispute to mediation requires an analysis of the parties’ interests, not just their rights. The same is true when, having submitted a dispute to mediation, the parties engage in mediation proceedings.
V. DRAFTING THE DISPUTE RESOLUTION SECTION
A. Particularly in international business agreements, dispute resolution deserves a section – rather than merely a clause – in the agreement. Counsel should resist the temptation to simply copy the dispute resolution clause from a prior contract. Instead, think about:
- the types of disputes which might arise between the parties,
- who and what are likely to be involved in any dispute,
- where these people and things are likely to be located, and
- how such disputes might best be resolved…from your client’s perspective. From the other party’s perspective…from the standpoint of what’s best for the “deal”.
B. Enlist the help of an experienced litigator and arbitration practitioner.
C. While a negotiated resolution of any dispute is almost always preferable to submission of the dispute to a third party for resolution, the dispute resolution section should always provide for an adjudicative dispute resolution process. Both your client and your client’s business partner want and need finality, to be able to definitively close the book on any dispute. In drafting the dispute resolution section, and in providing for particular dispute resolution procedures, it is critical that key issues be adequately addressed. A good dispute resolution section will, either textually or by reference to a known and identified set of rules and procedures cover the whats, the whos, the wheres, the hows:
What disputes are covered? What disputes, if any, are outside the scope of the selected procedure? Who decides disputes over the existence of a contract (in the U.S., generally the court (13)) and over “gateway” issues such as whether there is a valid arbitration agreement or the scope of the dispute resolution clause (again, in the U.S., generally the court (14) unless the arbitrator is expressly assigned that task (15))?
Who are likely to be necessary parties to the dispute resolution process? are they subject to an appropriate court’s jurisdiction? can they be compelled to participate in an arbitration?
What law governs interpretation of the contract? (16) enforcement of any adjudicative decision or negotiated settlement? What law or rules govern the dispute resolution process? (17) In adjudicative dispute resolution, do those rules provide that the process is self-effectuating and self-enforcing (i.e., the selected process can continue despite an objection from a party or a party’s failure to appear or refusal to participate, unless the proceedings are stayed by court order or agreement)?
What are the costs involved? Who pays? (18)
Who is in the pool of neutrals? What qualifications should they possess? Who selects the neutral involved in the proceeding? Who resolves any disputes over selection? How “neutral” is the neutral? (19) How is the neutral insulated from partiality?
Where is the dispute to be resolved? (20) Who resolves any disputes on this subject? (21)
How does the process work? Should there be a time limit on completion of the dispute resolution process? In adjudicative dispute resolution, what discovery is available? What language will be used for the proceeding?
In adjudicative dispute resolution, how is the arbitral award or judgment enforced? Where?
There are many resources to assist counsel in drafting an appropriate dispute resolution section. A good place to start is the American Arbitration Association’s “Drafting Dispute Resolution Clauses – A Practical Guide”. It is available in hard copy from any AAA office or can be downloaded from the AAA’s website: www.adr.org.
Although designed primarily for neutrals serving as arbitrators, the GUIDE TO BEST PRACTICES IN COMMERCIAL ARBITRATION (1st Ed., 2006; 2nd Ed., 2010; College of Commercial Arbitrators) contains a wealth of information that may assist counsel in understanding arbitration, particularly in the U.S., and identifying issues that should be considered when drafting a contractual dispute resolution section. The 2nd Edition of the Guide is now available from Juris Publishing (http://www.jurispub.com/cart.php). It is also available from major on-line booksellers, such as Amazon.
The remainder of these materials consists of appendices:
A drafting checklist follows as Appendix 1 (pages 20-21).
A list of major arbitral institutions that handle international cases appears as Appendix 2 (pages 22-26).
A sample dispute resolution section for a hypothetical distributor contract between a Washington manufacturer and a French distributor appears as Appendix 3 (pages 27-33).
ICDR (International Centre for Dispute Resolution) Guide to Drafting International Dispute Resolution Clauses appears as Appendix 4 (following page 33)
DRAFTING THE DISPUTE RESOLUTION SECTION IN
THE INTERNATIONAL BUSINESS CONTRACT
A DRAFTING CHECKLIST
Consider Type(s) of Dispute Resolution Desired…know the dispute resolution continuum
Consult All Potentially Applicable Law (foreign as well as us…federal and state) for implications on dispute resolution options…pay special attention to recognition and enforcement issues (Federal Arbitration Act, New York Convention, Panama Convention); note Washington’s statutes of limitation do not apply in arbitration (Broom v. Morgan Stanley, 169 Wn.2d 231, 240-245, – P.3d – (2010))
Determine Type(s) of Dispute Resolution to be Required (and combination and sequence)
Deal with Statute of Limitations issues…tolled during pendency of ADR? filing of arbitration/mediation demand tolls?
Continue Performance under the contract pending resolution of dispute?
Coordinate Staging of Non-Adjudicative ADR (if required or permitted) so as not to unreasonably delay adjudicative procedures
Specify Scope of Issues and Parties Subject to Arbitration…what dispute(s) are arbitrable? who decides arbitrability and “gateway” issues? any public policy against compelling arbitration of likely dispute(s)? severability clause?
Specify Issues/Disputes Reserved for Court Adjudication/Injunction (e.g., misappropriation of trade secrets, violation of covenant not to compete, infringement of intellectual property rights, patent validity)
Who Will Administer the Arbitration? Under What Rules? (know the rules and policies/procedures of the administering institution, as well as fee structure)
Determine Number and Desired Skill-Set of Arbitrator(s)…Specify in arbitration agreement if necessary
Specify Location of Arbitration Proceedings
Specify Applicable ADR and Substantive Law…note that choice of law may have implications for arbitration proceeding
Specify Procedural Rules for Arbitration (institutional Rules or may not be sufficient; modify if necessary)
Likelihood of Needing Preliminary/Emergency/Interim Relief…be sure administering institution’s rules adequately address or add own rule
Consider Specifying Relief Available from Arbitrator(s)…Damages Limited to Actual Compensatory Damages (Punitive Damages/Injunctive Relief not Available)? Baseball Arbitration? High-Low Arbitration?
Consider Specifying Extent of Confidentiality (institutional Rules or may not be sufficient; modify if necessary)
Consider Specifying Permitted Scope and Methods of Discovery (institutional rules may or may not be sufficient; modify if necessary – be wary of wholesale importation of U.S.-style discovery)
Consider Specifying Type and Timing of Award (institutional rules may or may not be sufficient; modify if necessary)
Know Procedures for Confirmation (Recognition) and Enforcement of award and provide for same in arbitration agreement
Deal with Miscellaneous Considerations:
Language of Arbitration Hearing
Need for Interpreters
Currency of Award
Apportionment of Arbitration Expenses (institution fees and arbitrator comp)
Apportionment of Attorneys’ Fees and Other Costs
MAJOR INTERNATIONAL DISPUTE RESOLUTION CENTERS AND
I. Associations of North America and Pacific Rim ADR Providers (22)
Commercial Arbitration and Mediation Center for the Americas (CAMCA)
Members: British Columbia International Commercial Arbitration Centre
International Centre for Dispute Resolution (American Arbitration Association)
National Chamber of Commerce (Camara Nacional de Comercio de la Ciudad de Mexico)
Quebec National and International Commercial Arbitration Centre (Centre d’arbitrage commercial national et international du Quebec)
Asia Pacific Regional Arbitration Group (APRAG)
Members: Arbitration Association of Brunei Barussalam
Arbitration Association of Chinese Taipei
Arbitrators and Mediators Institute of New Zealand
American Arbitration Assn/International Centre for Dispute Resolution
Australian Centre for International Commercial Arbitration
Australian Commercial Disputes Centre
Beijing Arbitration Commission
Chartered Institute of Arbitrators (Australia)
Chartered Institute of Arbitrators (East Asia)
Chartered Institute of Arbitrators (Malaysia)
China International Economic and Trade Arbitration Commission
Dubai International Arbitration Centre
FICCI Arbitration and Conciliation Tribunal
Hong Kong Institute of Arbitrators
Hong Kong International Arbitration Centre
Indian Council of Arbitration
Indonesian National Arbitration Board
Institute of Arbitrators and Mediators Australia
International Centre for Dispute Resolution/American Arbitration Assn
Japan Commercial Arbitration Association
Karachi Centre for Dispute Resolution
Korean Commercial Arbitration Board
Korean Council for International Arbitration
Kuala Lumpur Regional Centre for Arbitration
Malaysian Institute of Arbitrators
Mongolian Chamber of Commerce & Industry
Philippine Dispute Resolution Center, Inc.
Singapore Institute of Arbitrators
Singapore International Arbitration Centre
Tokyo Maritime Arbitration Commission
Western Australian Institute of Dispute Management
II. Major International Arbitral Institutions (23)
International Centre for Dispute Resolution/American Arbitration Association (member of APRAG and CAMCA; also administers arbitrations world-wide under own or other rules)
American Arbitration Association Telephone: 212.484.6708
International Centre for Dispute Resolution Facsimile: 212.307.4387
1633 Broadway, 10th Floor Internet: www.adr.org
New York, NY 10019-6708
Any Regional Office of the AAA can also supply detailed information concerning resolution of international business disputes. The Northwest Regional Office is located in Seattle:
American Arbitration Association Telephone: 206.622.6435
One Convention Place, Suite 950 Facsimile: 206.343.5679
701 Pike Street
Seattle WA 98101
Australian Center for International Commercial Arbitration (member of APRAG)
Australian Center for Telephone: +61.3.614.1800
International Commercial Arbitration Facsimile: +61.3.629.3753
6th Floor, Building B
World Trade Centre
Melbourne, Victoria 3000
Australian Commercial Disputes Centre (member of APRAG)
Australian Commercial Disputes Centre Telephone: +61.2.267.1000
175 Liverpool Street, Level 21 Facsimile: +61.2.267.3125
Sydney, NSW 2000
British Columbia International Commercial Arbitration Centre (member of CAMCA and APRAG)
British Columbia International Telephone: 604.684.2821
Commercial Arbitration Centre Facsimile: 604.641.1250
670-999 Canada Place, WTC
Vancouver BC V6C 2E2
Camara Nacional de Comercio de la Ciudad de Mexico (member of CAMCA)
Camara Nacional de Comercio Telephone: +52.5.587.4104
de la Ciudad de Mexico Facsimile: +52.5.592.2279
Paseo de la Reforma 42
Mexico City, DF 06048
Center for International Commercial Arbitration (member of CAMCA)
Center for International Commercial Arbitration Telephone: 213.499.7075
One World Trade Center, Suite 295 Facsimile: 213.495.7071
Long Beach CA 90831-0295
Hong Kong International Arbitration Centre (member of APRAG)
Hong Kong International Arbitration Centre Telephone: +852.525.2381
1 Arbuthnot Road Facsimile: +852.845.2171
Central, Hong Kong
International Center for Settlement of Investment Disputes
International Center for Telephone: 202.477.1234
Settlement of Investment Disputes Facsimile: 202.522.2615
1818 “H” Street NW
Washington DC 20433
International Chamber of Commerce International Court of Arbitration
ICC International Court of Arbitration Telephone: +220.127.116.11.28.28
38, Cours Albert 1er Facsimile: +18.104.22.168.29.33
The ICC International Court of Arbitration utilizes national “councils” in a variety of countries to assist it in carrying out its work. The U.S. council can supply detailed information concerning resolution of international business disputes under ICC rules:
U.S. Council for International Business Telephone: 212.703.5065
1212 Avenue of the Americas Facsimile: 212.575.0327
New York, NY 10036-1689
Japan Commercial Arbitration Association (member of APRAG)
Japan Commercial Arbitration Association Telephone: +81.3.435.0710
Izumi Shibakoen Bldg. Facsimile: +81.3.435.0702
6-8, Shibakoen 1 – chrome
Korean Commercial Arbitration Board (member of APRAG)
Korean Commercial Arbitration Board Telephone: +82.2.551.2000
43rd Floor, Trade Tower Facsimile: +82.2.551.2020
159, Samsung-dong, Kangnam-ku
London Court of International Arbitration
London Court of International Arbitration Telephone: +44.1.626.7962
30-32 St. Mary Axe Facsimile: +44.1.626.8135
London EC3A 8ET
Quebec National and International Commercial Arbitration Centre (member of APRAG and CAMCA)
Quebec National and International Telephone: 418.649.1374
Commercial Arbitration Centre Facsimile: 418.649.0845
500 Grande Allee est, rez-de-chaussee
Quebec, Province of Quebec G1R 2J7
World Intellectual Property Organization
WIPO Arbitration Center Telephone: +41.22.730.91.11
34, chemin de Colombettes Facsimile: +41.22.740.37.00
1211 Geneva 20
SAMPLE DISPUTE RESOLUTION SECTION IN
DISTRIBUTOR AGREEMENT BETWEEN U.S. (WASHINGTON)
OVERSEAS (FRENCH) DISTRIBUTOR (24)
1. Governing Law of Contract; Applicability of UNCISG.
This Agreement and the relationship between the parties established by this Agreement, and all matters or issues collateral thereto, shall be exclusively governed by, subject to, and construed according to the law of the State of _________, United States of America [insert appropriate choice of law/conflict of laws clause]. The United Nations Convention on the International Sale of Goods shall have no applicability to this Agreement, to any purchases of Covered Products or Parts by Distributor from Manufacturer or to any business dealings between the parties [NOTE: If the UNCISG is not applicable, it must be specifically disclaimed].
2. Governing Law in Respect of Arbitration.
The parties acknowledge and agree that this Agreement evidences a transaction involving commerce, as defined in the United States Arbitration Act, 9 U.S.C. §1 et seq., and the provisions thereof, together with such provisions of The Washington Uniform Arbitration Act, RCW Chapter 7.04A as may be applicable, shall govern the interpretation, enforcement, and proceedings pursuant to the arbitration clause in the Dispute Resolution section of this Agreement.
___. Dispute Resolution.
1. Arbitration of Disputes.
[Subject only to the provisions of subsection __ [3 and subsection 4 – if either of the below subsections are included] below, any] [Any] dispute, controversy, or claim arising out of or relating to this Agreement, including without limitation the formation or validity thereof, or any party’s performance or alleged breach of this Agreement, shall be resolved by final and binding arbitration administered by the American Arbitration Association (“AAA”) or the International Centre for Dispute Resolution in accordance with:
(I) the AAA’s Commercial Arbitration Rules, the Supplementary Procedures for International Commercial Arbitration and the Optional Rules for Emergency Measures of Protection, as the same may be in effect on the date any demand for arbitration is filed or as the same may be amended during the course of any arbitration proceeding;
(ii) if either party’s claim in arbitration is for US$_________ or more , the AAA’s Optional Procedures for Large, Complex Commercial Disputes [NOTE: Where the Optional Procedures are incorporated, they automatically apply to disputes involving US$1 million or more, but consider a higher or lower amount in controversy depending on client needs, but always incorporate specific reference to the Optional Procedures]; and
(iii) the procedures set forth in this section.
In the event of any conflict between or among any of the above-referenced rules or procedures and the provisions set forth in this section, the provisions of this section shall govern. The arbitrator(s) shall have authority to resolve any conflict.
2. Recognition and Enforcement of Arbitral Award.
The award of the arbitrator(s) shall be entitled to recognition and enforcement under the United Nations Convention on the Recognition and Enforcement of Foreign Judgments and applicable law of the jurisdiction in which recognition or enforcement is sought. Judgment on the award rendered by the arbitrator(s) may be entered in:
(I) the United States District Court for the Western District of Washington, and all parties submit to the jurisdiction of such court for such purpose, pursuant to the provisions of The United States Arbitration Act, 9 U.S.C. § 1 et seq.; or
(ii) in any court of competent jurisdiction.
” The foregoing very basic dispute resolution section will, by explicit reference to the AAA/ICDR’s rules and procedures, together with the Governing Law section, answer most of the whats, whos, wheres and hows referred to above in Section V-C of this article (see pp. 16-18 above). If counsel believes that additional specific provisions are required in order to meet the needs of the client and/or the client’s trading partner, counsel should consider including one or more of the following provisions.”
3. Validity of Manufacturer’s Patents and Trademarks Not Arbitrable.
Any dispute or issue concerning the validity of Manufacturer’s U.S. Patents or registered U.S. trademarks shall not be arbitrable, but shall be decided in the first instance only in the United States District Court for the Western District of Washington and all parties irrevocably submit to the personal jurisdiction of such court for such purpose. [NOTE: Consider whether this “arbitrability” carve-out is appropriate.]
3. Conditions Precedent to Arbitration of Disputes.
Before demanding arbitration of any dispute under this section, the parties shall first use reasonable efforts to settle the dispute, claim, question or disagreement. To this end, each party shall designate an appropriate senior executive, who shall consult and negotiate with each other in good faith and, recognizing their mutual interests, attempt to reach a just and equitable solution satisfactory to both parties. If within thirty (30) days the dispute cannot be settled through direct negotiation, the parties then agree first to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Mediation Rules. If, within a further thirty (30) days the parties do not reach a mutually satisfactory resolution of the dispute then, upon notice by either party to the other, all disputes, claims, questions, or differences shall be finally settled by arbitration as provided in subsection 1 above. All statutes of limitation or repose shall be tolled and held in abeyance during the parties’ private efforts to resolve their dispute under this subsection.
4. Arbitration Procedures – Number and Qualifications of Arbitrators.
All claims in arbitration shall be heard and determined by a single arbitrator unless either party’s claim in arbitration is for US$________ or more [NOTE: Consult current AAA/ICDR rules and procedures for the effect a claim amount has on the number of arbitrators appointed – a 3-arbitrator panel is significantly more expensive than a sole arbitrator and may present logistical problems for timely conclusion of the arbitration], in which event all claims shall be heard and determined by a panel of three arbitrators. All arbitrators shall be appointed by the American Arbitration Association or the International Centre for Dispute Resolution pursuant to its or their then prevailing rules and procedures. All persons eligible for appointment as arbitrators of any dispute covered under this section shall be lawyers admitted to practice in the highest court of their state, shall have practiced law for a minimum of ___ (___) years, and shall have substantial experience in the resolution of commercial and business disputes.
5. Arbitration Procedures – Place and Language of Arbitration Proceedings.
A. All arbitration proceedings shall be conducted in Seattle, Washington, USA, or such other place as may be selected in writing by mutual agreement of the parties. Any dispute that may arise concerning the location of the arbitration shall be resolved by the American Arbitration Association or the International Centre for Dispute Resolution pursuant to its or their rules and procedures, which determination shall be conclusive.
B. The language of the arbitration shall be English but at the request of a party, documents and testimony shall be translated into French. If the native language of any witness testifying at the arbitration is a language other than English, the party offering such witness’s testimony shall provide, at its cost, a qualified person to serve as interpreter. The arbitrator(s) shall determine the qualifications of any person serving as interpreter in the proceedings, which determination shall be conclusive. The cost and expense of interpretation and translation services shall be borne as incurred, but shall be subject to allocation between the parties as an expense of the arbitration pursuant to subsection 8-C below.
6. Arbitration Procedures – Discovery and Arbitration Hearing.
A. Within thirty (30) days after the arbitrator(s) have been appointed, a preliminary hearing shall be held among the arbitrator(s) and the parties and their representatives to:
(I) discuss a schedule for the (a) exchange of documents relevant to the dispute and names and addresses of persons with knowledge or information relevant to the dispute and (b) conduct of other discovery appropriate to the case;
(ii) set a date for the arbitration hearing to receive the parties’ proofs and evidence on the dispute(s) submitted to arbitration; and
(iii) discuss such other procedures as may be consistent with the parties’ choice of arbitration as the mechanism by which disputes between them are to be adjudicated.
The preliminary hearing, and any subsequent preliminary hearing, may be held by telephone conference call. Unless the parties agree in writing or the arbitrator(s) for good cause shown set a different date, the arbitration hearing, to receive the parties’ proofs and evidence on the dispute(s) submitted to arbitration, shall commence no later than two hundred ten (210) days after appointment of the arbitrator(s). The parties shall cooperate with each other and with the arbitrator(s) in respect of the foregoing matters.
B. Unless the arbitrator(s), for good cause shown, provide for a different schedule, each party shall:
(I) no later than ninety (90) days prior to the commencement of the arbitration hearing, provide the other with (a) a copy of documents in the party’s possession, custody or control relevant to the issues raised by any claim or counterclaim or on which the producing party may rely in support of or in opposition to any claim or defense and (b) the names and addresses of all persons believed to have knowledge or information relevant to the dispute, together with a brief description of the witness’s knowledge or information, all of which shall be seasonably supplemented thereafter.
(ii) no later than fourteen (14) days prior to the commencement of the arbitration hearing provide the other with (a) a copy of all documents the party anticipates introducing into evidence and (b) the names and addresses of all persons the party anticipates calling to testify at the arbitration [NOTE: It is common in international or high-stakes arbitration for party-sponsored witnesses to provide prior to the hearing (or the arbitrator(s) to order that such witnesses provide) a narrative of their testimony, which is used as the basis for an abbreviated direct examination and then followed with normal cross-examination; if your client wishes to require that in the arbitration agreement, conclude this sentence with: together with a narrative summary of their anticipated testimony].
C. At the request of a party, the arbitrator(s) shall have the discretion to order examination by deposition upon oral examination of witnesses to the extent the arbitrator(s) deems such discovery relevant and appropriate. Unless otherwise ordered by the arbitrator(s), depositions shall be limited to a maximum of five (5) per party, shall be held within thirty (30) days of the making of a party’s request for deposition discovery of a witness, and shall be held at a place and time convenient to the witness. Additional depositions may be scheduled and taken only with the permission of the arbitrator, chair of the arbitration panel or discovery master, as may be appropriate, and for good cause shown. Direct examination of each deponent-witness shall be limited to a maximum of eight (8) hours duration. All objections are reserved for the arbitration hearing except for objections based on privilege or on proprietary or confidential information.
D. Any dispute regarding discovery, including the appropriateness of the discovery vehicle, the adequacy of any response to discovery, or the relevance or scope of discovery, shall be determined by the arbitrator or, if the proceedings are to be heard by a panel of arbitrators, by the chair of the arbitration panel or the discovery master appointed by the arbitrators, which determination shall be conclusive. Consistent with the expedited nature of arbitration, all discovery shall be completed within 180 days after appointment of the arbitrator(s), unless the arbitrator(s) set a different date.
7. Arbitration Procedures – Confidentiality.
A. Except as may be required by law, neither a party nor an arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both parties.
B. The parties acknowledge and agree that if, during the course of any arbitration proceeding conducted under this section, information which is proprietary to a party, constitutes a trade secret of a party, or which a party deems otherwise confidential is requested, ordered to be disclosed, or submitted to the arbitrator(s), the parties will in good faith attempt to negotiate a suitable protective order to be submitted to the arbitrator(s) for their approval but, failing agreement, agree to submit the issue of what information must be disclosed, to whom, and under what circumstances to the arbitrator, chair of the arbitration panel or discovery master for determination, which determination shall be conclusive and binding.
9. Arbitrator’s Powers.
Subject only to the provisions of subsection 10 below, the arbitrator(s) in any proceeding commenced under this Section shall, in addition to all powers granted under any prior provision of this Agreement, the United States Arbitration Act, the Washington Uniform Arbitration Act, and the rules and procedures identified above in subsection 1 of this Section, have the power to rule on his or her or their jurisdiction and to determine the existence or validity of this Agreement. The Dispute Resolution section of this Agreement shall be treated as an agreement independent of the other terms of this Agreement. [NOTE: This provision is largely redundant of Rule R-7, AAA Commercial Rules, but counsel should review current case law in considering whether to incorporate this subsection.]
10. No Punitive Damages Available; Interest; Attorneys’ Fees and Costs; Currency of Monetary Award.
A. The arbitrator(s) shall have no authority to award punitive or other damages not measured by the prevailing party’s actual damages except as may be expressly required by statute.
B. Any monetary award in an arbitration initiated under this section shall, to the extent the claim is determined by the arbitrator(s) to be a liquidated amount, include pre-award interest at the rate of twelve percent (12 %) per annum from the time of the actions or omissions giving rise to the award. [NOTE: There are pros and cons to including the foregoing provision. Consider them.] The final award of the arbitrator(s) may include post-award interest in an amount and on such terms as the arbitrator(s) may determine is appropriate.
C. The arbitrator(s) shall award to the prevailing party, if any, as determined by the arbitrator(s), all reasonable pre-award expenses of the arbitration, including the fees and expenses of the arbitrator(s), administrative and case filing fees of the American Arbitration Association and/or the International Centre for Dispute Resolution, travel expenses, out-of-pocket expenses such as copying and telephone, court costs, court reporter fees for depositions, witness fees, [expert witness fees,] and attorneys’ fees.
D. All damages alleged to have been sustained by a party shall be measured, and any monetary award made in favor of a party shall be expressed, in the currency of that party’s country or, at the sole option of that party, the currency of the other party’s country.
11. Form of Award.
The award of the arbitrator(s) shall be either a reasoned decision or a bare award accompanied by a reasoned opinion.
1. These materials were prepared for the WSBA International Practice Section’s CLE on November 17, 2010. They summarize a number of important issues that should be considered by counsel in drafting the dispute resolution section of a business agreement between a U.S. and a foreign party, and gives the author’s perspective on them. Most of the essential considerations discussed in this article are also applicable to business agreements between domestic U.S. parties. While this article is believed to be current as of November 2010, it is not intended to give, and should not be relied on for, legal advice, either generally or in specific situations.
2. The following description of the various procedures along the dispute resolution continuum is adapted from Manual on Alternative Dispute Resolution, prepared by the ADR Committee of the Colorado State Bar Association.
3. In contracts for the sale of goods where occasional non-conformance/non-compliance issues might arise, counsel might consider a less formal adjudicative dispute resolution mechanism. For instance, the contract might provide that the allegedly non-conforming/non-complying product will be submitted to a neutral third party experienced in such matters, who will conclusively determine whether or not the goods are non-conforming/non-complying. As with any dispute resolution method, careful counsel will ensure that important aspects of the dispute resolution process are covered in the dispute resolution section.
4. Even where arbitration is not specified, parties may generally agree to submit any pending dispute to arbitration. In such cases, counsel will want to incorporate in the “submission agreement” many of the clauses discussed below and confirm that the law of the foreign trading partner’s country will recognize the choices made.
5. The description of arbitration which follows is also generic and not intended to reflect how arbitration is considered or handled in foreign countries or in all states.
6. See, e.g., RCW 7.04A.230; 9 U.S.C. § 10. With respect to enforcement of foreign arbitral awards under the U.N. Convention on the Recognition and Enforcement of Foreign Judgments (the “New York Convention”) or the Inter-American Convention on International Arbitration (the “Panama Convention”), see Article V of the New York Convention, Article 5 of the Panama Convention (grounds for declining to recognize or enforce such awards differ and should be carefully analyzed. The conventions are reproduced after 9 U.S.C.A. § 201 (New York Convention) and 9 U.S.C.A. § 301 (Panama Convention). U.S. courts asked to recognize and enforce such awards will apply the conventions’ stated standards. 9 U.S.C. § 207; 9 U.S.C. § 302.
7. See also note 10 below.
8. Parties can, of course, contractually provide for private (i.e., “non-administered”) arbitration, or agree to do so post-dispute, but by doing so will run up arbitrator compensation, since the arbitrator will handle case administration issues, and the parties may not achieve the benefits of having a trained case administrator/manager handle administration of the case in a manner likely to ensure that procedural niceties are followed…..thus insulating the award from direct or collateral attack. Private (i.e., “non-administered”) arbitration should not be used in international arbitrations; always use an ADR service provider. The presence of a neutral administering organization (and rules) will give your client’s business partner – and your client – added comfort.
9. This is potentially a non-issue for consensual arbitration under a federal court-annexed arbitration program such as that in the Western District of Washington (WD WA LR 39.1(d)), as all cases are heard by a single arbitrator and some federal arbitrators may be willing to serve at the statutory rate (currently $250/day) as a pro bono service.
10. Federal courts almost uniformly reject an arbitrator’s error of law as a ground for vacating the award. The rule in state court varies by state. Washington follows the “error of law/face of the award” doctrine: if an error of law appears on the face of the award or on some paper delivered with it, the award is subject to vacatur. See Broom v. Morgan Stanley, 169 Wn. 2d 231, 236-240, – P.3d – (2010), for the most recent expression of the doctrine. Justice Utter’s concurring opinion in Boyd v. Davis, 127 Wn.2d 256 at 266-270, 897 P.2d 1239 (1995), gives a good history of the development of the rule under what became RCW chapter 7.04 (now repealed and replaced with RCW Chapter 7.04A). The vitality of “manifest disregard of the law” as a ground for vacatur in cases subject to The U.S. Arbitration Act is in question following the Supreme Court’s decision in Hall Street Assocs. LLC v. Mattel, Inc., – U.S. -, 128 S. Ct. 1396 (2008).
11. The description of mediation which follows is generic and not intended to reflect how mediation is considered or handled in foreign countries or in all states. Moreover, the term mediation is used throughout these materials to describe a facilitated resolution of a dispute. Counsel should be aware that in the international context, mediation is often referred to as conciliation. The processes are similar, but may not be identical in all respects. Careful counsel will ensure that all parties to the international business agreement have the same understanding of whatever term is used.
12. In Washington, see RCW 5.60.070 (Uniform Mediation Act). Many other states have adopted the uniform act. In Washington, see also Local Rule CR 39.1(c)(5), Local Rules for the U.S. District Court, Western District of Washington; Local Rule 16.2(d)(3), Local Rules for the U.S. District Court, Eastern District of Washington. The Alternative Dispute Resolution Act of 1998, enacted by Congress in October 1998 provides for confidentiality of mediation proceedings in all federal courts. See 28 U.S.C. § 652(d).
13. See, e.g., Granite Rock Co. v. Int’l Brotherhood of Teamsters, – U.S. -, 130 S. Ct. 2847 (2010). While the rules of the administering arbitration provider (see Rule R-7 (b), AAA Commercial Rules) may give the authority to determine the validity or existence of a contract to the arbitrator, it may be best to explicitly assign that authority to the arbitrator in the arbitration agreement if that is what the client desires. See note 15 below.
14. See Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir. 2006).
15. See Rent-a-Center West, Inc. v. Jackson, – U.S. -, 130 S. Ct. 2772 (2010). That the rules of the administering arbitration provider (see Rule R-7(a), AAA Commercial Rules) give the authority to the arbitrator is not sufficient; the parties’ arbitration agreement must specifically grant to the arbitrator the authority to decide arbitrability issues.
16. Pay special attention to the contract’s provisions regarding choice of law. Note that in the U.S. the forum-state’s conflict-of-law rules generally govern whether to give effect to the contract’s choice of law. See Bridge Fund Capital Corp. v. Fastbucks Frachise Corp., – F.3d – (9th Cir. 2010), for a discussion of how this played out in a dispute between a California franchisee and a Texas-headquartered franchisor where the contract specified Texas law as governing.
17. Regardless of whether the arbitration is “administered”, there should be a clear understanding of what rules govern the proceeding. The major domestic (U.S.) provider-organizations have well-established rules. See, e.g., www.adr.org (AAA), www.jamsadr.com (JAMS). The CPR Institute doesn’t normally administer arbitrations, but it does have a set of rules for use in non-administered arbitrations. www.cpradr.org. Appendix 2 contains a list of major international arbitral organizations. Many have their own rules.
18. Excessive costs to commence an arbitration or proceed in arbitration can be the basis for a U.S. court to refuse to compel arbitration as unconscionable. See, e.g., Mendez v. Palm Harbor Homes, 111 Wn.App. 446, 45 P.3d 594 (2002).
19. Neither an arbitration-provider organization or its neutrals should be tied to one of the parties, as that tie may render the arbitration clause unconscionable and unenforceable. See, e.g., Graham v. Scissor-Tail, Inc., 28 Cal. 3d 807, 623 P.2d 165, 171 Cal. Rptr. 604 (1990).
20. Bridge Fund Capital Corp., supra note 16, held that the arbitration agreement’s requirement that the arbitration take place in Texas was unconscionable and therefore unenforceable – defeating the franchisor’s choice of arbitration as the dispute resolution mechanism. Many foreign countries will not recognize a location-selection clause specifying a hearing location outside its borders, particularly where its resident objects.
21. The rules of most arbitration-provider organizations provide that either it or the arbitrator(s) decide location in the event of a dispute between the parties on that subject.
22. Information concerning arbitration procedures under the rules of these centers may be obtained from any member. Addresses, telephone and fax numbers may be found in section II. Both CAMCA and the APRAG have their own rules; member institutions will administer cases under the center’s rules, their own rules, and, in many cases, under other rules.
23. Most of these institutions have their own general (and in several instances, industry-specific) rules but will also administer an arbitration under other rules (e.g., CAMCA Rules, UNCITRAL Rules, Asia-Pacific Center International Rules).
24. No representation or warranty is made as to the appropriateness, efficacy, legal sufficiency, or legal permissibility of any of the below provisions. Counsel should make all such determinations independently based on current research and the needs of his or her client and the client’s trading partner.