Canada: Drafting The Arbitration Agreement In International Commercial Transactions: Stick To Writing For Now

Drafters of arbitration clauses have likely heard rumblings that, in recognition of the extensive changes in international contract practices and modes of communication, efforts are underway at the international treaty and convention level to ease the strict requirement that an arbitration clause or arbitration agreement be in writing.

Changes are currently being made to the three major initiatives undertaken by the United Nations that are the driving force behind the proliferation of international arbitration as a method for dispute resolution in international commercial transactions. The first, the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 1958 New York Convention), with over 140 signatories, provides for the recognition and enforcement of foreign arbitral awards, with very limited exceptions. The second, the 1976 UNCITRAL Arbitration Rules, provides for a comprehensive set of procedural rules that can be adopted for arbitral proceedings that cover many aspects of arbitral procedure and the arbitral process, including rules regarding the form, effect and interpretation of an award. They are the most widely used rules in both ad hoc and institutional international commercial arbitrations. They are also frequently used in investor-state arbitrations under bilateral investment treaties and free trade agreements.

The third, the UNCITRAL Model Law on International Commercial Arbitration (the 1985 Model Law), is designed to assist states in reforming and modernizing their laws on arbitral procedure, and is intended to reflect international practice in international commercial arbitration. It deals with every step of the arbitral process, from the arbitration agreement to the recognition and enforcement of arbitral awards.

In 1986, Canada became the first country to ratify the New York Convention and adopt the Model Law. The provinces implemented both, either within the same statute or in separate statutes. For example, Ontario implemented both the New York Convention and the Model Law through the International Commercial Arbitration Act, which contains very minor modifications and additions to the 1985 Model Law.

The 1958 New York Convention, the 1976 UNCITRAL Arbitration Rules and the 1985 Model Law all provide that an arbitration agreement must be in writing. As technological advancements in modes of communication have developed rapidly, many international commercial transactions have moved to the electronic realm, making it more difficult to meet the requirement of an "agreement in writing." In 2006, Article 7 of the Model Law was amended to provide contracting states with the option that an arbitration agreement is in writing "if its content is recorded in any form, whether the arbitration agreement or contract has been concluded orally, by conduct, or by other means," in recognition of the changes in international contract practices and the difficulties that sometimes arise in meeting the form requirement of a written document. A second option defines arbitration agreement in a manner that dispenses altogether with the requirement for an agreement in writing. At the same time, UNCITRAL also adopted a recommendation encouraging states to apply Article II.2 of the New York Convention, "recognizing that the circumstances described therein are not exhaustive." Article II.2 provides that an agreement in writing includes an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. In addition, the recommendation encourages states to adopt the revised Article 7 of the Model Law. A proposal is also currently before UNCITRAL to omit the reference to the writing requirement altogether from the UNCITRAL Arbitration Rules.

Despite these developments and the increased tendency of some national courts to be flexible in their interpretation of what constitutes an agreement in writing, for the time being drafters should ensure that the arbitration agreement is signed by the parties or is included as a clause in a contract signed by the parties in order to meet the requirement of an agreement in writing. However, drafters should closely watch these developments both at the international and domestic levels, in the likely event that the requirement for an agreement in writing will soon no longer be necessary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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