Canada: Arbitration Clause Checklist

Last Updated: June 23 2008
Article by Barry Leon and Jana Stettner

Previously published in The Advocates' E-Brief, Spring 2008, vol. 19, no. 3

This checklist does not stipulate what is best in all cases (no single option could serve all situations); rather it is intended to be used as its name indicates -- as a checklist to help ensure that all relevant issues are considered, adequately and on a timely basis, in the process of negotiating and drafting a commercial arbitration clause.

Get Advice And Get A Head Start

Encourage those negotiating and drafting dispute resolution clauses to do three things:

  • Become reasonably familiar with advantages and disadvantages of different dispute resolution processes generally, and in the particular jurisdictions involved.

  • Before negotiating or preparing an arbitration clause, obtain advice from someone who is truly experienced in arbitration, particularly for international situations.

  • Do not leave consideration of the clause to the last minute. Consider dispute resolution options early in strategizing for the negotiation (which can be an advantage because the other party likely will not do so). This will enhance the prospect of achieving a dispute process that is as favorable as possible.

Preliminary Considerations: Is Arbitration The Best Option?

  • Consider what type of dispute resolution process is best in the circumstances.

  • Consider the probable types of disputes that could arise in the context of the commercial relationship, whether your client is more likely to bring or defend a claim, whether claims are likely to be large or small, the possible jurisdictions in which a claim could be brought, the likely jurisdictions in which the other party's assets will be located, and the advantages and disadvantages to your client of having the dispute resolved in those jurisdictions.

Processes Prior To Arbitration (Or Litigation): Multi-Step Clauses

  • Consider whether negotiation and/or mediation processes should be stipulated in a multi-step dispute resolution clause so that the parties attempt to resolve disputes before arbitration (or litigation) is commenced.

  • Avoid specifying any prior step as a precondition to commencing arbitration (or litigation) or requiring the parties to act reasonably or in good faith.

  • Specify that completion of the consensual process(es) is not a condition precedent to commencing arbitration or litigation so that pursuit of a claim is not held up by an assertion that the condition has not been satisfied.

  • If a condition precedent is adopted, clearly state a deadline for satisfaction of the condition and a precise means of knowing if the condition has been satisfied.

Which Disputes Will Be Arbitrated?

  • The arbitration clause should describe the disputes that the parties want to have determined by arbitration; if all disputes arising in relation to the relationship are to be arbitrated, the clause should make that clear, preferably using tested language.

  • Determine whether courts in the relevant jurisdiction will give broad meaning to clauses specifying the types of disputes/claims that are arbitrable.

  • Also ensure that the clause is clear. You do not want to have to take an arbitration claim to court to establish that a type of dispute/claim is arbitrable.

  • Sometimes you want only certain types of disputes to be arbitrated, or you may want a second, expedited arbitration process for smaller disputes. Whatever the decision, use wording that will achieve the intended result.

  • Avoid allocating particular types of disputes to different jurisdictions or different dispute resolution processes (e.g., certain kinds of disputes to arbitration and others to litigation) unless doing so is necessary (e.g., where a certain jurisdiction does not permit arbitration for a particular dispute) or has clear advantages for your client that override the likely increase in costs and/or potential for inconsistent decisions.

Who Will Arbitrate And How Will The Tribunal Be Selected?

The arbitration clause should specify, either directly or by naming a specific set of arbitration rules, the essential aspects about who will arbitrate (the "tribunal") and how the selection of the arbitrator(s) will be made.

  • There are two important considerations in deciding who will arbitrate:

    • First, the number of arbitrators -- almost always one or three.

    • Second, specific qualifications for the arbitrator(s) or the chair of the tribunal, if any; sometimes nationality and/or a particular expertise will be specified.

      • Avoid being so specific about qualifications that the requirements are virtually impossible to fulfill in practice.

      • Avoid naming a particular person in the arbitration clause.

  • The arbitration clause should specify, either directly or by naming a specific set of arbitration rules (and with them, the use of an arbitration institution), the process for selecting the tribunal (and dealing with challenges to an arbitrator and the replacement of an arbitrator).

  • If these matters are not covered adequately in the arbitration clause, the fallback will be the courts in the place of arbitration.

  • Using an arbitration institution, either to administer the arbitration (see "Arbitration Institutions" below) or at least to handle the appointment process (as an "appointing authority"), can reduce the time, complication and expense of appointing a tribunal and dealing with challenges and replacement.

  • The clause can specify anyone as an appointing authority, not just arbitration institutions that handle appointments regularly; however, before naming an appointing authority, consider whether the person/organization chosen is certain to be available, willing to undertake the task and has the ability, expertise, resources and judgment for the task.

  • If an institution will not be used, set out in the clause an appointment process that will function efficiently and expeditiously, and deal with complications such as a party's failure to proceed on a timely basis with the appointment of its arbitrator.

"Place" Of Arbitration

  • Unless otherwise specified, the procedural law that will govern the arbitration will be that of the "place" (or "seat") of arbitration.

  • Any necessary resort to the courts to deal with matters arising in the course of the arbitration will be to the courts in the place of the arbitration. Be aware, however, that not all courts equally support arbitration or are independent, stable or reliable.

  • Applications to set aside or enforce an award may be brought in the courts of the place of the arbitration.

  • It is important to determine whether the courts in the proposed place of arbitration will be advantageous or disadvantageous to your client. You may have to ascertain from local counsel in the proposed place of arbitration what the procedural law is and whether it has disadvantageous provisions.

  • Hearings can be held anywhere; however, they often will be in the place of arbitration, so, in selecting the place, consider practical issues such as cost, accessibility, convenience and ability of parties and witnesses to obtain visas.

  • Other considerations in selecting the place of arbitration include

    • any restrictions on the choice of counsel or arbitrators;

    • the availability of interim measures of protection from local courts;

    • the extent to which arbitrations are confidential (see section below) and whether this confidentiality is maintained in court proceedings;

    • whether a home advantage or a neutral location would be preferable; whether your client will want to risk suffering the disadvantages of arbitration in the opposite party's jurisdiction.

Language Of The Arbitration

  • The arbitration clause should specify the language that will be used.

Using An Arbitration Institution

  • Consider the advantages and disadvantages of providing in the clause for the arbitration to be administered by an arbitration institution.

  • Deciding to use an arbitration institution and its rules will greatly simplify the drafting of the arbitration clauses because many matters that could be set out in the clause are specified in the institution's rules and, subject to agreed variations, are handled by the institution in accordance with its rules and practices.

  • While arbitration institutions have things in common, each is different -- different rules, competencies, approaches to administering arbitrations, features, methods of charging, and so on. Also, some institutions, particularly regional and national institutions, may have features (e.g., limited available arbitrators) that would not make them attractive to your client in the particular circumstances.

  • Consult with someone who is familiar with the arbitral institutions before selecting one.

  • Verify the existence and proper name of any institution that you specify.

  • Obtain a tested precedent clause from the specified institution (available online and in published rules of the institution).

  • Institutional arbitration clauses are short, widely accepted and cover key points.

  • Institutional rules generally give considerable discretion to the arbitral tribunal to craft appropriate procedures, all in keeping with the flexibility of arbitration to fit the process to the dispute and to the common desires and expectations of the parties.

  • If you want a particular set of rules of the institution, specify the rules and verify their proper name.

  • If you want the rules that are current on the date of the contract to apply (which may not be a wise decision), specify that as well.

  • It is often unwise, and in some cases unworkable, to adopt an institution's rules without appointing the institution to administer the arbitration.

Substantive Law

  • Determine which substantive law will govern.

  • Be careful not to add a substantive law provision in the arbitration clause if one already exists in the contract. It may, at best, cause ambiguity.

Currency

  • Specify the currency in which the award will be made.

Remedies

  • Consider the remedies that you want to be available.

  • Consider whether there should be any limits on the authority of the arbitral tribunal to award punitive or other non-compensatory damages -- often institutional rules, for example, will preclude these types of damages.

  • If desired, specify that the arbitral tribunal has jurisdiction to award legal and equitable relief (specific performance, contract modification or rescission).

  • Ascertain the ability of the tribunal to award interest and costs (see section below).

Multiple Parties

  • Consider whether claims by or against affiliates should be permitted.

  • Assess whether affiliates of the contracting parties, or others, may be necessary parties in order to obtain and enforce the relief that may be desired.

  • Specify how the tribunal will be selected when there are multiple parties.

  • One option is to provide that the arbitral institution will select the arbitral tribunal.

Multiple Proceedings

  • Specify whether two or more arbitration proceedings may be consolidated, and in which circumstances.

  • Specify how the tribunal will be selected when claims are consolidated.

  • One option is to provide that the arbitral institution will select the arbitral tribunal.

Interim Relief

  • Determine whether there should be a process to seek interim relief (interim measures of protection) from a tribunal.

  • If your client may need interim relief, provide for appointment of an emergency arbitrator or for interim relief by a court (without its impairing the ability to proceed with the main claims in arbitration).

  • Determine whether the arbitration institution chosen has optional rules for emergency relief, and whether it is necessary to specify that such optional rules apply or do not apply.

Privacy And Confidentiality

  • Determine whether the arbitration should be confidential as well as simply private.

  • Ascertain the default confidentiality rules of the proposed place of arbitration and of any arbitral institution being considered.

  • Consider public and other disclosure obligations to which your client is subject.

  • Consider providing for greater (or lesser) confidentiality.

Procedures For The Arbitration

  • Consider stipulating specific procedural or evidentiary requirements, or limiting or eliminating some of the procedural or evidentiary processes, restrictions and formalities found in court litigation. The arbitration clause can specify what the parties want in all of these areas, including

    • documentary discovery/disclosure;

    • oral discovery/depositions;

    • experts, including number and/or appointment by the tribunal.

  • Consider specifying that, in addition to the institutional or other rules chosen, the arbitration be conducted according to the IBA Rules on the Taking of Evidence in International Commercial Arbitration

    http://www.ibanet.org/publications/IBA_Guides_Practical_Checklists_Precedents_and_ Free_Materials.cfm

  • Set procedures and timing provisions (often aimed at speed) that are realistic, practical, workable and in your client's interest.

    • If deadlines are provided, the tribunal should have discretion to extend them. Otherwise, failure to complete a step or the arbitration within a particular time frame may result in a loss of jurisdiction.

    • Allow the tribunal adequate discretion to determine procedures and timing that suit the circumstances because detailed procedural rules or tight timetables may not fit the particular dispute that arises.

Costs

  • Determine whether the arbitral tribunal will be able to award costs.

Reasons For The Tribunal's Decision

  • Determine whether the tribunal should be required to provide reasons for its award (usually it should).

Appeals And Reviews

  • Consider whether the rights of appeal and/or review provided in the applicable arbitration legislation should be expanded, or contracted, if the law of the place of arbitration so permits.

Enforceable Awards

  • Consider enforcement of the award and the inclusion of a provision that judgment may be entered on the award and enforced in any court of competent jurisdiction.

  • Consider the jurisdictions in which the parties may want to enforce an award.

    • Ensure that they have ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (and consider any other treaty commitments relevant to enforcement of awards rendered there).

    • Consider whether the jurisdiction's treaty ratification is subject to any declarations and reservations.

    • Ascertain whether its laws, court decisions or enforcement procedures could make enforcement less likely or more difficult.

Issues Arising When The Other Party Is A State

  • Provide for waiver of sovereign immunity -- both immunity from suit and immunity from enforcement/execution.

  • Provide for waiver of non-disclosure privileges.

  • Be aware that issues such as the place of arbitration will be especially important, given the particular powers, interests and behaviours of states.

General Considerations

  • When the clause had been drafted, review it to confirm that it is clear, simple to follow, and that it provides sufficient room to maneuver.

  • In situations of unequal bargaining power, ensure that the arbitration provisions treat the weaker parties fairly (e.g., consumer contracts, employment contracts).

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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