UK: Drafting International Dispute Resolution Clauses

On December 5, 2018, Skadden hosted the webinar "Drafting International Dispute Resolution Clauses." Topics included the importance of dispute resolution clauses, choosing between litigation and arbitration, drafting arbitration clauses, multiple-party and multiple-agreement transactions, and the intersection between arbitration and courts. The panelists were Skadden International Litigation and Arbitration partners Julie Bédard, Lea Haber Kuck, Gregory A. Litt and Timothy G. Nelson.

Importance of Dispute Resolution Clauses

After introductions by Ms. Bédard, Mr. Litt kicked off the webinar with observations about the importance of properly drafted dispute resolution clauses. He observed that if parties overlook dispute resolution clauses when drafting complex commercial agreements, they may lack the tools to effectively protect their rights and interests in the transaction when the need arises, particularly if they need to enforce their rights across borders in one or more foreign countries.

Mr. Litt noted that taking the time to negotiate effective dispute resolution provisions in the transaction documents at the outset can ultimately save significant time and costs. Once a dispute arises, the parties may be unable to negotiate a dispute process or forum, and may find themselves facing protracted litigation over issues of jurisdiction, venue and forum non conveniens.

Choosing Between Litigation and Arbitration

Ms. Kuck next gave an overview of considerations in international business transactions for choosing to resolve disputes in litigation or arbitration. Ms. Kuck explained that international arbitration strives to be transnational in nature and has incorporated aspects of both the civil and common law systems, which can be tailored to suit the needs of the parties and the dispute. Ms. Kuck noted that even where a party might convince its opponent to litigate in the party's home forum, this may not be the best course. More than 150 countries have implemented treaties providing for the enforcement of international arbitration awards, most notably the Convention on Recognition and Enforcement of Foreign Arbitral Awards, known as the "New York Convention." The United States is not party to any treaty providing for the enforcement of court judgments.

Ms. Kuck then discussed differences between international arbitration practice and U.S. litigation, including: (1) pleading standards, as international arbitration generally requires greater detail than what is commonly expected under notice pleading standards in U.S. litigation; (2) the relative unavailability of dispositive motions in arbitration, as compared to U.S. litigation; (3) the much more limited scope of "disclosure" (i.e., discovery); (4) the confidentiality of proceedings in arbitration, (5) the narrowly limited availability of appeal, and (6) cost-shifting in arbitration, a remedy rarely granted in U.S. litigation. She also discussed some of the differences in arbitration hearing practice, including the presentation of witnesses in international arbitration, with direct testimony being offered through written witness statements in advance of the hearing, and the practice of "hot-tubbing" experts in arbitration, which requires opposing party-appointed experts to appear jointly for questioning at the hearing.

Ms. Kuck also touched upon the Hague Choice of Court Convention, a treaty that seeks to put court judgments on similar footing to arbitration awards. The Choice of Court Convention currently is in force in only a few countries, but it is slowly gaining traction. The U.S. has signed but not ratified it, and the Department of State has been working on implementing language. Although more limited in scope than the New York Convention, one of the primary features of the Choice of Court Convention will be that courts enforcing a foreign judgment will not review the underlying merits of that judgment, which also is a key advantage in the enforcement of arbitration awards.

Ms. Kuck concluded by addressing governing law and forum selection clauses. Governing law clauses provide the substantive law that will inform the interpretation and enforcement of a contract, but selection of the forum, which in arbitration entails a designation of the "seat" of arbitration, informs the procedural law that will govern the dispute. Ms. Kuck observed that sometimes these two topics are related — for instance, New York has a statute permitting parties to choose New York courts as their forum for disputes, but, for that choice to be effective, they also must choose New York law as the governing law of the contract.

Drafting Arbitration Clauses

Next, Mr. Litt discussed specific considerations impacting the drafting of arbitration clauses. He noted that while party autonomy is a hallmark of arbitration — i.e., parties may negotiate the dispute process that best accounts for the nature of their transaction and other needs — there are background legal principles that inform the interpretation and enforcement of any arbitration clause, making informed drafting critical.

Mr. Litt then outlined a series of key considerations for successful arbitration clause drafting. First, parties should consider the identity and nature of their counterparties — for example, what are their nationalities, and are any of them sovereigns? This issue may directly bear on a number of other important ones, from the service of process at the start of the case to the enforcement of an arbitration award at the end. Mr. Litt also noted that special considerations may apply when there are more than two parties, a topic addressed in detail later in the presentation.

Second, parties should consider the nature of the transaction and what they need/want out of the arbitral process. Parties should ask themselves: (1) What should be the scope of the arbitration, i.e., what disputes should be subject to arbitration, and what disputes, if any, should be subject to a different dispute process? (2) How many arbitrators should there be? (3) What should be the seat of arbitration? (4) What institution and rules should govern? (5) What will be the language of the arbitration? (6) Should preliminary and interim relief be addressed? (7) Should the clause provide for the consolidation of disputes? And, finally, (8) What should the terms of confidentiality be?

Given the number of factors to be considered, and the need for knowledge of the background principles and law, Mr. Litt cautioned that, in a sophisticated transaction, the parties should consider involving experts in the drafting of any arbitration clause. Mr. Litt noted that even if a party has negotiated an arbitration clause before, or has been through an arbitration, the background principles and law can change. The U.S. Supreme Court heard argument in three different cases involving arbitration this term, and the outcome of those cases will influence the way arbitration is conducted in the U.S. Experts in international arbitration can help parties stay abreast of these changes in the law and aware of the various factors to be considered when drafting.

Multiple-Party, Multiple-Agreement Transactions

Mr. Nelson addressed the potentially thorny issue of arbitration clause drafting where transactions involve multiple parties and multiple agreements.

Mr. Nelson explained that "multiple-party transactions" (deals with more than two signatories) are rarely complicated when each of the signatories belongs to one "side." In such situations (e.g., where affiliates from each side sign the agreement), it is not hard to draft a dispute clause where both sides will appoint an arbitrator and the third arbitrator (the chair) will be neutral. More complicated issues arise, however, when there are more than two "sides." This situation can arise in numerous ways. To cite just one example, when there is a sale of a minority parcel of shares, the deal can involve the entering party (the buyer), an exiting party (the seller) and a third party (the majority shareholder) — there are many other kinds of "three-cornered" or "four-cornered" transactions.

In these situations — truly multiparty disputes — the normal model of arbitration needs adjustment. Normally, arbitration is binary: There are two sides, and each side appoints an arbitrator, which is followed by the selection of a neutral chair, who is jointly nominated (or appointed by the arbitral institution). In a multiparty dispute, unless the parties can be corralled into two "sides," this binary model will not work. The normal drafting solution (and the one favored by several arbitral institutions) is for each of the three arbitrators to be appointed by an institution.

Mr. Nelson also noted that when drafting an arbitration clause involving multiple parties, drafters should try to anticipate how a multiparty dispute would unfold. This can have an impact upon, for example, (1) the manner in which predispute procedures (e.g., predispute negotiation periods, if they appear in the contract) are observed; (2) the disclosure/discovery of documents; and (3) the manner and place in which a future award will be enforced (and against whom).

Mr. Nelson then turned to "multi-agreement transactions." He observed that large deals typically involve more than one contract — even in a simple share-purchase transaction, there often will be a share purchase agreement (covering the transfer) plus a shareholder agreement (going forward). There also will be separate buyer/seller contracts along a supply chain, e.g., an upstream oil production license, followed by a production sharing contract, as well as midstream or downstream arrangements (pipeline, offtake, etc.) In these scenarios, a dispute involving one contract relationship can lead to disputes in others.

In some cases, parties may want to have the same arbitral procedure governing related contract disputes. If so, this can be addressed at the drafting stage. Parties can agree, for example, to a mechanism for the consolidation of disputes arising under related agreements. Doing this may, in some situations, save costs and create other efficiencies.

Moreover, it can be important to keep disputes separate (e.g., in a supply chain situation, parties often will not want to have disputes combined, particularly when it would lead to disclosure of sensitive pricing information). In such scenarios, drafters should be diligent in fencing off disputes as they arise under multiple agreements.

Intersection Between Arbitration and the Courts

Ms. Bédard concluded the presentation by addressing the intersection between arbitration and courts. Ms. Bédard noted that while the panel had focused on drafting arbitration clauses, it also was important to consider the role of the courts in the enforcement of arbitration agreements, granting relief in aid of arbitration and the enforcement of awards.

On the enforcement of arbitration agreements, Ms. Bédard explained that courts will first consider whether there was a valid arbitration agreement. In the U.S., courts have broad discretion for deciding such "gateway" issues in arbitration, and while U.S. courts will compel arbitration, and even in certain instances compel nonsignatories to arbitrate, they do assess whether it was proper for the parties to be forced to arbitrate. The courts also are empowered to enjoin arbitration, if they think it is improper or, conversely, enjoin litigation, if they believe arbitration is the dispute resolution mechanism agreed upon by the parties.

Ms. Bédard went on to summarize the kinds of relief that courts may grant when an arbitral panel has not yet been constituted for a dispute or even before an arbitration is formally filed. First, a court may issue negative injunctive relief to have a party cease action that harms the moving party. A court also may issue mandatory injunctive relief, to require a party to continue performing some contractual obligation in maintenance of the status quo during the pendency of the arbitration. Parties also may pursue pre-award asset attachment in order to prospectively ensure enforcement of an eventual award, although the standard for such relief generally is stringent, as it requires a showing that absent attachment, the award will be meaningless due to a dissipation of the counterparty's assets. Ms. Bédard also noted that non-U.S. litigants should be aware of a U.S. federal statute, 28 U.S.C. § 1782, that may permit them to obtain discovery from U.S. persons and entities in aid of arbitration, litigation and regulatory proceedings outside of the U.S.

Finally, Ms. Bédard discussed the New York Convention, which is applicable to international arbitration awards. Ms. Bédard summarized the grounds under Article V of the convention on which an arbitration award may not be recognized. With respect to due process challenges under Art. V(1)(b), Ms. Bédard noted that the Arbitration Committee of the International Bar Association, of which Ms. Bédard serves as co-chair, had recently concluded a worldwide study assessing how often a failure of due process was accepted as a ground for nonrecognition, and the results strongly suggested that courts do not entertain such challenges lightly.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Squire Patton Boggs LLP
 
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Squire Patton Boggs LLP
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions