June 18, 2013Session 4 Dos and Don’ts in Drafting an Arbitration Agreement Elodie Dulac Solomon Ebere Bahakal Yimer Addis Ababa, June 18, 2013 1 Outline I. Introduction II. Different Types of Submissions to International Arbitration III. Requirements for the Validity of an Arbitration Agreement IV. The Principles of Severability and Kompetenz-Kompetenz V. The Key Elements of an International Arbitration Agreement VI. Bells and Whistles 2 I. Introduction Importance of the drafting of an arbitration agreement Words matter: an arbitration agreement in a contract is usually to be found towards the end. Oftentimes, either in the euphoria of the deal or in the exhaustion of negotiating the material clauses of the contract, parties fail to give adequate attention to the formulation and drafting of the arbitration clause. The drafting of an arbitration clause constitutes the first and most important opportunity to take control of the arbitration Danger of an incomplete or unclear dispute resolution clause: weakens settlement leverage; will raise jurisdictional issues; will raise challenge and enforcement issues after the award. At best, will add cost and time to the resolution of the dispute. Example: Any dispute shall be submitted for binding resolution under the ICC Rules. Acceptance of arbitration does not deprive the Court of Madrid to hear any actual dispute that may exist between the parties. It would require litigating, in the first place, whether the dispute should be heard in the court or in arbitration. 3 II. Different types of international dispute resolution clauses Arbitration agreement: agreement to arbitrate a category of future disputes. Typically a clause in a contract. Submission agreement: agreement to arbitrate an existing dispute. Difficult to agree after a dispute arises. Preferable to incorporate dispute resolution clause in the contract. 4 II. “Submission Agreements” in Ethiopia (BYI) Arbitration Agreements v. Submissions Agreements – Lesson: It is possible to have arbitration agreements and/or submission agreements under Ethiopian law. We have seen that while an arbitration clause refers to disputes not existing when the agreement is executed (and these might never even arise), a submission agreement refers to conflicts that have already arisen. This distinction is not made very clear under Ethiopian law and this possibly due to drafting errors; and that is what I will kick start my initial discussion on. The Civil Code of the (then) Empire of Ethiopia talks/prefers the use of ‘submission agreements’ terminology, instead of arbitration agreement and this has created debates amongst academicians in the field. Art. 3325 Civ. C v. Article 3328 “The arbitral submission is the contract whereby the parties to a dispute entrust its solution to a third party, the arbitrator, who undertakes to settle the dispute in accordance with the principles of law.” Seems to presuppose the existence of a dispute and makes no mention of ‘parties to a contract’ However, See Article 3328 of Civ. C “ The parties to a contract may also submit to arbitration disputes which may arise out of the contract in the future.” Art. 1765 Civ. Code Article 315 of Civ. Procedure C. “ … persons have entered into a written agreement to present or future differences to arbitration …” 5 III. Requirements for the Validity of the Arbitration Agreement Requirements for an arbitration agreement to be valid 1. Be the result of mutual consent 2. Formal requirement: be in writing (further discussed) 3. The parties must have legal capacity (further discussed) 4. It must arise out of a defined legal relationship 5. The subject matter must be arbitrable (further discussed) 6 III. Requirements for the Validity of the Arbitration Agreement 2. Formal requirement: be in writing Almost all arbitration laws contain this requirement However, definition of “in writing” depends on applicable law: 4 poss. 1) Contained in a document signed by the parties (e.g., contract); or 2) in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or 3) in an exchange of submissions or statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another; or 4) in a separate arbitration agreement referred to in a contract, provided that the contract is in writing and the reference is such as to make that clause part of the contract Oral arbitration agreements possible? Majority view: No, arbitration agreements shall be in writing Minority view: Yes. France, Sweden, Mauritius, New Zealand and Peru 7 Validity Requirements under Ethiopian Law – Form Lessons: Be very cautious of the kind of right the submission relates to and be clear on the formality required to dispose of such right by agreement as it can be very tricky. Ethiopian courts need to be light in interpreting this clause as it can at times be very restrictive. Follow up on Cassation Decisions as they relate to Donation/making of public wills as such decisions may impact how arbitration agreement’s formality requirements can be interpreted. ‘the form required by law for disposing without consideration of the right to which the submission relates’ is the form to be followed. The legal framework that, as closely as possible, governs the act of disposing without consideration of ones’ right is the law of Donation. A donation relating to: an immovable or a right on an immovable shall be of no effect unless it is made in the form governing the making of a public will (Art. 881 – 883). Written Form + Notarization corporeal chattels and bearer titles may be donated by mere delivery. They may also be donated in the form governing the donation of immovables. Written Form or No Form - If no special form is required by law to dispose of a right without consideration, then no other special form shall be required Article 315 (1) Civ. Procedure makes a reference to ‘written agreement’ as formality? Further, where the Civ. C expressly provides for arbitration, the arbitration submission shall be subject to no special form. • Examples : Water Use Disputes (where a dispute arises between the Supervisory Authority and water use permit holder, matter can be referred to arbitration (Article 36, Council of Ministers Regulation No. 115/2005); Cooperative Societies member disputes III. Requirements for the Validity of the Arbitration Agreement 8 III. Requirements for the Validity of the Arbitration Agreement 3. The parties must have legal capacity Consequence of the lack of capacity: Invalidity of the arbitration agreement Law applicable to the legal capacity No uniform understanding concerning the law applicable to the legal capacity of individuals Will depend on the system of conflicts of law of the forum called to consider the arbitration agreement Prevailing criterion: personal law of each party The legal capacity to enter into an arbitration agreement: Laws usually contain specific provisions on the capacity of the parties to enter an arbitration agreement Most common problems are those regarding the ability to act on behalf of legal entities by the persons who execute the arbitration agreement 9 III. Requirements for the Validity of the Arbitration Agreement Validity Requirements under Ethiopian Law – Capacity to arbitrate The formation of a valid arbitration agreement requires that a contracting party needs to have the capacity to dispose of a right without consideration (3326 (2) cum 2437) Refers to a person(s) having full and unfettered right over a thing or a right (referencing to the implicit full right to dispose of a thing without consideration) Eg) Married Couple _ mutual and joint consent necessary. If it’s a property encumbered or if it is a right held for others in custody, it definitely is not disposable without consideration. Person submitting to arbitration is interdicted or insane at the time of signing. ‘No person shall submit … ‘unless he is capable under the law of disposing of such right’ (Article 315 (3) Civil Pro. C) Case of Managers of a Company Special authority is required for an agent to possess the capacity to enter into an arbitration agreement (Article 2205) ‘the agent may not without special authority … consent to arbitration’ (Art. 2205 (2) cum Art. 35 (Commercial Code) 10 III. Requirements for the Validity of the Arbitration Agreement The subject matter must be arbitrable Under NYC what matters is arbitrability under the law of the place of arbitration Subject matters are, in general, arbitrable when they refer to economic or disposable private rights Questions arise most often with regard to matters such as antitrust, securities exchange, IP/IT or disputes involving other statutes expressing a strong public policy Current trend in favour of arbitrability of these matters Examples re Antitrust: Labinal (France, 1993) & Mitsubishi Motors (US, 1985) 11 Validity Requirements under Ethiopian Law – Arbitrability Lessons Learned: It is important to know what matters are arbitrable and which are not. When agreeing for finality of awards in International Arbitration, set expectations _ the decision may always be reviewed by FSC Cassation bench. Even where its an international arbitration, as long as it has its seat in Ethiopia, it is open for review by Cassation bench on ground of fundamental error of law. Article 3328 Arbitration agreements are ‘valid only in relation to disputes that flow from a contract or other specific legal obligation’. This is insignificant in terms of limiting the resort to arbitration in many instances as much of disputes anyway arise either out of contracts or other specific legal obligations. Matters such as Criminal Cases; Declaration of Divorce; Unfair Competition; tax law violations; petty offences are examples of non-arbitrable matters in Ethiopia. No clear and detailed provision, except Article 315 (2) Civ. Proc. C, that lays out matters not arbitrable. No arbitration may take place in relations to ‘administrative contracts’ _ does not refer to all contracts with government bodies (Art 3132 _ ‘administrative contracts’ – ‘expressly qualified as such; or is an activity connected with public service or contains one or more provisions which could only have been inspired by urgent consideration of general interest’ (those whose financial source is allocated from State budget) Establishment Proclamations of some administrative bodies allow their directors to agree to settle disputes out of court Privatization of Public Enterprises Proclamation no. 146/1998 Ethiopian Roads Authority re-establishment council of Ministers Regulation 247/2011 (Art. 10 (2) H) Ethiopian Civil Aviation Authority Establishment Proclamation Public Procurement and Property Administration Proclamation no. 649/09 Finality of Arbitral Awards in Ethiopia (Case of National Mining Corporation PLC v. Dani Trading PLC) III. Requirements for the Validity of the Arbitration Agreement 12 IV. The Principles of Severability & Kompetenz Kompetenz Severability = Autonomy of the arbitration agreement Even if the main contract ceases to exist or is invalid, this does not affect the arbitration agreement, which retains all of its effects. It ensures the continued exercise of jurisdiction where one party objects to a tribunal’s jurisdiction on the ground that the main contract was terminated or is invalid. ≠ Kompetenz Kompetenz Kompetenz Kompetenz gives arbitrators the possibility to examine and decide in first instance on any objection to their jurisdiction. Otherwise, mere contention of lack of jurisdiction could stop the arbitral process. However, the arbitrators’ decision is subject to subsequent judicial review. 13 IV. The Principles of Separability & Comptence Competence Separability under Ethiopian Law No clear provision indicating its existence However, considering the restrictive interpretation when it comes to jurisdictional issues and taking into consideration the fact that Article 3328 Arbitration agreements are ‘valid only in relation to disputes that flow from a contract or other specific legal obligation’. A contrario, without a valid contract or other valid legal obligation, it seems to suggest that the arbitration agreement may not be valid itself. Though not operational now, the Ethiopian Arbitration and Conciliation Center arbitration rules had incorporated the doctrine of separablity. The 2008 rules of the AACCSA AI did not have such provision. Kompetenz-Kompetenz under Ethiopian Law Article 3330 (1) & (2) of Civil C. Whether and the extent to which the Arbitral Tribunal could decide on its jurisdiction is doubtful ‘Arbitral submission may authorize the arbitrator to decide that difficulties arising out of the interpretation of the submission’ ‘In particular authorize the arbitrator to decide disputes relating to its own jurisdiction’ This seems to suggest Ethiopia has received and incorporated doctrine of Competence-Competence Article 3330 (3): ‘may in no case be required to decide whether the arbitral submission is or is not valid’ [This makes the suggestion of existence of Competence Competence blurry. Tilahun Teshome: This provision is not clear enough to convey the intention of the legislature through, especially when it is considered in conjuction with the other stipulations mad ein that saem article under sub articles 1 and 2. What would happen if arbitrators ignore Article 3330 (3) of the Civ. C if Ethiopian law is applicable law and they assert jurisdiction or they rule on the validity of an the arbitration agreement? Seat in Ethiopia? Seat abroad? 14 V. The Key Elements of an International Arbitration Agreement Basic guidelines to negotiate an arbitration agreement Don’t assume one arbitration clause fits all transactions As a general rule, arbitration clauses should be kept as simple as possible. Long and complex arbitration clauses should be avoided (even in complex transactions). Additional provisions provide further scope for dispute, increasing delays and cost. Don’t be adventurous with seats and rules/institutions Select a strong but cheap(er) place of arbitration Consider the seat and arbitral institutions/rules carefully, but once selected, stick to them, don’t innovate. Provide for rules with an expedited procedure (e.g., SIAC Rules) Agree to a sole arbitrator (where suitable) Don’t give up or restrict your right to choose an arbitrator 15 V. The Key Elements of an International Arbitration Agreement Beware of superficially attractive time-saving and cost-saving measures, e.g.: fixing time limits for rendering an award (which exclude tribunal discretion) opting for ad hoc arbitration choosing the institution with the lowest arbitrator fee scale 16 V. The Key Elements of an International Arbitration Agreement What are the main elements of an arbitration clause? 1. Submission of disputes to arbitration 2. Place of arbitration 3. Arbitral institution/arbitration rules 4. Number and qualifications of arbitrators 5. Language of the arbitration These should be assessed in light of different considerations arising in each case, such as bargaining power, identity of counterparty, extent and location of counterparty’s assets, and need for enforcement. 17 V. The Key Elements of an International Arbitration Agreement 1. Submission of disputes to arbitration Arbitration agreement identifies a group of disputes that may arise in the future (or an existing dispute in rare case of submission agreement) and stipulates that the disputes identified will be resolved by arbitration. Usual practice is to identify as broad a group as could possibly be connected with the contract. Typical wording: “all disputes arising out or in connection with this contract”. Catch-all phrase which covers contractual claims and tort claims. Will also cover defence that the contract never came into exist, and disputes regarding the termination of the contract. 18 V. The Key Elements of an International Arbitration Agreement 1. Submission of disputes to arbitration (cont’d) Trying to be more specific can be risky: “all disputes concerning the interpretation and performance of this contract”. Arguable that this language does not cover disputes concerning the termination of the contract. 19 V. The Key Elements of an International Arbitration Agreement 1. Submission of disputes to arbitration (cont’d) Unambiguous referral to arbitration of disputes identified Once parties have identified the group of disputes they wish to have resolved by arbitration, the next stage is to refer those disputes to arbitration. Select an unambiguous language, that leaves no room for argument that arbitration is merely optional. Wording like “shall be referred” is better than “may be referred”. “May” could give rise to argument that arbitration is optional and that a party may chose to submit dispute to courts instead. 20 V. The Key Elements of an International Arbitration Agreement 2. Place of arbitration Why does the place or seat of arbitration matter? Choice of seat is the most important variable of the arbitration agreement. Choice of the seat of arbitration brings with it at least three major legal consequences: a. it determines, at least in traditional thinking, which municipal law should govern the arbitration (i.e. the law governing the procedure to be followed); b. of most relevance in practice, the place of arbitration determines which courts supervise and support – or in some cases, interfere with and obstruct – the arbitration, and this includes which courts hear an action to set aside the award; and c. the place of arbitration determines the ‘nationality’ of the award, which is important for enforcement purposes. It is for these reasons that the choice of the place of arbitration is so significant. If unfriendly place of arbitration, delinquent party could derail any arbitration held there, leading arbitration agreement to be effectively worthless. 21 V. The Key Elements of an International Arbitration Agreement 2. Place of arbitration (cont’d) Distinction between legal and physical venue Legal venue = where arbitration is legally held (e.g., “the place of arbitration shall be Geneva”) Physical venue = where hearings actually held (e.g., “the hearings shall be conducted in Dubai”) Common misconception: location of arbitration institution = place of arbitration = hearing venue. Example of misconception: choice of ICC = choice of Paris as place of arbitration and hearing venue. In fact, parties are free to “mix and match”, e.g., ICC arbitration, place of arbitration Geneva, hearing in Addis Ababa Reasons for hearing somewhere other than place of arbitration: more convenient; impracticality, e.g., if participants are effectively prevented from travelling to place of arbitration or difficult (visas); anti-suit injunction at seat. 22 V. The Key Elements of an International Arbitration Agreement 2. Place of arbitration (cont’d) Recommended seats of arbitration Select a neutral seat, generally chosen by parties or by institution because it is a place with which the parties have no connection. Test for a good “neutral” or “objective” places of arbitration is whether an IA can be fairly and effectively held in that place, with support from local courts, leading to an enforceable award. have a modern arbitration law (eg UNCITRAL Model Law); membership to NYC; seat in which courts consistently apply the relevant laws and the NYC in an arbitration-friendly manner. Other considerations: geographical considerations, visa requirements. 23 V. The Key Elements of an International Arbitration Agreement 2. Place of arbitration (cont’d) Recommended seats of arbitration (cont’d) Most popular places of arbitration: Dubai, Paris, Geneva or Zurich, Hong Kong, London, New York, Singapore, Stockholm, The Hague. An Africa seat: Mauritius? Specify the city, not the country 24 Places of Arbitration: EDU ICC International Court of Arbitration Bulletin* City Number of Cases Paris 124 London 70 Geneva 48 Zurich 30 Singapore 24 New York 23 Hong Kong 14 Vienna 13 Mexico 12 Miami 11 2010 Top 10 Cities Selected 2011 Top 10 Cities Selected City Number of Cases Paris 111 London 62 Geneva 53 Zurich 40 Singapore 24 New York 20 Frankfurt/M 14 Brussels 13 Madrid 13 São Paulo 12 25 V. The Key Elements of an International Arbitration Agreement 2. Place of arbitration (cont’d) What to do if a party insists on arbitration in a country unfriendly to arbitration? Fallback position: trading place of arbitration for governing law or other concessions in the method of dispute resolution such as the arbitral institution Agree to hearing in other party’s country but place of arbitration in a third country. There will be times when a dispute clause is so disadvantageous or imperfect that it will not be in the interest of a business to accept the risk of the contract = deal breaker. 26 V. The Key Elements of an International Arbitration Agreement 3. Arbitral institution/arbitration rules What does an arbitration institution do? receives request for arbitration appoints one or more arbitrators decide challenges of arbitrators organises payment by parties of arbitrators supports arbitrators scrutinises awards (ICC, SIAC) 27 V. The Key Elements of an International Arbitration Agreement 3. Arbitral institution/arbitration rules (cont’d) We generally advise against ad hoc arbitration (i.e. with no institution): Un-administered (ad hoc) arbitration is rarely advisable. The institution plays a critical role in the initial stages of an IA before the tribunal is constituted and will manage the administrative aspects of the arbitration To leave these functions to the parties and/or tribunal often results in additional cost and delay, especially in less arbitration-friendly jurisdictions. If ad hoc, best to refer to UNCITRAL Arbitration Rules, not pure ad hoc. 28 V. The Key Elements of an International Arbitration Agreement 3. Arbitral institution/arbitration rules (cont’d) Various recommended institutions? International Chamber of Commerce (ICC) London Court of International Arbitration (LCIA) International Centre for Dispute Resolution (ICDR) Stockholm Chamber of Commerce (SCC) Singapore International Arbitration Centre (SIAC) Hong Kong International Arbitration Centre (HKIAC) Dubai International Arbitration Centre (DIAC) Swiss Chambers’ Arbitration Institution (Swiss Chambers) Note: leading institutions’ arbitration rules are largely similar Do not refer to an arbitration institution that does not exist! 29 V. The Key Elements of an International Arbitration Agreement 3. Arbitral institution/arbitration rules (cont’d) What to look for in an arbitration institution? modern arbitration rules do the institution’s rules provide for international proceedings? how many international arbitrations has the institution conducted each year and in total? qualified staff: legal knowledge and experience to advise tribunals and parties reasonable charges does not go off beaten path Arose out of a road construction sub contract agreement. AACCSA AI was designated as an arbitration body. Parties also indicated to abide by Chamber’s arbitration rules. Cassation bench ruled that the finality of awards provision under the Chamber rules to which parties have signed to cannot be said to have been given ‘with full knowledge of the circumstances’ within the meaning of Art. 350 (2) Civ. Procedure Code. Despite parties agreement to refer their disputes to the Chamber’s institute, the Cassation bench decided that in accordance with Article 1(1) of the Institute’s arbitration rules, fi parties agreed in writing for the resolution of their disputes to be decided under the arbitration rule, the award shall be given under that rule. And for this to happen, when both parties come to the institute, the later would have to procure a written agreement before proceeding to the case that the parties would abide by its procedural rules. WHEN PARTIES REFER THEIR DISPUTES TO THE INSTITUTE AND EXPRESSLY PROVIDE FOR THE INSTITUTE’S ARBITRATION RULES OF PROCEDURE TO BE APPLIED, THE CASSATION BENCH HAS DECIDED RATHER IN A BIZARRE FASHION THAT A SECOND LEVEL AGREEMENT OR SEPARATE CONSENT POST THE DISPUTE IS REQUIRED FOR THE RULES OF THE ARBITRATION INSTITUTE TO APPLY. THIS HIGHLY DIMINISHES THE STATUS OF INSTITUTIONAL ARBITRATION AGREEMENTS (in the context of AACCSA AI to say the least) INTO ARBITRAL SUBMISSIONS THAT OCCUR AFTER DISPUTE ARISES. V. Dragdos v. Saba Construction 31 V. The Key Elements of an International Arbitration Agreement Basic model arbitration clause All disputes, controversies or differences arising out of or in connection with this contract, including any question regarding its breach, existence, validity or termination, shall be referred to and finally resolved by arbitration in [insert place of arbitration] under the auspices and in accordance with the arbitration rules of the [insert arbitration institution]. The Tribunal shall consist of [insert ‘one’ or ‘three’] arbitrator(s). The language of the arbitration shall be [insert language]. 32 V. The Key Elements of an International Arbitration Agreement 4. Number and qualifications of arbitrators: 1 or 3 arbitrators? Guideline: Match the size of the tribunal to the size of likely disputes by: agreeing before entering into the contract; or specifying the number of arbitrators in the arbitration clause; or leaving the question to be resolved by the arbitral institution; or if ad hoc, by providing for an appointing authority Pros Cons Sole Arbitrator Cost efficient Fast No benefit of appointing co- arbitrator Not suited to large/complex cases 3-member tribunal Benefit of appointing co-arbitrator Safeguard against mistakes or misconduct by tribunal Better suited to large/complex cases Costly Lengthier Risk that decision =fruit of compromise 33 V. The Key Elements of an International Arbitration Agreement 5. Language of the arbitration Factors to consider when choosing the language of the arbitration Language of the contract Language of the related documentation Likely effect of the choice on the pool of qualified arbitrators and counsel More than 1 language of arbitration? Cons: may add difficulties (e.g., finding arbitrators able to conduct arbitration proceedings in 2 languages), which would result in additional costs and delays of the proceedings Remedy: specify 1 language of arbitration, but provide that documents may be submitted in another language = will avoid translation costs 34 VI. Bells & Whistles 1. Multi-tier clauses 2. Joinder and consolidation 3. Arbitrator qualifications 4. Procedure and evidence 5. Allocation of costs 6. Time limits for award 7. Waiver of sovereign immunity 35 VI. Bells & Whistles 1. Multi-tier clauses Definition: Clauses that set out a number of escalating steps in the dispute resolution process (negotiation > mediation > arbitration). Guidelines: Specify how the process is initiated. Set short time-limits for each stage of the process. Specify how a dispute is moved from one stage of the process to the next. This should be triggered by a defined and indisputable event (e.g., expiry of a time-period) Specify whether the pre-arbitration steps are mandatory Specify that arbitration is mandatory (not permissive) Avoid using terms which may cause a dispute in themselves (e.g., that requirement negotiations be “conduced in good faith”). Define the disputes to be submitted to ≠ steps in identical terms. 36 VI. Bells & Whistles 2. Joinder and consolidation Joinder Definition: Joining third parties to the arbitration, involved in the underlying project or transaction and their presence is needed for effective or at least efficient resolution of the dispute. If a third party were joined, the traditional two-sided arbitration would become what is referred to as ‘multi-party’ or ‘multi-sided’ proceedings Guidelines: Check whether joinder is covered by applicable arbitration rules Where appropriate, insert clause by which the parties agree to be joined to an arbitration proceeding involving similar facts or issues Address in the clause the consequences of the multiplicity of parties for the appointment of (i) sole arbitrator or (ii) 3-member tribunal Risk: more parties = more complex = more expansive process 37 VI. Bells & Whistles 2. Joinder and consolidation (cont’d) Consolidation Definition: Where 2 or more arbitrations are pending between the same parties under the same or similar contracts, ≠ joinder. In this case, there are 2 or more arbitrations, not just one, and, generally, the parties are the same in each proceeding, so there is no issue of having to include a new party to the arbitration. Guidelines: It may, or may not, be in the parties’ interest to have these arbitrations dealt with in a single consolidated arbitration. In some situations, one single arbitration may be more efficient and cost-effective, while in other circumstances, parties may have reasons to keep the arbitrations separate. If the parties wish to permit consolidation of related arbitrations, first look at whether the applicable arbitration rules provide for consolidation. Where appropriate, parties should say so in the arbitration clause. Tailor the wording to your needs. 38 VI. Bells & Whistles 3. Arbitrator qualifications Parties = free to choose arbitrators based on specialisation, nationality, language fluency Appointment of arbitrators = one of the most frequently cited advantages of arbitration. Provides the parties with a great deal of control over the quality of the tribunal = to appoint arbitrator with expertise in subject- matter and arbitration process Important: appointed arbitrator ≠ biased advocate Guidelines: Most arbitration rules provide that all arbitrators shall be impartial and independent. If not, insert a clause to that effect. Don’t be too specific because it may reduce the pool of available arbitrators to a dangerously low level. 39 VI. Bells & Whistles 4. Procedure and evidence Parties = free to determine the procedures of each individual case Institutional rules = ‘light’ on details, even less in ad hoc arbitration Freedom to include specific provisions about the procedure, including regarding overall duration of the arbitration or timing of specific procedural steps Freedom to agree on issues of evidence, e.g., imposing the IBA Rules of Evidence to be applicable Only limit = basic procedural guarantees and equal treatment Freedom to choose counsel Guideline: In the absence of a very specific contractual or project need, do not include a detailed agreement on procedure and evidence. Arbitration rules usually provide a framework. If not, refer to the IBA Rules as guidelines. 40 VI. Bells & Whistles 5. Allocation of costs Widespread practice: loser pays Guidelines: Do not insert a clause saying this as this is the default practice Do not include an ‘each side shall bear its own costs’ provision: the probability that the claiming party will be required to pay the costs of the defence is one factor that may discourage the pursuit of frivolous claims. Therefore, it is inadvisable for parties to agree otherwise in their contract. 41 VI. Bells & Whistles 6. Time limits for award Parties = free to set a time limit by which the arbitrators must issue a final award Example: 6 or 9 months from the confirmation of the chair of the arbitral tribunal Pros: encourages the arbitral tribunal to swiftly conclude the proceedings before its term expires Cons: may make it more difficult for the parties to find arbitrators willing to complete an arbitration within the specified time period. risk that may not be possible in practice to comply with the time limit and that one party will not agree to extend it, compromising the validity and enforceability of the award. 42 VI. Waiver of sovereign immunity 7. Waiver of sovereign immunity 2 types of immunities: from jurisdiction: party cannot be forced to defend itself in a lawsuit before the tribunal from execution: assets cannot be used to satisfy a judgment. Issue is with immunity from execution – immunity from jurisdiction being accepted as automatically waived by the act of agreeing to arbitrate. Important: where one party is a state or a state entity, the other party should seek a waiver by the state party in the parties’ contract of any immunity (particularly from execution) that the state party may enjoy. Guideline: waiver should be as comprehensive and specific as possible (e.g., cover assets used for diplomatic purposes) because domestic courts may interpret waivers of sovereign immunity restrictively. Contact Information Elodie Dulac King & Spalding LLP 9 Raffles Place, Level 31 Republic Plaza Singapore 048619 Tel.: +65.6303.6004 Email:
[email protected] Solomon Ebere Schellenberg Wittmer 15 bis, rue des Alpes P.O. Box 2088 1211 Geneva 1, Switzerland Tel: +41227078000
[email protected] Bahakal Yimer Email:
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