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Asia Pacific – Six Practical Tips For Drafting International Arbitration Clauses.

4 September, 2014

 

Legal News & Analysis – Asia Pacific

 

Drafting international arbitration clauses can be complex.1 This article suggests six practical tips that can help in most situations and can save time and costs in an arbitration.


1. Don’t Make Negotiation Obligatory


Negotiation is often the most effective way of resolving a dispute. By negotiating, parties may find a solution that they are all happy with and preservestheir relationship. It may also be important for a company’s internal processes to try this before taking any other step. There is good reason, therefore, to encourage parties to negotiate before arbitrating.
However, obliging parties to negotiate can create problems. If the negotiation fails, a debate may arise over whether the parties have completed the negotiation phase and whether the arbitration has been started properly. You may incur extra time and costs dealing with this point.

A national court could even decide that the negotiation phase was a precondition to the arbitration, and, since it was not fulfilled, the tribunal had no jurisdiction.This means you could go all the way through an arbitration but then not be able to enforce the award.
Do not include wording in an arbitration clause that requires parties to negotiate, therefore. If you do include a negotiation phase, state that it is not a precondition to arbitration.


2. Do A Word Search


An arbitration clause must not be tackled in isolation.It is an essential part of the contract as a whole. 


A common mistake when drafting an arbitration clauseis to look at it alone without taking into account the other clauses in the contract. In particular, there may be other parts of the contract that also deal with disputes, such as expert determination clauses. There may even be clauses that refer disputes to a national court, contradicting the arbitration clause.
A search in the contract for “dispute” or similar words will identify such clauses so that you can amend them to fit with the arbitration clause.


3. Choose The Seat Of Arbitration First


The seat of arbitration often has the greatest potential impact out of all the elements of an arbitration clause. The courts of the seat of arbitration can make rulings that can fundamentally affect the arbitration, for example about the tribunal’s jurisdiction. You should focus on the choice of the seat of arbitration first, therefore, before the other elements.
In most situations, it would be suitable to choose the most convenient of the popular seats of international arbitration. Popular seats in Asia include Singapore and Hong Kong.
However, selecting the seat of arbitration in some cases can require specialist knowledge. Call us if you would like to discuss which seat best fits a particular situation.


4. Choose Rules To Fit The Seat 


Often, choosing a seat of arbitration will also suggest a choice of rules. Choosing Singapore may suggest the Singapore International Arbitration Centre (SIAC) Rules, for example, and Hong Kong may suggest the Hong Kong International Arbitration Centre (HKIAC) Rules. A local arbitration institution is often best placed to identify appropriate arbitrators in the region.


The International Chamber of Commerce (ICC) Rules are always an option as well, since the ICC can draw on its National Committees to identify local arbitrators. Alternatively, if you prefer ad hoc arbitration (i.e.without the involvement of an arbitral institution), choose the United Nations Commission on International Trade Law (UNCITRAL) Rules.

 

5. Don’t Reinvent The Wheel: Copy And Paste


Once you have chosen a seat of arbitration and arbitration rules, go to the website of the relevant arbitral institution and copy over its model arbitration clause.3 In most contracts this will be sufficient.


Note that some institutions suggest model clauses for specific situations: for example, the SIAC has a model clause on its website for contracts involving parties from the People’s Republic of China.


UNCITRAL has a model clause for ad hoc arbitration at the end of its Rules. Many institutions also have model clauses for UNCITRAL arbitration with the relevant institution as the authority appointing the arbitrators.4


Do not amend the model clause without being confident of how this will affect an arbitration. Model clauses contain tried and tested wording. However, there may be a need to adapt the model clause in some cases – for example, where there are multiple parties or multiple contracts. This requires specialist knowledge. Call us if you would like to discuss what works in a particular situation. 


6. Specify The Governing Law Of The Arbitration Clause 


We explained in an earlier briefing the problems resulting from an arbitration clause being a separate agreement within a contract, and the debate over what governing law applies to the arbitration clause.


To avoid extra time and cost being incurred on identifying the governing law of the arbitration clause, specify this in the clause. The HKIAC now recommends this approach in its model clause.5


Alternatively, specify that the governing law that applies to the contract as a whole also applies to the arbitration clause.


End Notes:


1 The International Bar Association Guidelines for Drafting International Arbitration Clauses runs to over 40 pages, for example.
2 See Emirates Trading Agency LLC –v- Prime Mineral Exports Private Limited [2014] EWHC 2104, where the English High Court decided that a “friendly discussion” clause was a precondition to arbitration.
3 The SIAC model clause is here; the ICC model clause is here.
3 See the Annex at the end of the UNCITRAL Rules. The SIAC clause for UNCITRAL arbitration is here, and the HKIAC clause is here.
5 See this announcement by the HKIAC about specifying the governing law of the arbitration clause.

 

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For further information, please contact:

 

Ben Giaretta, Partner, Ashurst
ben.giaretta@ashurst.com 

 

Katherine McMenamin

katherine.mcmenamin@ashurst.com

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