Many neutrals may assume that they have little need for skills in drafting dispute resolution clauses. If so, they are wrong. In fact, there are good reasons why all ADR participants—including the neutrals—need experience in crafting the agreements governing such proceedings. Arbitrators constrained by poorly drafted arbitration agreements quickly learn the value of well-drafted clauses.
There are also many mediated settlements in which parties have a very short time to draft clauses that will govern subsequent issues that may arise. Mediation is therefore another context where an enforceable dispute resolution clause must be drafted, concerning which the viewpoint of experienced mediators may be of great help.
It follows that neutrals should avail themselves of opportunities to train lawyers and other contract drafters to compose efficient and enforceable dispute resolution clauses. This article is offered to assist in that process.
The Use of Guidelines in Drafting International ADR Clauses
Various guidelines are available to assist drafters in preparing dispute resolution clauses. For international contracts, however, a more specific reference is the Guide to Drafting International Dispute Resolution Clauses, published by the International Centre for Dispute Resolution (ICDR).
Another useful reference is the IBA Guidelines for Drafting International Arbitration Clauses, published by the International Bar Association (IBA) in 2010. In fact, the IBA Guidelines offer extensive detail to cover multiple parties and also suggest rules that could govern conduct of an international arbitration.
Venue Selection and Enforceability Considerations
For American clients lacking experience in international transactions, the first instinct of a contract drafter may be to specify dispute resolution in a U.S. court. In many cases, however, this is ill-advised. First of all, a foreign contract partner is likely to resist subjecting itself to the jurisdiction of an unfamiliar U.S. court (especially with a jury). But even if a U.S. court venue is accepted, it can raise significant issues as to enforceability of an ultimate judgment.
In international contracts, contracting parties overwhelmingly express a preference for disputes to be resolved through binding arbitration (rather than in the courts of either party’s home country). One reason for this preference is the relative ease of enforcing arbitral awards under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). First adopted in 1958, the New York Convention has been ratified by 172 countries (most recently by Timor-Leste in January 2023).
Under Article II of the New York Convention, contracting states will generally enforce arbitration awards from other contracting states, in accordance with the rules of procedure of the territory where the award is relied upon. There are, however, several exceptions in Article V:
- a) The parties to arbitration were subject to some incapacity.
b) The party demanding arbitration failed to give proper notice.
c) The award goes beyond the submission.
d) The arbitral panel was improper.
e) The award has not yet become binding.
f) The recognition or enforcement would be contrary to
the public policy of the country where enforcement is sought.
By comparison, a U.S. court judgment may be enforceable under the 2019 Hague Judgments Convention only in seven other countries (Costa Rica, Israel, Montenegro, North Macedonia, Russia, Ukraine and Uruguay). In addition, certain individual foreign countries have separate agreements that provide for enforcement of U.S. court judgments.[1]
International Dispute Resolution Agreement Checklist
The following is a suggested checklist of items to consider including in an international dispute resolution clause, although many of these suggestions also apply to domestic proceedings:
- Designate administrative institution for resolution (if not ad hoc)
(include consideration of its neutrality/reputation).
- Consider whether to include mediation before arbitration.
- Incorporate rules to govern arbitration (and mediation?), or you will need a much more detailed ADR clause.
- Work from model ADR clauses recommended by the institution
that will handle the ADR process (check website for latest version),
or use the following IBA default clause:
All disputes arising out of or in connection with this agreement, including any question regarding its existence, validity or termination, shall be finally resolved by arbitration under __________ [select rules].
- Consider one vs. three arbitrators.
- Consider specifying the scope of issues subject to arbitration.
- Consider applicable rules/contracts governing joinder of parties.
- Determine place (seat) of arbitration in a contracting state under the New York Convention. In this regard, it is important to designate “place of arbitration” rather than “place of hearing.” The place or seat of the arbitration is important, as it determines the law (lex arbitri) governing procedural aspects of arbitration and potentially invoking local courts for provisional measures. Also, this issue may be impacted by factors such as available facilities and language requirements.
- Designate language of arbitration.
- Select governing substantive law of arbitration.
- Consider giving tribunal power for provisional relief.
- Recall that depositions in international arbitration
generally are not allowed.
- Consider designating arbitration as confidential.
- Consider allocating costs and fees to a prevailing party.
- Consider prequalifications for arbitrators or mediator.
- Consider time limit for rendering an award.
- Consider contracting for review of award by court.
- Consider tribunal discretion to consolidate or bifurcate.
[1] See, e.g., “Transatlantic Litigation: Enforcing US Judgments in England and Wales,” Transatlantic litigation: Enforcing US judgments in England and Wales (penningtonslaw.com) (15 Nov. 2021).
