Legal news and trends for Canadian in-house counsel and c-suite executives
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While it sounds simple, crafting a well-designed arbitration clause neces- sitates a combination of skill, foresight, and perhaps aggressiveness on the part of the participants. "That has to be very carefully thought through and written into the contract. Once the dispute has arisen, it is too late," says Gelowitz, who in 20 years has seen all variety of arbitration clauses. "They range from one sentence to 20 pages. I'm not exag- gerating." He adds, "As litigators we are always kind of bemoaning this, but typically the arbitration clause is the last thing that the corporate lawyers sit down and think about once they have solved eve- rything else in the deal. And they say 'OK, well, we need an arbitration clause, and we need it in 20 minutes because we are signing the contract.'" Gelowitz also notes that two parties can create a binding arbitration clause with just one sentence, but it would lack some pretty crucial elements such as details of the process, protections for the various par- ties, and other customized elements specific to the parties. At the other end of the spectrum, a very detailed arbitra- tion clause can spell out the escalation leading to arbitration, how the parties state their positions, and every step along the way in the process. Other elements to consider include where the arbitration should be heard, under what rules (for example under those of an administered arbitration organization), how many arbitrators will hear the dispute — one or three — and the way in which they will be selected. Barry Fisher, vice president, general counsel, and corporate secretary for software maker SAP Canada Inc., says companies can run into trouble with international arbitration when they bolt on boilerplate clauses to a business con- tract. That practice can leave out what he views as key considerations: the location of the arbitration hearing, the language it will be conducted in, the time frame of the hearing, as well as discovery and document protection. "To some extent it depends on whether you think you are going to be seeking a remedy or defend- ing against someone seeking a remedy, it may [govern] how particular you are about this," says Fisher, who previously worked as general counsel to an inter- listed mining company and has served as an arbitrator on a number of disputes with international parties. While the practice of international arbitration has a solid history and foun- dation, Fisher's answer to the question of whether companies are getting more proficient in the creation of robust arbi- tration clauses is simple: "Yes and no. Some do a good job. The ones who put their minds to it are doing better. ESSENTIAL ELEMENTS FOR INTERNATIONAL ARBITRATION CLAUSES Sometimes I am still seeing arbitration clauses that are ineffective." The default tendency of counsel that are concerned about any and all eventu- alities might be to figuratively put eve- rything but the corporate kitchen sink in an agreement with a foreign partner. While admirable, that approach can lead to unexpected consequences. "You may not want everything put in an arbitration clause," says Fisher. "In our licence agreements, I have arbitration clauses in my contracts, but I carve out intellectual property. I do not want — Valasek, a partner with Ogilvy Renault LLP. "There are certain elements that must be in a W clause in order for it to be effective and enforce- able," says the Montreal-based arbitration lawyer. The test for effectiveness and enforceability is pretty simple: "Will you be able to go before that court or that judge and put that clause before that court and have that court recognize that their jurisdiction has been excluded by that agreement." Essential elements to a robust international arbitration clause: • The agreement has to be in writing. That is a stipulation of the United Nations' 1958 New York convention, an agreement which gave birth to international arbitration. • A clear reference to arbitration as a mandatory means to resolve the dispute. "It shouldn't be 'If a dispute arises the parties will consider arbitration.' It should be clear so there is no scope for arguing that this is an option." • A clear designation of the scope of the disputes that are going to arbitration. The parties need to decide whether all disputes are going to arbitration or whether it is just some. "In my view, best practices are to include a universal scope so you want to put in any and all disputes. You don't want to give the other party an argument that your arbitration clause did not capture the type of dispute that they are bringing into the court." These three elements can be outlined with a simple clause reading "all disputes under the contract shall be arbitrated," which is enough to carry out that important function. "That is certainly not a complete clause," says Valasek. "We would add certain highly recommended elements. Those would be: place of arbitration, method of selection, and number of arbitrators . . . and the final, final recommended element would be language of the arbitration." Valasek notes there are a number of model arbitration clauses that contain all of the necessary elements drafted by the different organizations that administrate international arbitration. "In practice, we will often speak to clients not so much about these different elements but about which type of clause they want. Whether they want one associated with the rules of the ICC [International Court of Arbitration] or the [London Court of International Arbitration] or the [American Arbitration Association]." INHOUSE APRIL 2011 • hile it is true, or it should be, that every international arbitration clause is unique and different, there are some essential elements that every one should contain, says Martin – PB 27