X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
The number of cross-border deals is rapidly increasing, and with it the number of disputes. The International Chamber of Commerce reports that in the last ten years the number of requests for arbitration rose by more than 40 percent. Because cross-border disputes involve different cultures, legal systems, and business concepts, they’re invariably complex, time-consuming, and costly. But when drafting contracts for international deals, lawyers often use boilerplate language in the dispute resolution clauses. When disagreements arise, these provisions can fall woefully short. The parties end up paying for litigation just to determine how they should resolve the initial dispute. To manage the risks involved in its international business, Marriott International, Inc., has focused on drafting dispute resolution clauses suited to its specific needs. International arbitration has two key advantages compared to litigation in national courts. First, international arbitral awards are more readily enforceable. Over 130 countries are signatories to the New York Convention, which facilitates the recognition and enforcement of arbitral awards in each signatory country. Court judgments, on the other hand, are backed up by no multilateral enforcement treaty. The United States is not a party to any treaty providing for the enforcement of its court judgments abroad. The second advantage of international arbitration is neutrality. Marriott, like most companies, does not want to submit its disputes to foreign courts. International arbitration allows the parties to resolve their dispute in a neutral forum, one that is acceptable to parties from different legal and cultural backgrounds. Arbitrations can be conducted under the rules of an international arbitral institution or can be handled ad hoc using rules tailored to the requirements of the parties and the case. Most parties prefer arbitration administered by an international arbitral institution because preparing ad hoc procedures can be expensive and time-consuming. Although institutional arbitration requires payment of administrative fees, it’s well worth the cost. The functions performed by the institution can be critical to ensuring that the arbitration proceeds to a final award with a minimum of disruption and without recourse to the local courts. The next question is which institution to use. The last two decades have witnessed a proliferation of new arbitral institutions, most of them designed for specific regions or industries. There are, however, three main arbitration institutions that have a genuinely international presence: the International Court of Arbitration of the International Chamber of Commerce (ICC); the London Court of Arbitration; and the international arm of the American Arbitration Association, now called the International Centre for Dispute Resolution. Marriott prefers the ICC because it is the one arbitral institution that is truly super-national, which is important to the contracting parties’ perceptions of neutrality. All of the leading international arbitral institutions, however, have model arbitration clauses. They are a good starting point for drafting any dispute resolution clause. The arbitration rules of the leading arbitral institutions and their administration of cases differ in a variety of ways, such as the costs, the institution’s role in appointing arbitrators, the administrators, and their reputation. The circumstances of the particular case will dictate which arbitral institution’s rules will be best for both parties. How many arbitrators should you have? Tribunals are comprised of either one or three. The ICC reports that half of its arbitrations are handled by a single arbitrator. That approach is considerably cheaper � indeed, two-thirds cheaper � and is often appropriate when the dispute isn’t complex and doesn’t involve more than $5 million. Using one arbitrator can also make the arbitration move more quickly because there are fewer schedules to accommodate. On the other hand, as the saying goes, three heads are better than one. Because it is often difficult to anticipate the scope of the dispute that may arise, the parties may decide to leave the number of arbitrators up to the arbitral institution if the parties cannot reach an agreement. All of the institutional rules provide a method for selecting (and replacing) the arbitrators in instances when the parties have not made a choice. When the arbitral tribunal consists of three members, parties often agree that each side will have the right to nominate one arbitrator, and that the two party-appointed arbitrators will select the third, who will serve as the tribunal’s chair. If the two party-appointed arbitrators cannot reach an agreement, the arbitral institution will select the chairman. Parties typically have greater confidence in the tribunal if they nominate one of the arbitrators and have input in the selection of the chairman. The arbitration agreement may require that the arbitrators have particular qualifications, language skills, nationalities, or places of residence. It is particularly common in disputes involving intellectual property or other technical issues to require that an arbitrator have relevant experience. The legal place or “seat” of the arbitration determines the governing arbitration law, and the courts of that jurisdiction will have a supervisory function. Parties should select a place where the local courts will enforce the arbitration agreement and not unduly interfere with the arbitral process. U.S. companies often prefer to designate a city in the U.S. as the place of the arbitration. Bear in mind that non � U.S. parties may not perceive this selection as neutral. Common venues for international arbitration are New York, London, Paris, Geneva, Zurich, Hong Kong, and Singapore. Chinese parties usually agree to Hong Kong as a venue. If you are contracting with a Chinese party, be sure to tailor the arbitration clause with the specific language needed to make the arbitral award enforceable in China. Contracts between parties that use different languages should specify which language will be used in the arbitration. In the absence of such a provision, it’s likely that the arbitrators will decide that the language of the contract will be the language of the arbitration. For U.S. companies, the best advice is: Always insist on English. Selecting more than one language in an arbitration will add significant time and costs for translation and interpreters and thus is discouraged. Every international contract should contain a clause that selects the governing law. Otherwise the parties end up spending a lot of time and money debating the issue once a dispute arises. Choice of law clauses should make clear that they cover both the law governing the contract and the procedural law governing the dispute. Confidentiality is a common expectation in international arbitration, but the rules of most of the leading international arbitral institutions do not restrict the disclosures that parties or counsel can make regarding the arbitration. If confidentiality is a concern, address this issue at the contract drafting stage. But do not state confidentiality requirements in absolute terms because disclosure may be required by law or may be necessary to enable a party to enforce its rights. Typically arbitral rules allow parties to seek court-ordered interim measures, such as attachments or injunctions. Some courts, however, have refused to grant interim measures, convinced that doing so interferes with the arbitrator’s jurisdiction. Marriott tries to include in its arbitration clauses a provision specifying that court ordered measures, such as injunctions, are available. Most arbitral rules grant the tribunal broad discretion to allocate costs, including the administrative expenses, arbitrators’ fees and expenses, and fees of the parties’ lawyers. This means that, unlike in most U.S. litigation, the losing party may have to pay the winning party’s lawyer bills and the cost of the arbitration in addition to the award. All of the leading international arbitration rules give the arbitral tribunal wide discretion in matters of procedure, including the methods for obtaining and presenting evidence. In international arbitration it is common practice that parties will exchange relevant documents but that neither party may impose U.S. litigation-style discovery, such as expansive document requests, depositions, or interrogatories. If you know that your company will want to engage in a particular type of discovery or presentation of evidence, specify this in the contract. In an attempt to avoid the costs, time, and risks associated with any international arbitration, many contracts now require the parties to try to resolve their disputes through informal negotiation (called a “gin and tonic clause” � or a “vodka clause,” in Russia), or mediation. A neutral body helps the parties to settle their differences through negotiation before resorting to international arbitration. The leading arbitral institutions have established conciliation rules which may be adopted by the parties in their contracts, or parties may wish to use specialist mediation organizations or design their own ad hoc procedures. Companies can influence the way their cross-border disputes are handled. By channeling more resources into carefully drafting their dispute resolution clauses, businesses can have much more control in the event that things go wrong. Bernard A. Joseph is vice president and senior counsel for litigation at Marriott International, Inc. Claudia T. Salomon is cochair of the international arbitration practice at DLA Piper Rudnick Gray Cary.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.