To avoid expensive rows international contracts need well drafted dispute resolution clauses. Here are some wise steps to take if arbitration is one option you want to try
I recently moved to Singapore and almost immediately found myself involved in an international arbitration hearing. After one very long day I jumped in a taxi and to my surprise the taxi driver asked me: “Which way do you want to go?” This is not something that a taxi driver had ever asked me in the UK, so I simply replied: “Whichever way is the quickest!”
It got me thinking about international contracting. Parties often get into difficulties because what one party considers “normal” practice in one jurisdiction can actually be very different in another. Often the only common consensus is that the parties want their dispute resolved as quickly as possible.
Unfortunately the dispute resolution clauses (which are almost always found at the end of any contract) do not always get the time or attention that they deserve before the contract is signed. This can lead to an unnecessarily slow, complicated and expensive dispute process.
If you are intending to include international arbitration as one of the options for dispute resolution, here are some steps you could follow:
1. Consider all of the parties and whether you will be able to enforce an arbitration award and recover monies if matters go wrong. Ask yourself:
i) Is the owner/employer good for the money or do they have assets?
ii) Is the owner/employer a state entity? This could make bringing claims and enforcement very difficult, particularly if you want to continue working in that country.
Is the arbitration agreement valid under national laws and treaties? The arbitration agreement usually needs to be in writing but under the revised Model Law 2006 it can be oral and this could be a risk, so make sure the contract specifies the desired procedure.
Check local law issues; check on relevant corporate law (for example, in Turkey special powers of attorney are required). Can the local government department actually submit to arbitration?
Best practice is to ensure you have a valid arbitration agreement when you contract.
2. Where is the seat of the arbitration? This is much more important than people often realise, because it determines: procedural rules and rules of evidence; privilege; safety (of the people involved in and conducting the dispute); legal infrastructure (do you have a good choice of arbitrators, lawyers and suitable venues?); appeals; and court interference.
3. Consider other contract dispute resolution structures. Often there are tiered dispute resolution procedures, but standard timetables can make the overall process too slow.
Best practice is to reduce the number of tiers and/or reduce the timescales.
4. Consider which procedural rules and appointing bodies to use. Administered arbitration makes dealing with the administration easier, but
can be expensive and slow.
Non-administered arbitration (UNCITRAL or ad hoc arbitration) can be cheaper and faster.
5. Think carefully about the application of the law and the language of the arbitration.
Major differences in the application of the law include the approach to good faith, penalties, interest and notices.
It is also important to select the language of arbitration at the outset, otherwise this could result in protracted arguments at the start of any dispute.
Take note of the above when drafting and you can “relax la” (as they would say here in Singapore) knowing that your procedures are in place so that you can get to your desired conclusion in the quickest way possible.
Helen Waddell is counsel at Pinsent Masons