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1、 Mayer,Brown,Rowe and Maw LLP,The Midnight Clause:10 Traps to Avoid in Drafting Arbitration AgreementsA Webinar,June 19,2007Presented by William H.Knull,III and Philippa M.CaseyMayer,Brown,Rowe&Maw LLP,Todays Presenters,William H.Knull,III is Co-Chair of Mayer,Brown,Rowe&Maw LLPs International Arbit
2、ration Group.He has extensive experience in transnational and domestic disputes involving oil and gas related matters and has frequently served as counsel and lead counsel in arbitrations under the auspices of the AAA/ICDR,ICC and NASD,and in ad hoc proceedings pursuant to UNCITRAL rules.William H.K
3、null III,Partner,H,Philippa Casey is a partner at Mayer,Brown,Rowe&Maw LLP.Her practice is focused on acting for clients in international litigation matters,including disputes arising out of cross-border contracts.She regularly advises on all aspects of litigation and arbitration practice and proced
4、ure,including in relation to the use of evidence in overseas proceedings,confidentiality issues,and the validity of dispute resolution agreements.Philippa Casey,Partner,L,Todays Discussion,Ten traps to avoid when drafting international arbitration clausesQ&A at the end of the presentationOperator As
5、sistedPress*1 on your touch-tone dial when you are ready to ask a questionBrief survey,After complex negotiations,a deal is finally taking shapeWith the deadline fast approaching,the junior deal lawyer is told to“add in the usual terms,”including an arbitration clauseRationale:Not really necessary:w
6、e all agree this is a great dealIf there is a problem down the road,well fix it then,The Context,The Context(cont.),Four years later,a serious dispute breaks out,and everyone looks at the arbitration clause for the first timeBut with the dispute in full swing,both sides calculate their procedural ad
7、vantages,and an agreement to correct problems in the dispute resolution terms is impossible,Some Potential Results,Arbitration clause is unenforceable,and you are stuck in your counter-partys home courtArbitration is held in a jurisdiction whose courtsFavor the other side,orAre prone to interfere in
8、 arbitration,orDecline to enforce arbitral awardsKey parties are not bound to arbitrateThe reasonable,cost-effective process you intended can be achieved only through an expensive,time-consuming,patience-thinning,adversarial process,One Size Does Not Fit All Needs,Arbitration clause should fit the n
9、eeds of the parties AND the deal Clause used last time may not work on new dealOther sides clause may be dangerousClause promulgated by arbitration institutions may not fit needsHowever,the bespoke clause is full of traps for the unwaryWithout arbitration expertise,traps may not be apparent,Trap 1:T
10、he Missing Party,Clause fails to name all the parties with rights/obligations under the agreementParent the one with the moneyGuarantor not bound to arbitrate based on separate guarantee aloneHost government only if all formalities observedSubcontractors,Trap 1:The Missing Party(cont.),Arbitration i
11、s a creature of contractWaiver of right to judicial due process not lightly presumedWritten agreement is a prerequisite under the N.Y.ConventionRequirement of individual agreement applies to each juridical entity,including other members of a“group of companies”or government entitiesBe sure everyone
12、necessary is committed,Trap 2:Capacity to Arbitrate,Once dispute arises,respondents will use any available argument as defenseAbility of state-owned entities to commit to arbitrate may be limited by constitution or statuteLocal legal advice is essentialWhether entity is permitted to commit to arbitr
13、ateWhat approvals are necessary to make commitment enforceableWhat evidence is required to establish the existence of enforceable authorization to arbitrateEven if law of place of arbitration would disregard law of home jurisdiction on capacity,ensure compliance to avoid cost of dispute,Trap 3:The S
14、eat of the Arbitration,Problem:You propose neutral governing law(England,N.Y.),neutral seat(Paris,Singapore)They propose own law as governing,seat in their capitalMidnight compromise:neutral governing law,seat in their capitalResult:Potential disaster,Trap 3:The Seat of the Arbitration(cont.),Reason
15、:to the extent it is not governed by the parties agreement or their choice of arbitration rules,arbitral procedure and other important issues will be governed by the law of the official seat of the arbitrationNot necessarily the place where hearings are heldThe seat must be designated by the agreeme
16、ntThe arbitration is within the jurisdiction of the courts at the seatImportant:lex arbitri is the law of the seat,not the governing law of the contract,Trap 3:The Seat of the Arbitration(cont.),Selection of neutral seat is criticalProcedural and other issues not governed by rules or agreement are g
17、overned by law of the seatMust be in a N.Y.Convention country(140+)Hostile courts can interfere with and frustrate arbitrationHearings can be held elsewhere by agreement or ruling of arbitrators for convenience,costStick to established arbitration centersCompromise on the official seat can lead to o
18、utcome-determinative problems,Trap 3:The Seat of the Arbitration(cont.),Problems with the involvement of local courts:Many do not respect arbitration agreements and awardsMany interfere in or delay the processSome will actively interfere on behalf of local partiesAvoiding the other sides home courts
19、 is one of the principal advantages of arbitration in the international context,Trap 4:Failure to Optimize BIT Protection,Investment treaties protect foreign investors from host-government abuseBITs bind governments to arbitrate even in the absence of a specific agreement with the investorProtection
20、 is available only ifAn owner in the chain is a national of a state with a treaty with the host country,andClaimant has a qualified“investment”,Trap 4:Failure to Optimize BIT Protection(cont.),There are more than 2400 BITs,but not every pair of states is coveredE.g.,U.S.and Venezuela have no treatyB
21、ut Venezuela and the Netherlands doIntermediate subsidiary in chain of ownership can usually bring BIT claimUnless BIT denies benefits to mere“mail drop”entitiesCan“stack”treaties,with more than one treaty applicable to an investmentLesson:have to know host countrys treaties to optimize your protect
22、ion,Trap 4:Failure to Optimize BIT Protection(cont.),Activities in host country must constitute an“investment”Very broadly definedIncludes stock ownership,contract rights,mineral concessions,etc.Does not include mere commercial transactions(sales of goods or services)BITs provides remedy against hos
23、t government for breach of treaty provisions Addition to,not a substitute for,claims against contract counter-party for breach of contract,Trap 5:Ambiguity in Naming Institution and Rules,Examples:International Chamber of Commerce of Hong KongCourt of International Arbitration,LondonChamber of Comme
24、rce,ParisAssociation of American Arbitrators,Trap 5:Ambiguity in Naming Institution and Rules(cont.),Arbitration institutionsAdminister proceedingsAppoint arbitrators if parties cant agree or one party refuses to cooperateProvide rules for arbitrationNegotiate arbitrators fees,Trap 5:Ambiguity in Na
25、ming Institution and Rules(cont.),Results of ambiguity in designation:Arbitration clause may fail altogetherAuthority to appoint arbitrators may be determined by local courtsConfusion as to arbitral rules may default to local statuteExtensive,expensive litigation in arbitration and potentially the c
26、ourts on what was agreed to,Trap 5:Ambiguity in Naming Institution and Rules(cont.),Defective designation may negate meeting of the minds on arbitration altogether or change the agreement from what you thought it wasBest practice:use the clause suggested by the institution to avoid any possibility o
27、f confusion,and always check the description of the institution to ensure accuracy,Trap 6:Ambiguity in Choice of Forum or Scope of Agreement,Choice of Forum:Litigation or arbitrationLitigation and arbitrationScope of Agreement:Arbitration of some,but not all,claims,Trap 6:Ambiguity in Choice of Foru
28、m or Scope of Agreement(cont.),Permissive clause:Contract provides that in the event of a dispute,parties“may”submit the matter to arbitrationUnless arbitration is unambiguously identified as the exclusive forum,clause leaves open to either party the option of seeking relief in the courtsRisk of par
29、allel proceedings,race to judgment,Trap 6:Ambiguity in Choice of Forum or Scope of Agreement(cont.),Agreement to arbitration and broad submission to jurisdiction of particular court results in race to judgmentExpensive litigation over forumPotentially parallel proceedings in arbitration and in court
30、Leverage for financially stronger party with weaker position to force settlement on the other,Trap 6:Ambiguity in Choice of Forum or Scope of Agreement(cont.),Ambiguity on scope of agreement to arbitrate ensures protracted,expensive fight on what is arbitrableMay include fight on whether scope is to
31、 be determined by arbitrators or courtsIn most cases,broad clause to submit all disputes to arbitration is preferable to avoid any possible ambiguitySpecial case:general arbitration clause,purchase price adjustment before expert,Trap 6:Ambiguity in Choice of Forum or Scope of Agreement(cont.),Broad
32、form agreement“All disputes,controversies and claims arising out of,relating to or in connection with this contract,including,without limitation,any question regarding its existence,validity,interpretation,performance,termination or breach,shall be referred to and finally resolved by arbitration in
33、accordance with.”,Trap 6:Ambiguity in Choice of Forum or Scope of Agreement(cont.),Best practice:Use express,exclusive agreement to arbitrate all disputes;Remove unnecessary references to court jurisdiction;Ensure there are no mutually incompatible clauses or clauses which lead to uncertainty in the
34、 performance of the Agreement;Avoid complexity where possible.,Trap 7:Inconsistent or ambiguous Governing Law Clauses,Floating law clausesSonatrach v.Ferrell the parties to two agreements which were inter-related had provided that Japanese or English law would govern the resolution of the dispute de
35、pending on the identity of the parties involved Held:such a provision could not be enforced:parties had to be able to know under which law they were performing the contract at the relevant timeContrast floating jurisdiction clauses perfectly acceptable under English law,Trap 7:Inconsistent or Ambigu
36、ous Governing Law Clauses(cont.),In federal systems(e.g.,U.S.,Canada,Switzerland),both federal and state/provincial/cantonal law may apply at a particular seatDistinction can make an important differenceScope of law may be differentContent of law may be differentChoice will be honored,so choice shou
37、ld be informed and unambiguously expressed,Trap 8:Indeterminate Time Periods,Problem:Contract provides that,“in the spirit of cooperation,”parties must attempt to negotiate a resolution in good faith before resorting to arbitrationIf no agreement can be reached through negotiation,parties must submi
38、t to good faith mediationOnly if agreement is still not reached may a party initiate arbitrationQuestion:when can arbitration begin?,Trap 8:Indeterminate Time Periods(cont.),Solution:provide for crisp beginning and ending dates for each stageNotice in writing of claimX days after notice to negotiate
39、If no agreement after X days from delivery of notice,mediate during subsequent Y daysIf no agreement within Y days,either party may initiate arbitration,Trap 9:Over-specification,Problem:Anticipating technical disputes,parties designate specific engineers specializing in the products technologyActua
40、l dispute relates to questions involving contract formation and interpretation,turning on legal implications of conflicting testimony of percipient witnesses By the time the dispute arises,designated engineers have moved,retired or passed away,Trap 9:Over-specification(cont.),Except for essential te
41、rms(scope,seat,appointing authority,language,governing law),leave flexibility to structure proceedings to fit the need when the claim arisesIn addition to arbitrators qualifications,best to wait on,e.g.,procedures(discovery,witness statements and testimony,etc.)until nature of dispute is known,Trap
42、10:Assuming Confidentiality,Problem:Since confidentiality is one of the main advantages attributed to arbitration,contract makes no separate provision,relying on reputation and traditionBut:most arbitration rules and national arbitration statutes provide for only limited confidentiality,leaving room
43、 for disclosureSolution:If confidentiality is important,provide for it specifically in the agreementAnd recognize that it may be ephemeral if either party files for or against enforcement in court(though note that the courts in England will protect confidentiality by anonymising judgments/holding pr
44、ivate hearings),Conclusions,In international deals,arbitration offersNeutral forum,freedom from other sides“home court”Enforcement across borders under N.Y.and other international conventionsAdvantages can be lost throughDrafting that creates pathological ambiguityUse of terms whose implications for
45、 subsequent proceedings are not fully understood,Conclusions(cont.),To secure the benefits and avoid the traps:Always get expert advice at the drafting stageUse tested languageKnow the local law of the counter-party as to how it affects capacity to contract and to arbitrateAvoid inconsistent terms o
46、n forum,jurisdiction,governing law,etc.Ensure accurate designation of administering institution,rules,Mayer,Brown,Rowe and Maw LLP,The Midnight Clause:10 Traps to Avoid in Drafting Arbitration AgreementsA Webinar,This presentation is provided for general informational purposes only and may not refle
47、ct the complete legal analysis on the subject.Any information contained herein should not be construed as legal advice and is not intended to be a substitute for legal counsel on this subject.You should not act or refrain from acting on the basis of this presentation without seeking appropriate legal advice based on your particular facts and circumstances.Your participation in this presentation does not create an attorney-client relationship.,
