Introduction. The first decisions in the selection of international arbitrators should be included in the preparation of the arbitration clause (pre-dispute agreement) of the contract. This often is the last consideration in negotiating international agreements and, unfortunately, the parties often give little attention to specific circumstances bearing upon their decisions. More frequently, the parties fail to appreciate the important differences between domestic and international arbitration in disputes that can involve the terms of both contracts and treaties, particularly in energy disputes involving the oil, gas, and utility sectors where one party may be a sovereign state. This note will mention only a few of the most important decisions to be made in drafting international arbitration clauses.
Arbitration Institution. Few decisions are more important than the arbitral organization that will administer the arbitration process. The various institutions vary significantly as to the number, qualifications, and availability of arbitrators as well as in their procedural and substantive rules. The major private institutions include the International Centre for Dispute Resolution, the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), the United Nations Commission on International Trade Law (UNCITRAL), and the International Center for the Settlement of Investment Disputes (ICSID). These have disparate provisions for the arbitration process, the impartiality and independence of arbitrators, “neutrality,” required disclosures, etc. Understanding the more important variations is extremely important in deciding the most appropriate provisions for negotiations of the contract.
Applicable Law & Venue. Another important, and often misunderstood, issue is the governing law of the arbitration, which is distinct from the law governing the contract. The former is governed by the venue of the arbitration unless the parties agree otherwise (which often is overlooked) and the venue jurisdiction permits. Therefore, a major factor in venue and governing law is whether the country has user friendly arbitration laws. If the parties fail to include the governing law for the contract in the arbitration clause, the arbitration tribunal may have to make a determination of which system of law should apply. These decisions also may impact the finality and enforcement of the arbitration award. For purposes of enforcement, most jurisdictions consider an arbitration award is made where it is signed – not in the country where the parties or arbitrators are located or even where the award is communicated.
The Arbitrators’ Role. In domestic arbitration, a “neutral” arbitrator generally connotes impartiality and independence. In international arbitration, however, the term “neutral” may refer only to national neutrality (i.e., from a different country than either party). It is the prevailing practice in international arbitration that the presiding arbitrator be of a different nationality than the parties. This highlights that national neutrality is a standard distinct from, and possibly in addition to, substantive impartiality and independence. In addition, some laws (and even arbitration rules) vary in the roles of party-appointed arbitrators while other systems require all arbitrators to be impartial and independent.
The practice of each party nominating an arbitrator and those two selecting a third, and presiding, arbitrator remains the common practice in international arbitrations, and the absence of any successful resolution of the “delicate” position or role of the party-appointed arbitrators may reflect a satisfaction with this practice. There could not be a more important subject for international arbitration contract clauses than advance agreement of the appropriate role, and possibly national neutrality, of the arbitrators.
Arbitrator Selection. If the arbitration rules are not satisfactory, the arbitration clause can designate the number of arbitrators. The selection of one arbitrator is becoming more popular for domestic arbitrations in the United States (for reasons of both scheduling efficiency and cost), but three to five arbitrators are more common in international arbitrations. In addition to number, requirements for language, nationality, experience, and subject-matter expertise all are appropriate considerations for the arbitration clause. With respect to selection of individual arbitrators, studies indicate the most important attributes evaluated in selecting arbitrators are reputation, expertise, common sense, and knowledge of the applicable law. Arbitrators’ fees often are given priority by some parties, but this can be a false economy in view of the learning curve involved with inexperience as well as the efficiency of the arbitrators’ administration of the process. With today’s Internet technology, a thorough “due diligence” in the selection process is essential. A simple “Google” or other search engine provides an important tool with volumes of information on publications, speeches, positions held, honors, experience, and expertise.
Conclusion. A form book solution or sample clause is not appropriate for drafting an international arbitration clause. An understanding of the arbitration rules to be utilized as well as the special factors discussed above will vary by the identity and location of the parties, the type and complexity of the agreement, the culture, and even political considerations in the venue of the process. The “intelligent design” of the arbitration clause can avoid many problems and enhance the process.