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2015

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9 March 2015 Gemma Anderson

Lunch & Learn

Effective Dispute Resolution Provisions & Arbitration Agreements

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Lunch & Learn

• 2nd Monday of each month • 45 minutes via webinar • Unaccredited CPD points • Next session

• Monday, 13 April 2015 “Big Data” Speaker: Sue McLean

This is MoFo. 3

Today

Questions at the end. Or by email afterwards.

Phones are muted to reduce background noise

We’ll unmute at the end

Confidential/Subject to Attorney Client Privilege 4

Beware the ‘Midnight Clause’

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Litigation vs Arbitration

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Arbitration

Ability to keep proceedings and documents private/confidential Ease of enforcement of arbitral awards New York Convention on the Recognition and Enforcement of Foreign Arbitral

Awards 1959 applies in 154 signatory states

Procedural flexibility Finality of decisions, which gives rise to greater certainty Arbitration Act 1996 – appeal only for lack of substantive jurisdiction (s 67);

serious irregularity (s 68); and (unless excluded) point of law (s 69)

Ability to select neutral and/or expert tribunal

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Litigation Ability to obtain interim measures and summary

determination Greater procedural certainty and enhanced coercive powers Useful against a recalcitrant opponent

Ability to rely on and create precedent Quality of tribunal and ‘safety net’ of appeal Better suited to disputes involving multiple parties or

agreements

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Neutral Factors Cost Perceived lower costs of arbitration can be a false economy

Arbitration gives rise to additional costs (e.g., tribunal’s fees and venue hire)

Speed Arbitration can slower (due to need to agree procedural matters and

unavailability of summary determination) or quicker (due to reduced possibility of

appeal)

Disclosure Arbitration allows parties or tribunal to limit scope of disclosure obligations

However, post-Jackson reforms English courts have increased powers

to restrict disclosure / standard disclosure is no longer default order

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Other Types of ADR Generally not binding or enforceable

Usually faster, less expensive, more flexible

Less adversarial

Can be provided for in own right or as part of a hybrid clause

Examples: Structured negotiation

Mediation

Early neutral evaluation

Expert determination

Adjudication

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Governing Law Clauses Address the substantive law governing the agreement

C.f. dispute resolution clauses, which address the forum in which any disputes

arising under the agreement are to be resolved

Should always be included (preferably as a separate clause)

No restrictions on choice of governing law; however

Must be accurate (e.g., “New York law” c.f. “US law”)

In case of litigation (c.f. arbitration):

Preferable to have consistency between governing law and jurisdiction

Ensure chosen law will be given effect by the courts of chosen jurisdiction

(generally requires the law of a country or state to be specified)

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Governing Law Clauses Specimen clause

“This Agreement, and any dispute or claim of whatever nature arising out of or in

connection with this Agreement or its subject matter or formation (including any non-

contractual disputes or claims), shall be governed by and construed in accordance with

the law of England and Wales.”

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Jurisdiction Clauses Key considerations Choice of jurisdiction Convenience

Preferred judicial system (e.g., availability of interim remedies)

Enforcement (i.e., reciprocal arrangements with jurisdictions in which

enforcement is likely to be sought)

Scope of the clause

Ensure drafted widely to avoid arguments over whether particular dispute

covered

Include non-contractual disputes and claims to put beyond doubt

Exclusive or non-exclusive jurisdiction

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Exclusive vs Non-exclusive Exclusive Proceedings must be brought in court with exclusive jurisdiction

Greater certainty and protection against another court accepting jurisdiction

Non-exclusive Proceedings can be brought in court with non-exclusive jurisdiction but either

party entitled to commence proceedings in another competent jurisdiction

Greater flexibility, but less certainty and risk of parallel proceedings

Not recommended unless good reason

Asymmetric Party A must bring proceedings in specified jurisdiction; Party B may bring

proceedings in specified jurisdiction but may also bring proceedings elsewhere

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Exclusive vs Non-exclusive Specimen clauses

Exclusive “Each of the parties to this Agreement irrevocably agrees that the courts of England and Wales shall have exclusive jurisdiction to hear and determine any disputes arising out of or in connection with this Agreement or its subject matter or formation or validity (including any non-contractual disputes or claims) and, for these purposes, each party irrevocably submits to the jurisdiction of the courts of England and Wales.” Non-exclusive “The parties hereby irrevocably submit to the non-exclusive jurisdiction of the courts of England and Wales for the purpose of hearing and determining any dispute arising out of or in connection with this Agreement or its subject matter or formation or validity (including any non-contractual disputes or claims) and for the purpose of enforcement of any judgment against their respective assets.”

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Arbitration Agreements Key considerations What should be the seat of the arbitration?

How many arbitrators should there be, how are they to be appointed, and

what (if any) qualifications should they have?

Which arbitral rules should be used?

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The legal place of the arbitration (c.f. the physical place) Determines the legal framework within which the arbitration takes place not the

location of any hearings (which may be different)

Choice of seat will impact: The conduct of the proceedings Consider any mandatory provisions and the supportive and supervisory role

of the courts Select a seat that is ‘arbitration-friendly’ (e.g., London, New York, Paris, Hong

Kong, Singapore) and/or has legislation based on the UNCITRAL Model Law

The scope to challenge the award Arbitration Act 1996 – limited grounds of appeal

The enforceability of the award Ensure New York Convention applies

Seat

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Number Specify the number of arbitrators (usually one or three) Check default provisions of law of seat or chosen institutional rules

Appointment If by agreement, include a default provision to apply in the event of failure to

agree If by a specified appointing body, ensure that it exists, is likely to continue to

exist, and is willing to act as an appointer Consider naming an established specialist institution such as the LCIA or ICC

Qualifications Ensure any qualifications are not defined too narrowly or loosely

Avoiding naming specified individuals

Common to prevent appointment of sole arbitrator of chairman of

same nationality as either party

The Arbitral Tribunal

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Ad hoc v Institutional Ad hoc

Advantages: Greater procedural flexibility

Potentially reduced costs (no administrative fees)

Disadvantages: Requires increased inter-partes cooperation

Reaching agreement with recalcitrant parties on procedural matters can be time-consuming

and expensive

Drafting tips: To minimise procedural arguments leave determination of procedural rules to discretion of

arbitrators or adopt rules specifically written for ad hoc arbitration (e.g., the UNCITRAL

Rules)

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Ad hoc v Institutional

Specimen clause “Any dispute, controversy or claim arising out of or relating to this agreement, including any question regarding its breach, existence, validity or termination or the legal relationships established by this agreement, shall be finally resolved by arbitration [under [insert applicable rules (if any), e.g., the UNCITRAL Rules] in force at the date of this agreement]. It is agreed that: (a) the tribunal shall consist of [one arbitrator/three arbitrators] (who [is/are] to be [specify any

necessary qualifications]); (b) in default of the parties' agreement as to the arbitrator(s), the appointing authority shall be [insert,

e.g., LCIA]; (c) the seat of the arbitration shall be [London]; (d) the law governing this arbitration agreement shall be [English]; and (e) the language of the arbitration shall be [English].

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Ad hoc v Institutional Institutional

Advantages: Enhanced procedural certainty

Fees and expenses regulated and thus easier to predict

Potential for independent vetting of arbitral awards

Disadvantages: Additional bureaucracy can cause delay

Administrative fees can increase overall cost of proceedings

Drafting tips: Select arbitral institution carefully (LCIA, ICC, ICDR, WIPO)

Consider: reputation; fees; degree of administration; scrutiny of awards, etc.

Use the model clause provided by your chosen institution (adapted as necessary)

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Ad hoc v Institutional

Specimen clauses

ICC Model Clause "All disputes arising out of or in connection with the present contract shall be finally settled under

the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators

appointed in accordance with the said Rules."

LCIA Model Clause

"Any dispute arising out of or in connection with this contract, including any question regarding its

existence, validity or termination, shall be referred to and finally resolved by arbitration under the

LCIA Rules, which Rules are deemed to be incorporated by reference into this clause. The

number of arbitrators shall be [one/three]. The seat, or legal place, of arbitration shall be [City

and/or Country]. The language to be used in the arbitration shall be [ ]. The governing law of the

contract shall be the substantive law of [ ]."

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An effective arbitration agreement should also: Clearly impose an obligation to arbitrate disputes

Clearly define the scope of the agreement

Specify the language of proceedings and the governing law of the

agreement

State any obligations of confidentiality

Comply with any formal requirements of the applicable law

Exclude any rights of appeal the parties can and want to exclude

Be simple - avoid overelaborate or lengthy agreements

Arbitration Agreements

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Hybrid Clauses

Provide for more than one method of dispute resolution More complex the clause = more important carefully drafted

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Multi-tiered Clauses Require parties to engage in one or more forms of ADR

(e.g., negotiation or mediation) before commencing arbitration or litigation

Advantages: Potential for cost-effective, quick and low-key resolution of

disputes Can help preserve long-term relationships Can make ADR mandatory

Disadvantages: Can be used tactically to cause delay Potential to increase overall legal costs May cause procedural problems or be held unenforceable

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Drafting tips Carefully consider and clearly define the form(s) of ADR to be

adopted Consider how the process will work in practice Who should be involved? How are they identified? What are they required to

do?

Provide clear trigger points for each ADR process to start and finish

Clearly stipulate whether each dispute resolution process is

mandatory or optional Provide for arbitration or court proceedings if ADR fails

Multi-tiered Clauses

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Carve-out Clauses Provide for specific types of disputes (usually technical issues) to

be ‘carved-out’ from the agreed dispute resolution procedure and submitted to a different dispute resolution mechanism (most commonly expert determination)

Can be cost-effective way of resolving discrete issues in a timely

fashion Drafting tips Be precise about which disputes fall within which

dispute resolution mechanism

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Lunch & Learn Gemma Anderson Associate, Litigation Practice T: (+44) 20 7920 4063 E: ganderson@mofo.com

Monday, 13 April 2015 “Big Data” Speaker: Sue McLean