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Tips for Drafting an International Arbitration Clause

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By Jonathan R. Tung, Esq. on February 16, 2016 3:01 PM

International arbitration agreements (IAAs, or "arbs"): this is a term that you've probably come across if your firm has even mentioned going overseas to do business. This is the clause that binds parties to the decision of a neutral arbiter should a dispute arising out of a business contract. Think of them as the bigger version of the arbs you've already had to review for domestic disputes.

The bigger international versions are pretty much the same thing -- only more expensive and more involved. All the more reason that you should always strive diligently to craft an arb that fits your company's particular needs like a glove.

"BLINC LLC"

Eric S. Sherby, an Isreali based lawyer who specializes in answering questions like these offers a great mnemonic to keep in mine when drafting an arb. "BLINC LLC" stands for the Broadness, Law (choice), Institutions, Numbers, Costs, Location, Language and Carve-outs. Almost reminds you of studying for the bar, right?

  • Broadness: Include a universal quantifier that encapsulates all disputes related to the contract, even tangentially. Sherby has made it a point in his practice to expressly include third-party claims. This clarity is preferable to asking questions when a dispute later arises.
  • Choice of Law: This one is obvious, but apparently some transactional attorneys wait for the last moment to include a choice-of-law provision in their business contracts. Unbelievable.
  • Institution: Parties can elect to "ad hoc" arbitration, or can agree to have the dispute arbitrated by one of the recognized institutions specializing in such international disputes. The International Chamber of Commerce, the American Arbitration Association, etc. The impetus for this is the accountability and enforceability of the resulting arb decision.
  • Number: Depending on the number of arbiters on the panel, costs can get very ... well, costly. A single arbitrator costs much less than a multi-arbitrator panel. Parties can include a provision that address this in there arb agreement. Generally, the "defending party" wants a multi-arbitrator panel because it costs the "plaintiff" expense.
  • Costs: Fee shifting and the awarding of attorneys fees is generally accounted for in arb agreements and so should yours. They too also have strategic implications and the in house attorney should tailor his agreements to favor the company's best interests.
  • Location: Sherby offers a piece of information that cannot be overemphasized. The country that is chosen as the location for eventual arbitration should be a signatory to the New York Convention, else the "enforcement of the arbitral award will be in doubt."
  • Language: We assume you speak and communicate in English and would probably suggest that English be the agreed to language of arbitration. Either way, address this issue in your agreement.
  • Carve-Outs: Carve-outs are the final step in drafting an IAA and should never be left out because failure to do so could mean that certain types of relief might be foreclosed to your client. The carve-out will exclude certain types of proceedings from the purview of the arbitration clause. Of course, you will craft them to favor your client's interests.

Just the Beginning

There are a great many resources that detail the ins and outs of International Arbitration Agreements. They are not yet so common that a decent one can be found on the Internet as a template. It's still up to you to craft one yourself.

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