A business person's guide to negotiating an international arbitration agreement

Multinational Business Review, Spring 1998 by Reinsch, Roger W, DeVito, Raffaele

The parties agree that the arbitration shall be in accordance with the rules of (insert name of arbitral organization), which shall administer the arbitration and act as final appointing authority.

By selecting an arbitration organization, the parties have also selected all of its rules of procedure. Because the clause that the parties are negotiating may come into conflict with some of the arbitration organization's rules, the parties should add the following clause to their arbitration agreement:

In the event of any conflict between the rules of (name the arbitral institution) and this agreement, the

provisions of this agreement shall govern.

By inserting the above clause, it will be clear that what the parties have specifically negotiated will be enforced.

Arbitration Expenses.

One of the more significant cost factors in arbitration is the number of arbitrators. These costs can be significant because the parties will be paying the arbitrators a fee for hearing the case and all the travel, living, and other expenses incurred by the arbitrators. In most instances, each arbitrator is entitled to a pre-set fee that is established in the fee schedule of the arbitration association that is chosen. Therefore, there is a significant cost advantage to choosing only one arbitrator. All the arbitration organizations and arbitration rules reviewed for this article allow the parties to choose either one or three arbitrators. If the parties do not choose the number of arbitrators in their agreement, then the arbitration organization will choose based on their rules which all state something very similar to the American Arbitration Association rules:

"If the parties have not agreed on the number of arbitrators, one arbitrator shall be appointed unless the administrator determines in its discretion that three arbitrators are appropriate because of the large size, complexity, or other circumstances of the case" (article 5).

The parties should also understand that the expenses not only include fees and other out-ofpocket expenses for each arbitrator, but also the additional time that may be involved in the logistics of getting all the arbitrators together every time the need arises, and the additional time and expense involved in three persons reaching a decision in the case.

Formal Selection of Arbitrators or Rules of Arbitration.

The perceived disadvantage of selecting only one arbitrator is that there may be some bias toward one of the parties and there are fewer persons to reach a fair decision due to less input in the decision making process. The bias issue can be reduced by a clause in the arbitration agreement that states that the sole arbitrator may not be from the country of any of the parties to the contract.

The parties to the contract may want to review the selection process the arbitration organization uses to choose the arbitrators because the parties may want to vary this process. Most of the arbitration organizations reviewed for this article allow the parties to vary the selection process. If the parties do not like the rules of the arbitration organization, they should create their own rules for this process. In that case, the parties also should agree that if they fail to agree based upon the contract rules, then the rules of the arbitration organization will be used to select the arbitrator(s).