Parties typically access those benefits by inserting pre-dispute arbitration clauses in cross-border contracts

Parties that routinely do business outside of their home jurisdiction are usually familiar with international arbitration’s benefits and put pre-dispute arbitration clauses into their cross-border contracts to access those benefits. Those arbitration clauses, when properly drafted, commit parties to resolve future disputes in arbitration and will be enforced by the courts of New York Convention signatory states if one party seeks to litigate in a national court. 

Parties can still access international arbitration’s benefits for existing disputes by entering into submission agreements

For a number of reasons, however, including oversight at the contracting phase or, simply, changed circumstances, parties may not have included an arbitration clause in a contract under which a dispute has arisen. Whatever the reason, parties are not precluded from arbitrating their dispute and a party can still access international arbitration’s benefits by entering into a submission agreement with the other disputing party, which can have the added benefit of putting the entire dispute before a single tribunal and avoiding multi-jurisdictional litigation before numerous national courts.

These benefits may also extend to investment disputes that arise out of an investment agreement with a state party. Specifically, investors of an ICSID member state can contractually agree with another member state to arbitrate under the ICSID Convention, even where there is no applicable investment treaty or foreign investment law providing for ICSID arbitration. Parties can therefore use submission agreements to arbitrate investor-state disputes as well.

Tips for drafting submission agreements 

Submission agreements are contracts between two or more parties to refer an existing dispute to arbitration. They are essentially arbitration clauses for existing disputes, and the only meaningful difference between a submission agreement and a pre-dispute arbitration clause is the timing of the parties’ consent to arbitrate. National courts around the world are therefore amenable to submission agreements and will readily accept them in most instances.¹

Features to include in the submission agreement 

Given the similarities, most of the same drafting rules that apply to pre-dispute arbitration clauses apply to submission agreements as well. For instance, parties drafting submission agreements should specify:

• Arbitral institution and rules – clearly state the correct arbitral institution/administrator and the arbitration rules pursuant to which the arbitration will be conducted (which should be those of the chosen institution/administrator);
• Arbitral seat – specify the location that will act at the legal seat of the arbitration, which will have supervisory jurisdiction over the arbitration, but which will not mandate where hearings must be held under most major arbitral rules;
• Governing law – specify the law that governs the submission agreement, the law that governs the substantive dispute if not already stated in the underlying contract, and the law that will govern the arbitral proceedings (if it is not to be the law of the seat);
• Language of the arbitration – expressly state the language in which the arbitration will be conducted, and do not presume that it will be the same language as the submission agreement;
• Number of arbitrators and appointment method – decide whether the dispute will be resolved by one or three arbitrators, which is an easier determination to make when the dispute has already arisen, and describe how the arbitrator(s) will be appointed if you decide to opt out of the default procedures set forth in the selected arbitral rules;
• Confidentiality – include a separate confidentiality clause for the arbitration itself, and do not rely on the general confidentiality provision contained in the underlying contract, which is particularly important because not all national arbitration laws provide for confidentiality in the context of international arbitration;
• Interim measures – consider stating or limiting the interim measures the arbitrators may award if such measures may be important to the dispute;
• Costs – specify that the arbitrators may allocate and award costs, including attorneys’ fees, if that is desired; and
• Enforcement – include a statement that awards will be final and binding and may be enforced in any court of competent jurisdiction.

Those are only the basic matters that parties may wish to address in the submission agreement, and as is the case with any arbitration clause, they may wish to include many other features suited to their dispute. As the following section discusses, however, parties should be cautious about any additional features they might wish to include.

Things to avoid when drafting submission agreements

There are several pitfalls of which parties should be aware when drafting submission agreements. Things to be cautious about include:

• Over-engineering – because the dispute has already crystalized when a submission agreement is drafted, there is a temptation to include detailed procedures for any number of things, such as the manner and scope of written submissions, evidentiary requirements, and detailed procedural timeframes, which is a temptation parties should avoid in favor of the procedures set forth in the arbitration rules selected, which are generally comprehensive and sufficient, with the remaining matters left to the discretion of the chosen arbitrators, upon whose judgment the parties are relying;²
• Disclosure specifications – one or both parties may want to specify the manner in which disclosure should be conducted or what level of disclosure should be allowed, which may make sense in some disputes, but which is usually better addressed through the adoption of frameworks like the IBA Rules on the Taking of Evidence in International Arbitration or the Prague Rules;
• Arbitrator appointments – parties may seek to make arbitrator appointments in the submission agreement itself, which is not only unnecessary, but which can also lead to subsequent enforcement problems if a disclosure issue arises or some other unanticipated problem leads to an arbitrator challenge or substitute appointment, which could affect the submission agreement’s validity; and
• Unreasonable deadlines – parties sometimes believe that because the dispute has already arisen, it can be decided and resolved within a tight, fixed deadline, which can not only impose unnecessary restrictions on the case and dissuade good arbitrators from accepting an appointment, but can also lead to enforcement difficulties if the contractually agreed upon deadlines are not met.

Final thoughts

While some disputes may not be right for international arbitration – and parties should check to ensure that their dispute is arbitral under the governing law of their contract before agreeing to it – the vast majority of cross-border disputes benefit from the process, and the mere fact that the parties have neglected to include an arbitration clause in their underlying contract does not mean they cannot access the process. Consequently, in the current environment, where courts may be backlogged or running slowly, or where remote procedures may be new or novel, international arbitration can provide a suitable way to quickly and confidentially resolve disputes.³ Submission agreements may therefore be the answer that parties should consider.

1. In fact, it used to be the case in many jurisdictions before the New York Convention was adopted that courts would only enforce submission agreements and not pre-dispute clauses, and there are currently legislative efforts underway in some U.S. jurisdictions to invalidate pre-dispute arbitration provisions in the consumer and employment contexts (which renders submission agreements valid, but pre-dispute clauses invalid).
2. There may even be a temptation to eschew pre-existing arbitral rules altogether and to create an ad hoc arbitration regime, which is generally inadvisable in the vast majority of cases, particularly when parties are already engaged in a present dispute.
3. The same can be true for domestic disputes, and parties should equally consider domestic arbitration as an alternative to court litigation.

Client Alert 2020-265