Arbitration is nothing new. Neither is globalization. But the two are coming together in ways that have incrementally influenced the manner in which many arbitrations are now conducted. And this merits a re-examination of old arbitration clauses to account for some of these new influences. With that in mind, this article will examine some basic considerations when examining arbitration agreements within a construction industry that continues to see the increasing participation of foreign companies in domestic projects. Although this is not a comprehensive review of best drafting practices, nor is it a full survey of the differences between domestic and international arbitration, this article will nonetheless highlight a few basic concepts to keep in mind when reviewing arbitration clauses.
As a basic starting point, the continuing globalization of the construction industry has led to distinct impacts on the ways in which parties conduct arbitrations in the United States. The increased participation of international companies in domestic construction projects has naturally led to the application of international legal concepts to domestic alternative dispute resolution. And the increasing prevalence of these international concepts has led to a number of important trends that can impact the way arbitrations are handled.
As a result, it is worth re-visiting arbitration provisions in construction contracts to ensure that they remain up-to-date and account for the creeping influence of international dispute resolution methods in America.
Is this arbitration international?
Parties often assume that they must expressly elect for an arbitration to be “international” before they need to worry about differences in international arbitration procedures – i.e. most parties believe that they must specifically select an international arbitration forum, such as the ICC International Court of Arbitration (ICC). But this is not always accurate. For example, there are instances of parties electing the American Arbitration Association (AAA) as their arbitration forum, only to later have their arbitration moved to the AAA’s international wing, the International Centre for Dispute Resolution (ICDR). So contracting parties should initially examine whether an arbitration between them might be considered “international” before digging into the text of the arbitration agreement itself.
To that end, and without exploring the complex nuances regarding the adoption of international model arbitration laws, it is worth noting that certain jurisdictions within the United States will identify an arbitration as international if the parties have their main place of business in different countries or if the parties are otherwise performing significant contractual obligations outside the country where they have their main place of business.
So when drafting arbitration clauses, it is important to consider on a contract-by-contract basis whether the arbitration may indeed be “international.” This is particularly important given the increased presence of foreign companies working on domestic projects. And if the arbitration would be “international,” then the parties should understand that a different set of rules and procedures will likely apply (a topic for another article).
As more international companies work in America, expectations for the conduct of discovery in arbitrations have started to change. Simply stated, legal systems outside of the United States have a different way of doing things. For example, discovery in European countries is generally very limited in scope. The two things that serve as the largest cost drivers during discovery – document production and depositions – are strictly limited. In fact, foreign companies are often quite shocked when they learn that they must produce 1 million documents and sit for twelve depositions (hypothetically) in a domestic arbitration.
But the increasing use of international arbitration forums for domestic projects has led to a greater movement for limited discovery in arbitration across all fronts. Regardless of where one stands on this issue, it is becoming increasingly important to consider and address available discovery methods in domestic arbitration. One way to do this is to place discovery restrictions (or expressly remove any restrictions) directly into the contractual arbitration clause. Will the parties be limited to a certain number of depositions? Or only allowed targeted document requests? Arbitration is a creature of contract, so (generally speaking) the parties are free to craft their arbitration clauses to proactively address disputes regarding the breadth of allowable discovery methods.
The parties also have the option to incorporate other rules or secondary sources directly into their arbitration agreements to serve as hard-and-fast guidelines beyond what might exist within the existing rules of the arbitration forum. For example, the AAA and the ICC are each arbitration bodies whose procedural rules are much less developed than the procedural rules governing federal court proceedings. So incorporating additional procedural rules, such as the IBA Rules on Taking of Evidence, may provide beneficial guidance and certainty regarding potential discovery issues.
Thus, it is worth revisiting old, frequently recycled arbitration clauses with a fresh perspective regarding the extent of allowable discovery. And parties should not simply assume that discovery will be conducted like the old days.
It may sound extremely basic, but it is worth noting that the arbitration proceedings should be conducted in one language, like English. And the arbitration provision should state as much. Again, this sounds very basic. However, there have been several recent notable (and notorious) arbitrations in which the parties and arbitrators were not speaking the same language. And while the resulting chaos may be humorous to read about, the involved parties suffered enormously expensive consequences.
Additional Miscellaneous Considerations
Although this is not an exhaustive checklist, there are additional considerations for preparing arbitration agreements that merit a quick note, particularly when multi-national parties are involved.
- Location of the arbitration: With parties potentially scattered across the globe, make sure there is a clear location for the arbitration.
- Governing Law: Whether there is a blanket flow-down clause or a complex, multi-tiered contract structure, sometimes the governing law for the contract can become confused. For clarity, make sure there is a clear governing law for the arbitration itself.
- Confidentiality: Although they are generally private proceedings, not all arbitrations are automatically confidential. If confidentiality is important, make that clear in the arbitration provision.
- Form of the Award: The contents and format of the final award can be very important based on certain circumstances (a topic for another day). If so, make the final award requirements clear in the arbitration clause.
The world is not getting any smaller. And construction projects are becoming increasingly global affairs. So it is a worthwhile use of time to revisit and update old arbitration clauses to account for the increased participation of international companies in American-based arbitrations.
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