Giurisprudenza Arbitrale - Rivista di dottrina e giurisprudenzaISSN 2499-8745
G. Giappichelli Editore

The content of the relevant provisions in Dispute Resolution Clauses with regard to the Arbitration Clauses (di Emanuele Rimini)

The paper deals with relevant provisions in Dispute Resolution Clauses, focusing on Arbitration Clauses.

Keywords: Arbitration, Arbitration convention, Arbitration clause, Judicial powers, Corporate arbitration, Arbitration award, Foreign arbitration award, Action for annulment, Jurisdiction issues.

Il contenuto delle disposizioni rilevanti nelle clausole di risoluzione delle controversie con riferimento alle clausole arbitrali

Lo scritto approfondisce il contenuto delle disposizioni di maggior rilievo nelle clausole dedicate alla risoluzione delle controversie, soffermandosi, in particolare, sulle clausole arbitrali.

Parole chiave: Arbitrato, Convenzione d’arbitrato, Clausola compromissoria, Potestas iudicandi, Arbitrato societario, Lodo, Lodo arbitrale estero, Impugnazione per nullità, Questioni di giurisdizione.


1. A Basic Premise - 2. The Relevance of Drafting - 3. Drafting and Enforceability - 4. Forum selection clauses and the wider spectrum of dispute resolution clauses - 5. Hybrid resolutions and the variable geometry of arbitration agreements - 6. The different roles of Neutrals: Negotiators, Mediators, Experts, Members of dispute boards, Arbitrators - 7. In particular: Med-arb, Arb-med and Arb-med-arb models. Could the same neutral serve different roles in the identical case? - 8. Some practical Indications and a Conclusion - NOTE

1. A Basic Premise

Arbitration for many years has generally been regarded as an effective method for solving major disputes, especially if related to complex and long-lasting contracts. However, a recent survey conducted in the International Arbitrations field by Queen Mary University of London and White & Case in 2018 shows that nearly most of the interviewees reported that their preferred approach to dispute resolution is no longer the mode of arbitration alone, but rather a combination of other alternative dispute resolution methods and arbitration, intended as mere adversarial and adjudicative proceedings. The results of the previous similar survey conducted in 2015 were different. In that occasion, only the 34% of the respondents preferred hybrid solutions [1]. This means that nowadays practitioners are increasingly interested in finding various forms of dispute resolution modes in the hope that a swifter and more cost-effective resolution can be found to dispute, before having the conflicts resolved by an arbitration award. The widespread feeling is the following: it helps dealing with disagreements at an early stage before the parties become entrenched and deep-rooted in their respective positions. Above all, if parties have a long-term relationship, they prefer to consider in advance the physiological arise of conflicts and they wish to see that relationship continue [2]. In addition, the incorporation since the beginning of a tailored dispute resolution clause in a contract couldn’t be interpreted as a sign of weakness, or a lack of confidence by either side. More simply, similar clauses – named multi-tiered, escalation or multi-step dispute resolution clauses [3] – become an instrument that provide guidance on how parties should proceed in the event of a claim, or of a different conflict. In reality, it could be hard for the parties to agree on a dispute resolution process when a dispute has already arisen. The reactions when the relation breaks down are not easily predictable. An old paper about the enforcement of clauses for dispute resolution before arbitration was meaningfully entitled “Peace Talks before War” [4]. And another more recent set of instructions and warning was also significantly entitled “‘Gaps’ Can End in Tears” [5]. In this perspective – as said – arbitration is nowadays more often considered costly and time-consuming and for these reasons [continua ..]

2. The Relevance of Drafting

Having that said and underlined, some basic directions can be defined. Before drafting any kind of dispute resolution clause, parties and their counsels should pay great attention. Planning in advance is crucial and there are several options to be considered. Indeed, there are a number of drawbacks and inconvenients that may occur especially in the unwary side of the contractual relation. In fact, not only there is more than one phase to be conceived, better just as mandatory conditions precedent [7], aimed at facilitating efficient solutions and reducing externalities of time and of cost associated with traditional court-based litigations, but also it is worth to establish from the very beginning which will be the consequences of a premature litigation, by filing a claim in adjudicative seat. In this framework: two could be the alternative scenarios. On the one hand, the dispute resolution clause and the fulfilment of every single step could be regarded as a “jurisdictional condition”. It means, in clearer words, that the arbitration tribunal may consider that it lacks jurisdiction to hear the case until the agreed procedures are complied with. By consequence, the acceptance of the above-mentioned “jurisdiction theory” extends the scope of judicial supervision of arbitration, also to matters concerned with monitoring compliance with pre-arbitral phases [8]. On the other hand, the respect of the negotiated procedures can be considered an “admissibility condition”, which means that the arbitral tribunal, which anyhow holds jurisdiction to hear the case, may declare the instant claim inadmissible. To put it plainly: this result occurs if the respondent can object to the admissibility of the arbitration request on the grounds that the requirement to find a settlement passing through differently agreed amicable means had been disregarded or not adequately fulfilled.

3. Drafting and Enforceability

The importance to design a self-tailored process in order to afford dispute resolution problems from the start of negotiations has been already highlighted. This mindset should serve the intent and the goals of the parties and it fosters long-term relations. But it is also self-evident that the responsibility of the effectiveness and of the enforceability of the agreed dispute resolution mechanisms largely lies on the parties. For their benefit, the parties should ask some key questions. In particular: who should be at the table and for how long? Might there be multiple levels of negotiations? Should there be mediation or other third-party intervention at some point? How does one moves on from one step to another? If we speak of “good faith” participation, what do we mean [9]? A clear and cohesive platform should be offered to parties for dispute resolutions. “Flaw drafting” is, consequently, the main enemy to face, and it is worth recalling that the dispute resolution agreements are often called – indeed, not without reasons – “midnight clauses” because of their late, uncareful, or anyway soft discussion. Moreover, these clauses are frequently incorporated in the agreement as mechanical and unexamined “boiler plate”. This is a bad habit to leave. A deep change in the traditional attitude to negotiate dispute resolution provisions should be strongly recommended. In this respect, many are the considerations to keep in mind. The English case law even in recent times [10] has indicated a number of quite strict criteria to be followed. The main obstacle to avoid the risk of uncertainty, being conscious that “agreements to agree” or “agreements to negotiate in good faith, without more” are unlike to be enforceable [11]. These are some important recommendations to consider when drafting, on a professional basis, a dispute resolution clause with the aim to obtain recognition and enforcement not only for the agreed phases themself, but also for the ensuing award. Hence, extreme care and careful considerations should be taken on how the clause has been finally worded [12]. To this end it is crucial to avoid, or at least mitigate, any interpretation issues (which are magnified by drawing up late-night clauses, as already mentioned). i) Use mandatory language and assertive words (like “must” or “shall”), not permissive vocabulary [continua ..]

4. Forum selection clauses and the wider spectrum of dispute resolution clauses

A first crossroad, to start from the beginning of the analysis of the dispute resolution provisions, consists in choosing between simple forum selection clauses and the wider spectrum of dispute resolution clauses which, as already anticipated, could be integrated, and still have a clear hybrid nature [16]. In the first scenario, the main question to pose is the following: which law should be chosen? Developed, stable, or business oriented? Or is it better to consider the familiarity and the ease of access of the selected law. Or again, is it better to choose the most favourable one, having in mind the contractual position of either party and the respective conducts that parties could take in the future, after signing, closing and execution? It has been already noted that many commercial relations are obviously structured to deal with not predictable scenarios or even with further conflict of interests. Moreover, it must be added that the commercial parties are becoming much more creative in designing dispute resolution clauses. Even the best national judicial systems have trial judges or lay juries that international businesses would prefer to avoid [17]. Therefore, could it be convenient to look at the interaction of the selected law with eventual dispute resolution provisions or pre-litigation processes?

5. Hybrid resolutions and the variable geometry of arbitration agreements

Moving the focus on the alternative methods that can be used in dispute resolution field, arbitration agreements are not the only one perspective to look through on a traditional basis. First of all, arbitration proceedings cannot be seen any more as a fixed and strictly adversial and lawyer-driven dispute resolution model, in which motivations, feeling of hurts and disappointments are usually considered immaterial. In reality, the process very often is characterized by a strong pro-mediation spirit. Not by chance, the main arbitration institutions propose specimen of clauses to provide for more than one method of setting disputes. More precisely, arbitration proceedings not only can be regarded as a crisp judicial decision, but also can lead to the well-known Solomonic awards. Especially in some domestic arbitration contexts the arbitrators are prone to act in this way. Coming to an arrangement is something that the parties expect in agreeing to arbitrate. In addition, for sure, three persons arbitration tribunals frequently seek to produce unanimous decisions which can result in some degree of compromise. And this approach can realise outcomes that may be somewhat less crisp and principled than those of a rigorous national court. Furthermore, the proceedings can be conducted as an amiable composition or ex aequo et bono. It means that the members of the arbitration panel are expressly authorized to decide and reach verdicts without being bound by strict rules of law. It should be also mentioned the experience of high-low and baseball arbitrations. In the first hypothesis the arbitration clause states a range of the possible monetary award and provides that the arbitrators may only grant a decision within that range. A range defined by a minimum and a maximum amount of money. In the second hypothesis, each party shall submit to the arbitration panel its “last best offer” and the arbitration panel must simply select the “last best offer” of one party or the other. In different words the arbitration tribunal has no power to grant any award of damages, above or below the “last best offer”. It means that the arbitrators shall be limited to choose only one or the other of the proposed figures submitted by the parties. Clearly the intention behind these models is to provide a financial incentive for compromise a dispute [18]. And even for these reasons, it is also important to clearly establish the applicable [continua ..]

6. The different roles of Neutrals: Negotiators, Mediators, Experts, Members of dispute boards, Arbitrators

A second crossroad consists in understanding and furthermore structuring the role of the different neutrals and the variable outcome of their different activity. Having in mind the still open issue if the same neutral may or may not serve distinct functions in the same dispute [22]. It is possible to appoint a person or an institution as a neutral not only if there are not conflict of interest, even at a potential level with the subjects largely involved in the dispute, but also if there is no correlation and social ties with the latters. Furthermore, specific professional skills and advanced experience in the fields interested by the claim could be requested and fully disclosed. There are different techniques. There are in practice several permutations of hybrid resolutions. Negotiator, mediator, expert, evaluator, dispute reviewers and arbitrator can act properly and wisely in a plenty of ways [23]. Looking at mediation, for example, the following modes can be mentioned, even if – as well outlined – the reality shows the flexibility, the fluidity of their application and the frequent overlap of some of them. Expert advisory mediation; settlement mediation; facilitative mediation; wise counsel mediation; tradition-based mediation and, last but not least, transformative mediation [24]. But, of course, the most relevant factor to make mediation a success story is its quality. Not by chance, in order to increase the role of the mediation inside the EU, in 2019 the European Parliament adopted a resolution – which is a measure not binding: it is a simple political desire – indicating a strong encouragement of voluntary codes of conduct, initial and further training of professional mediators and large provisions of information about the advantages of mediation to the general public [25]. As already highlighted, the determination or the evaluation of the nominated neutral could have, in one more than one hypothesis, binding effect [26]. But it must be recalled that if the neutral is operating or has conducted the activity not in an adjudicative context, the final control of the outcome still remains in the hands of the principals. They can accept the proposed solution, or they can challenge it and start a more formal, adversarial, lawyer-driven, extended in duration and may not be confidential procedure. However, in this circumstance they cede and leave the control over the decision, that is likely to be [continua ..]

7. In particular: Med-arb, Arb-med and Arb-med-arb models. Could the same neutral serve different roles in the identical case?

By the way, the practice has put in place experiences named Med-arb, Arb-med, Arb-med-arb (in fact, when mediation fails to produce a settlement in an advanced stage it is surely possible to regulate an Arb-med in a Arb-med-arb way [29]) and in all these circumstances the open and much more delicate question is, again, the following. May or may not the same neutral serve the role of mediator and arbitrator or vice versa, in the identical case? The answer given to this articulated phenomenon by regulators is an open book, far to be finished. All the feasible solutions have been indicated. Sometimes the option is prohibited, sometimes is permitted with or even without the prior consent of the parties involved, sometimes provisions don’t exist, they are agnostic or seem unclear [30]. There are, of course, advantages and disadvantages. On the one hand, familiarity with the facts, the matters and the nuances of dispute can be considered a pros. But all information collected even in one-to-one meeting must be immediately disclosed, at least just before the adjudicative phase starts [31]. On the other hand, the appointment of the same neutrals in both the contexts can cause a problem of lack of confidentiality and can origin apparent or actual bias [32]. The mediation stage should be conducted carefully to prevent every kind of risk. Too much informality represents a consistent obstacle and particularly confidential meeting with single party should be avoided in principle. On a psychological level – as anticipated – many bias cannot be under evaluated, but, at the end, the resolution process will depend on the persons engaged as mediator and as decision maker, and their appointment depend on a decision that parties can determine and monitor along the way. For sure, these aspects could consent a possible attack versus the final award also on the ground that some material information obtained during the Med phase was not disclosed by arbitrators when Med shifted to Arb.

8. Some practical Indications and a Conclusion

In the end, the promotion of consensus and conciliation are in public interest and serve a commercial purpose [33]. There is a clear difference between an Arb-med or an Arb-med-arb and an arbitration proceeding ex aequo et bono [34]. In both the first cases, the parties maintain a total control on the possible decision, which is anyhow influenced by criteria not strictly legal oriented, and both of them still have the chance to obtain a final virdict of that nature, requesting the beginning of an adjudicative proceedings. In the latter case – as already mentioned – the arbitrators must resolve the parties’dispute without being bound by strict rules of law. It means that this is the mandatory path to be walked by the arbitration panel. All this being said, the parties should have the option to follow alternative ways, much more flexible for their hybrid character and more useful for the same reason. Indeed, the inherent flexibility should be considered a key advantage. By the way, for practical and pragmatic reasons, innovative methods should be designed and promoted without compromising “due process” fundamental principles. In this respect, the recalled drawbacks must be taken into account and faced in advance, thinking that the effective devolution, recognition and enforceability on the agreed clauses and consequent steps to be respected depend on several factors: the jurisdictional legal system chosen by parties, its traditions, and its multilateral cultural aspects. Last but not least, the expertise, the negotiation skills either in process intervention or in problem orientations, the status, the standing in the community, the persuasive presence, the authority and the wisdom of the neutrals appointed from time to time should be carefully taken into account. In every single case, it could be convenient to involve advisors, professionals selected on the bases of their expertise in the subject matter of the dispute, senior lawyers, mediators trained to refrain from advising the parties on the merits of the case and wise counsels sought out for their position and life experience rather than technical or legal knowledge. In the light of above, much more emphasis should be put on these aspects even to try to mitigate opportunistic forum shopping practices that do not help at all.