The Arab Spring transforming the societies of the Middle East has raised more than a few questions among us in-house folk about what this will mean for dispute resolution in the region. Will civil institutions, in particular the courts, be a reliable mechanism in the coming years for upholding contractual rights, including agreements to arbitrate disputes? What about regional arbitration institutions?
While there is reason to be optimistic, it is too soon to place certain bets, especially if one is a risk-mitigating in-house counsel.
One option for addressing the current state of uncertainty may be an idea that surfaced during an informal discussion with co-blogger (and Kluwer author) Gary Born, who stopped by my office while visiting Florence recently. Gary posed the question, “why not a corporate arbitration pledge, similar to the CPR mediation pledge?” It seemed an interesting idea, so much so that we recorded our conversation about it, which can be downloaded in the podcasts IDN 98 and IDN 99, available for free at the CPR website or in the iTunes music store. https://www.cpradr.org/Resources/ALLCPRArticles/tabid/265/ID/705/IDN-98–An-Arbitration-Pledge-with-Gary-Born-Part-I-March-22.aspx
But before presenting Gary’s idea, which is aimed broadly at uncertainties of dispute resolution in international commercial contracts, a bit of background first about the CPR pledge. For over a decade now, the International Institute for Conflict Prevention and Resolution (CPR) has sponsorded industry-specific mediation pledges. By signing, hundreds of corporations have commited to attempt to use mediation to resolve disputes between them, before proceeding to other forms of litigation. The pledge works in more ways than one. In theory, the existence of a global company commitment may resolve any concern of individual employees involved in a particular dispute about proposing or accepting an offer of mediation. In practice, signatories really do use the pledge to resolve pending conflicts (at my own company we’ve taken disputes to mediation after receiving a referral from other signatories). Moreover, the pledge is also a good marketing tool for mediation. The message it conveys is, “mediation must be a good tool if so many large multinationals have committed to use it for disputes between them”.
The idea of an arbitration pledge would be analogous to the CPR pledge, with the difference that it would have the effect of a binding agreement to arbitrate. Users or potential users of international arbitration – parties active in transnational commerce – would commit to use arbitration as a means of binding dispute resolution in commercial transactions between them, and only in the absence of other contractually-specified means of resolving disputes. The pledge would also need to provide sufficient information to assure the signatories that the arbitration would be conducted in a manner acceptable to them. Essentially, the pledge would shift the default rule of today – litigation in the courts of somewhere to be determined at the time of dispute – to arbitration at a place to be identified through an identified process.
The basic elements of an agreement to arbitrate – place of arbitration, rules, and appointing authority – could be provided for in different ways. For example, the pledge could provide that the arbitrators themselves would have the authority to decide place of arbitration, possibly from a roster of a handful of cities with a reputation for being friendly to the practice of international arbitration. Rules could be UNCITRAL in the absence of expressed preferences, i.e., “where both parties have expressly stated at the time of signing the pledge a preference for arbitration under the rules of the ____ Centre, the arbitration shall be conducted under such rules. Where the parties’ preferences do not match, the rules shall be UNCITRAL.” A similar mechanism might be used to identify the appointing authority. Or there may be other, better ways.
The scope of an arbitration pledge might extend to all participants within specific industries, such as Energy, Oil & Gas, or Pharmaceutical, with pledges tailored to the perceptions and needs of users in the different sectors. Parties might also be given the right to assert reservations as to types of disputes or parties they would not agree to arbitrate with. For example, my business could, if we wanted, decline to arbitrate any disputes involving questions of intellectual propriety rights, or by or against certain named competitors.
The advantages of such a pledge? One would be predictability in those commercial transactions that fall through the net by failing to have a binding dispute resolution clause. No longer would there be a race to a court-house in one or another country. Similarly, since the default would be arbitration under the pledge, it would reduce the time and stress of negotiating an effective dispute resolution clause. When negotiating DR clauses, parties would have a common benchmark as reference. And parties would have a mechanism to resolve disputes by a predictable means even when radical change might occur between the time of signing a commercial transaction and when a dispute under it arises.
Which brings us back to the Arab Spring, and what it might mean for international dispute resolution in the region. Maybe instead of betting on what civil institutions and courts may look like in two to five years in the region – or in any region for that matter – parties could instead place their bets on an institution with proven reliability and that could survive independently of any particular court system: international arbitration.
I invite Gary to comment, correct, or supplement the above outline of the idea.
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Considering that arbitration could be considered the factual default dispute resolution method for international commercial conflicts, that seems like a sound idea. Would a pledge satisfy the requirement that an arbitration agreement be “in regard to a defined legal relationship” of Art. 7 Model Law though?
This is an excellent idea. I have toyed in the past with a similar concept to find a way to resolve some of the tricky legal issues arising in e-commmerce, in particular in the context of international consumer contracts which for a variety of reasons (including, in particular, transaction costs) are difficult to deal with through ordinary commercial arbitration, not to mention courts. The idea would be that e-merchants would make a pledge on their website that they agree to arbitrate any claim or dispute arising out of any transaction taking place on their website in an expedited procedure over the internet. For such a pledge to work in practice, businesses (or industries) would have to establish an electronic dispute resolution facility that woud be capable of dealing with such relatively low value disputes expeditiously and at a low cost (possibly by way of a subsidized service), however this should not be a major challenge as a technical matter and in reducing the legal risks (and costs) associated with e-commerce, should perhaps be seen by the relevant businesses as an investment rather than as a mere cost. From a legal perspective, the pledge to arbitrate would be similar to an “offer” to arbitrate made by states in BITs; it would be addressed to an anonymous group of consumers as a whole, who would then “accept” the offer when filing the claim. Such a legal construction would avoid many of the difficulties associated with the arbitration of consumer disputes in many jurisdictions (where agreement to arbitrate is not valid unless given after the dispute has arisen — which would by definition be the case here). Your idea is similar, in particular because the pledge would cover third parties and not only parties to the pledge. In other words, it would be a further permutation of the now established idea of arbitration without privity.
For anyone interested in reading more about CPR’s industry-specific pledges (Banking, Chemical, Food, IT, Franchise etc.), you can visit CPR’s website at: http://cpradr.org/About/ADRPledge/IndustrySpecificPledges.aspx
In addition to these industry-specific commitments, more than 5,000 companies and law firms have signed the CPR Pledge to consider alternatives to litigation when disputes arise with other signatories. See: http://cpradr.org/About/ADRPledge.aspx
Michael’s post and description are excellent and provocative. I think it is significant that, with Michael’s (and GE’s) experience in the field, he considers the concept of an International Arbitration Pledge worth pursuing. There are issues that need to be considered to move the Pledge from blogs to reality – including whether the Pledge wd satisfy the NY Convention’s/Model Law’s requirement for a “defined legal relationship” (I would say yes, because the focus should be on the future dispute, but there is room for disagreement) and whether pledgees would be able to agree on a single international institution/appointing authority/seat. Still, working through the issues would be a constructive exercise and could well show that the Pledge would be a useful mechanism for international dispute resolution.