November 1996 Report of the NAFTA Advisory Committee
on Private Commercial Disputes to the NAFTA Free Trade Commission

  1. Establishment of Committee

    In October 1994, the NAFTA Commission established the Advisory Committee on Private Commercial Disputes (Committee), as required by NAFTA Article 2022. The Committee is required to report and make recommendations to the Commission on general issues referred to it by the Commission on the availability, use and effectiveness of arbitration and other procedures for the resolution of private international commercial disputes in the free trade area. See Appendix A for Terms of Reference.

    The Committee is composed of private sector members from each Party, and two representatives of each Party who jointly chair the Committee. See Appendix B for list of members. Since its establishment, the Committee has held four meetings:

    • November 14, 1994 in Mexico City;
    • June 19-20, 1995 in Vancouver, British Columbia;
    • February 12-13, 1996 in Phoenix, Arizona; and
    • November 14-15, 1996 in Guadalajara, Jalisco.

    At its first meeting, the Committee established four subcommittees, which are composed of private sector members from each NAFTA country, to examine the following priority issues:

    1. Subcommittee I : the compilation and development of criteria for the examination and assessment of existing laws, regulations, practices and institutions available in each NAFTA country for the non-judicial settlement of disputes;

    2. Subcommittee II : the compilation and assessment of specialized regimes available in the NAFTA region for the settlement of disputes;

    3. Subcommittee III : the means for promoting the use of arbitration and other procedures for resolving private international commercial disputes in the NAFTA area; and

    4. Subcommittee IV : issues relating to the enforcement of arbitration agreements and arbitral awards.

    At its third meeting, the Committee established Subcommittee V to examine mediation as a means for the resolution of private commercial disputes in the NAFTA region.

    At its fourth meeting, the Committee developed a new action plan for Subcommittee III for targeted outreach, in particular with regard to small and medium-sized businesses and in-house counsel. The Committee also developed an expanded action plan for Subcommittee IV, and established Subcommittee VI for liaison with the judiciary of the three countries.

  2. Subcommittee Activities

    The subcommittee members have worked together in a coordinated, trilateral manner, which has significantly enhanced the value of their work to the Committee. To date, the subcommittees have submitted a number of reports to the Committee. See Appendix C for a list of subcommittee members.

    Subcommittee I

    The Subcommittee compiled the relevant commercial arbitration statutes for each NAFTA country, at both the federal and state/provincial levels, and information on the principal institutions available for international commercial arbitration in the NAFTA area. It developed guidelines for private parties to use in selecting an arbitration institution; however, the Committee determined that it would not be appropriate for the Subcommittee to undertake an assessment of the institutions. In addition, the Subcommittee compiled model arbitration and mediation clauses used by the principal institutions in the three countries; and it developed two new model clauses, based on the clauses used by the principal arbitration institutions: an arbitration clause and a mediation clause.

    Subcommittee I also prepared a brochure that is aimed at potential first-time users of arbitration and mediation, especially small and medium-sized businesses, in the NAFTA region. The brochure includes a description of arbitration and mediation mechanisms, suggested language for mediation and arbitration clauses in international contracts, factors to be considered in drafting such clauses, a listing of the principal not-for-profit arbitration institutions in the NAFTA region, and guidelines for considering which institution to use (if any). See Appendix D for a copy of the brochure. Subcommittee I has completed its work, and Subcommittee III will assess the means for disseminating the work of this Subcommittee.

    Subcommittee II

    The Subcommittee developed an interim list of specialized alternative dispute resolution (ADR) providers which serve particular industry sectors in the NAFTA area. The Subcommittee also considered ways in which to supplement and update the list. It has completed its work and an assessment of ways to disseminate its compilation will be undertaken by Subcommittee III.

    Subcommittee III

    The Subcommittee examined the means for promoting the use of arbitration and other forms of ADR for resolving private international commercial disputes in the NAFTA area. It found that, even though the amount and type of promotional activities related to arbitration in the three countries are very different, the three countries use essentially the same means to promote arbitration. It also found that currently the target audiences in the NAFTA countries are largely lawyers, providers, prospective arbitrators and others active in the field, and that relatively little promotion is targeted at the end-user (business executives or in-house or corporate legal counsel) or the small business community, a segment of the business community in particular need of economical and effective means of resolving disputes. Overall, it concluded that current promotion efforts aimed at end-user audiences are not adequate.

    The Subcommittee also conducted a limited survey of ADR practices and issues among companies involved in international business in an attempt to ascertain the perceptions and needs of firms doing business in the NAFTA countries. The survey suggests the existence of several perceptions that may inhibit the increased use of private international arbitration. The main concerns cited were difficulty in enforcing arbitral awards and the lack of pre-award remedies. It was the perception of a number of the respondents that arbitral awards are not easier to enforce than foreign judgments, although it is not clear, due to the limited nature of the survey, whether the perception arises from experience within the NAFTA region or experience in other countries.

    According to the survey, business managers are not generally knowledgeable about arbitration and the initial decision to incorporate an arbitration clause in a contract is typically made by in-house counsel. The survey also revealed strong perceptions that mediation is an effective method of resolving disputes because it helps to preserve the business relationship between the disputants. The Subcommittee recommended that the survey results be verified by further research.

    The Subcommittee also reviewed the level of judicial education regarding arbitration and other means of ADR. As a result of the increased levels of trade and investment caused by NAFTA, an increased number of cases involving international disputes are likely to come before judges without experience in such cases. The Subcommittee found that the level of training of judges on such subjects varies significantly among the three countries and even within the countries. Institutions involved in judicial training have expressed an interest in working with the Committee in developing programs specifically focused on arbitration and other ADR. The Subcommittee is exploring such collaborative efforts.

    Subcommittee IV

    The Subcommittee surveyed conventions, laws, court decisions and related literature and practice in each NAFTA country concerning the enforcement of agreements to arbitrate and final foreign arbitral awards and related legal issues. Each country is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention), and Mexico and the United States are also parties to the Inter-American Convention on International Commercial Arbitration of 1975 (the Panama Convention). The Subcommittee sought to identify other legal issues that might be impediments to the enforcement of arbitration agreements and arbitral awards. The Subcommittee noted that intra-NAFTA enforcement of arbitral awards appears to be somewhat easier than enforcement of foreign judicial judgments, which do not share the benefits of treaty obligations and a common legal framework such as provided by the New York and Panama Conventions.

    Subcommittee V

    The Subcommittee examined mediation/conciliation as an alternative means for dispute resolution in the NAFTA region, focussing on five core topics: definitions and terms; a survey of laws and regulations dealing with mediation/conciliation; procedures and processes in use; description, analysis and enforceability of mediation/conciliation settlement agreements; and conclusions regarding the use of mediation/conciliation.

    The Subcommittee concluded that "mediation" and "conciliation" are essentially equivalent procedures, and are recognized and used in all three NAFTA countries. The use of mediation/conciliation will increase in cross-border disputes as a result of the establishment of ADR centres that explicitly include procedures for mediation/conciliation. Mediation/conciliation affords disputing parties certain advantages, such as convenience and cost-effectiveness, that make it desirable to promote its use as a means of ADR for private commercial disputes.

    The Subcommittee will continue its work by comparing and contrasting mediation/conciliation in the three NAFTA countries, exploring related legal issues such as the enforcement of mediation/conciliation agreements, collecting and analyzing empirical information on the practice and use of mediation/conciliation by the business community, preparing a summary of the advantages and disadvantages of mediation/conciliation, and considering educational and promotional efforts regarding mediation/conciliation.

  3. Committee Conclusions

    The Committee has reached several conclusions based on its work to date. Each NAFTA country has laws and procedures in place to support the use of arbitration, including the recognition and enforcement of arbitral awards, at both the federal and state/provincial levels. No new legislation is recommended at the present time. Although the three countries have supported the enforcement of arbitration agreements and arbitral awards, the Committee has identified some difficulties related to the recognition and enforcement of arbitral agreements and arbitral awards.

    There is a wide range of arbitral institutions available in the three countries, including the American Arbitration Association, the British Columbia International Commercial Arbitration Centre, The Quebec National and International Commercial Arbitration Centre, the Mexico City National Chamber of Commerce and the International Chamber of Commerce. Moreover, a new trans-national organization, the Commercial Arbitration and Mediation Centre for the Americas (CAMCA), was launched in December 1995 by the first four institutions listed above. Users of arbitration services have a similarly wide selection of procedural rules available for arbitration, including the 1976 UNCITRAL Rules. Given the number and high calibre of available arbitral organizations, the Committee sees no need for the NAFTA Parties to promote or fund the creation of any additional organizations at this time.

    The business and legal communities in the NAFTA countries regard arbitration as an acceptable method of dispute resolution. According to the Committee's survey, a number of current or potential users of ADR expressed some reservations with international arbitration (although not necessarily limited to the NAFTA countries), stemming from perceived problems such as the difficulty in enforcing awards and the lack of pre-award remedies. There is a need for greater promotion of the use of ADR, in particular arbitration, targeted at end-users (business executives and in-house/corporate legal counsel) and the small business community. Such promotion should address the perceptions in the business community regarding arbitration. The distribution of a brochure and the presentation of seminars targeted at the end-users would represent a significant step forward in promoting the use of arbitration in the NAFTA region.

    The Committee considered whether there are industries or sectors for which the increased use of arbitration and other forms of ADR would be particularly appropriate. It identified a diverse number of ADR mechanisms tailored to specific sectors. Because the specialized mechanisms and providers have developed as a result of factors specific to the particular sectors involved, the Committee has not been able to extract more than a few common characteristics that could be applied on a broader, cross-sectoral basis.

    Based on its survey, the Committee also found a growing interest in mediation/conciliation and other forms of ADR. Members of the business and legal communities who have used mediation/conciliation have been very positive about the benefits of this form of ADR. They regarded mediation as an effective way to resolve disputes while preserving the commercial relationship. The availability, uses and effectiveness of mediation, conciliation and other forms of ADR are being explored further by the Committee.

    The Committee expressed its support for the mandate and objectives of the NAFTA Advisory Committee on Private Commercial Disputes Regarding Agriculture (Article 707 Committee), which was established by NAFTA Article 707. The Committee noted the parallels between its mandate and that of the Article 707 Committee, and expressed its desire for the two groups, where appropriate, to cooperate closely and to explore ways of working jointly toward the shared goals of promoting the prompt and effective resolution of private international commercial disputes.

  4. Future Work of the Committee

    Subcommittee III (Targeted Outreach)

    Subcommittee III will be restructured to focus on targeted outreach. In consultation with the Subcommittee, the co-chairs of each Party will appoint up to 5 special advisors to assist the Subcommittee. The Subcommittee will focus, in particular, on:

    1. small and medium-sized businesses engaged in, or considering engaging in, trade or investment in the NAFTA region; and

    2. in-house counsel.

    The Subcommittee should undertake the following, as appropriate:

    1. identify individuals and entities who comprise targeted audiences, and the means of contacting them, including through trade associations;

    2. disseminate, to the targeted audiences, in coordination with Subcommittees IV and V, by electronic and other means, the brochure prepared by Subcommittee I and other relevant information, which includes the importance of planning for dispute settlement in negotiating contracts, the advantages and disadvantages of arbitration and mediation and other ADR mechanisms, the role and choice of institutions and choice of rules;

    3. provide educational opportunities for the targeted audiences, including seminars and interactive on-line discussions;

    4. explore with bar associations and other groups the formation of voluntary organizations to provide arbitration and mediation services for small international commercial claims;

    5. explore the possibility of enhancing ADR education in universities and other educational institutions; and

    6. develop recommendations for consideration by the Committee.

    Subcommittee IV (Enforcement Issues)

    Subcommittee IV will undertake the following, as appropriate, in consultation with such outside experts as it deems necessary:

    1. prepare a comparative monograph on enforcement issues in the three countries, for possible publication in the Committee's name;

    2. evaluate (and revise, as necessary) materials compiled by the Subcommittee for possible public dissemination, including by electronic means; and

    3. develop recommendations for consideration by the Committee.

    Subcommittee V (Mediation/Conciliation)

    To further its work on mediation/conciliation, Subcommittee V will undertake the following, as appropriate, in consultation with such outside experts as it deems necessary:

    1. prepare documents that:

      1. compare and contrast mediation/conciliation, in the three countries, and

      2. explore legal issues related to mediation/conciliation, such as enforcement of mediation/conciliation agreements, effects of combined mediation/conciliation processes and model clauses;

    2. collect and analyze empirical information regarding the practice and use of mediation/conciliation by the business community;

    3. prepare a summary of advantages and disadvantages of mediation/conciliation, especially in relation to arbitration, for public dissemination;

    4. consider educational and promotional efforts regarding mediation/conciliation in coordination with Subcommittee III (Targeted Outreach), in particular electronic means, such as list servers and web pages, and examine the Committee's brochure to determine whether its treatment of mediation/conciliation is adequate, or whether a separate brochure should be prepared; and

    5. develop recommendations for consideration by the Committee.

    Subcommittee VI (Liaison with the Judiciary)

    In consultation with the Subcommittee, the co-chairs of each Party will appoint up to 5 special advisors, endeavoring to include at least one judge, to assist the Subcommittee. The Subcommittee will undertake the following, as appropriate:

    1. consult with the relevant federal and state/provincial judicial authorities with regard to training;

    2. develop, as necessary, and contribute information about ADR of international commercial disputes -- laws, methods and opportunities for application -- to judicial training programs at the federal and state/provincial levels;

    3. prepare a reference book for judges -- federal and state/provincial -- that addresses issues involved in ADR of international commercial disputes;

    4. assess the availability of court-related programs to aid in the resolution of small international commercial disputes, and analyze whether changes in laws are required;
    5. enhance the opportunities for judges from the three countries to share and understand the commonality of their experiences, which could include fostering visits, seminars and dissemination of court decisions on ADR, including exploration of holding the first inter-judicial meeting at the next meeting of the Committee;

    6. explore sources of funding for all of the above activities; and

    7. develop recommendations for consideration by the Committee.

  5. Recommendations

    The Committee recommends that the Commission:

    Adopt a statement substantively in the following form:

    "The Free Trade Commission - confirming the commitment of the NAFTA Parties to encourage and facilitate, to the maximum extent possible, the use of arbitration and other means of alternative dispute resolution for the settlement of international commercial disputes between private parties in the free trade area; and acknowledging the obligation of the Parties to recognize and enforce arbitral awards under applicable international conventions and national laws -- states its support for the use of arbitration and other forms of alternative dispute resolution in the NAFTA area, and wishes to draw to the attention of the Judiciary the significant benefits inherent in the use of arbitration and other forms of alternative dispute resolution. In this connection, the Commission calls for the assistance of each Party to:
    1. take appropriate steps to ensure that domestic laws do not provide for the judicial review of arbitral awards in a manner inconsistent with their international obligations, including the NAFTA and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention);
    2. take appropriate steps to include issues related to arbitration and other forms of alternative dispute resolution in judicial training programs;
    3. encourage courts to direct matters to arbitration or other forms of alternative dispute resolution, and enforce arbitral awards and arbitration agreements, where appropriate; and
    4. promote dispute prevention."

    The Committee further recommends that this report be appended to Minutes of the Commission meeting and be available on request and disseminated by Committee members through whatever means are appropriate.

Appendix A: Terms of Reference for the NAFTA Advisory Committee on Private Commercial Disputes

  1. Mandate of the Committee

    1. 1.1  NAFTA Article 2022 requires the Advisory Committee on Private Commercial Disputes (Committee) to report and provide recommendations to the NAFTA Commission on general issues referred to it by the Commission respecting the availability, use and effectiveness of arbitration and other procedures for the resolution of private international commercial disputes in the free trade area.

      1.2  The Commission refers the following matters to the Committee for report and recommendations to the Commission as appropriate in accordance with Article 2022 (4):

        1.2.1  compilation, examination and assessment of existing means for the settlement of private international commercial disputes;

        1.2.2  identification of sectors and types of businesses that would particularly benefit from the use of alternative dispute resolution (ADR);

        1.2.3  promotion of the use of arbitration and other procedures for the resolution of private international commercial disputes in the NAFTA region, including ways to increase private sector awareness of the benefits of using ADR;

        1.2.4  facilitation of the use of arbitration and other procedures in the NAFTA region, including the use of model ADR and other contractual clauses;

        1.2.5  opportunities for expanded cooperation between institutions with an interest or involvement in ADR in the NAFTA region; and

        1.2.6  issues relating to the enforcement of arbitration agreements and awards, and other litigation issues related to ADR.

      1.3  The Commission may refer other matters to the Committee from time to time in accordance with Article 2022 (4).

  1. Membership of the Committee

      2.1  The Committee will comprise up to 10 members from each Party, up to two of whom may be officials representing the Party and up to eight of whom may be selected from outside the Government.

      2.2  Each Party will appoint its own members of the Committee, and may establish terms for their appointment.

      2.3  The government representatives will serve as the chairs of the Committee.

  2. Agenda for Committee Meetings

      3.1  The chairs will, in developing the agenda for a meeting, consult with and take fully into consideration the views of the members on specific issues to be considered by the Committee.

      3.2  The chairs will circulate the agenda to the full Committee in advance of each meeting.

  3. Meetings of the Committee

      4.1  Meetings of the Committee will normally be hosted successively by each Party and will be presided over by the chairs of that Party.

      4.2  The chairs, by consensus, may invite individuals who are not members of the Committee to participate in a meeting as appropriate.

      4.3  The chairs, by consensus, will approve all actions and prepare all reports of the Committee and determine which recommendations should be submitted to the Commission, taking fully into account the views and positions of all Committee members.

      4.4  The Committee may establish subcommittees to address specific issues within the scope of these Terms of Reference. A subcommittee may include individuals who are not members of the Committee, if so agreed by the Parties, in which case, each Party may appoint its own members to such subcommittee.

      4.5  The Committee will meet at least once each year.

  4. Coordination with Article 707 Committee

    The chairs will monitor the work of, and consult periodically with, the NAFTA Advisory Committee on Private Commercial Disputes Regarding Agricultural Goods to promote cooperation and collaboration between the two Committees.

Appendix B: Members of NAFTA Advisory Committee on Private Commercial Disputes

Co-chairs Hugo Perezcano Díaz
Ricardo Ramírez Hernández
Valerie Hughes
James Stringham
Susan G. Esserman
Michael J. Matheson
Members José María Abascal Zamora
Guillermo Aguilar Alvarez
Rodolfo Cruz Miramontes
Miguel Estrada Sámano
Carlos Loperena Ruíz
José Luis Siqueiros
Julio C. Treviño Azcué
Claus von Wobeser
Nabil N. Antaki
Cecil O.D. Branson
Thomas C. Drucker
Neil Gold
David R. Haigh
Robert Hall
Selma M. Lussenburg
Jeffrey Talpis
José I. Astigarraga
José A. Cárdenas
James H. Carter
John M. Dickenson
Deborah Enix-Ross
Susan Kohn Ross
Rona R. Mears
David W. Rivkin

Appendix C: Membership of Subcommittees of NAFTA Advisory Committee on Private Commercial Disputes

Subcommittee I

José María Abascal Zamora (Mexico)
Cecil O.D. Branson (Canada)
Deborah Enix-Ross (U.S.)
Selma M. Lussenburg (Canada)
David W. Rivkin (U.S.)
Jeffrey Talpis (Canada)
Claus von Wobeser (Mexico)

Subcommittee II

John M. Dickenson (U.S.)
Thomas C. Drucker (Canada)
David R. Haigh (Canada)
Eduardo Medina-Mora (Mexico)
Susan Kohn Ross (U.S.)
Miguel Estrada Sámano (Mexico)

Subcommittee III

Julio C. Treviño Azcué (Mexico)
Guillermo Aguilar Alvarez (Mexico)
José I. Astigarraga (U.S.)
Neil Gold (Canada)
Robert M. Hall (Canada)
Rona R. Mears (U.S.)
Philip Robbins (U.S.)

Subcommittee IV

José I. Astigarraga (U.S.)
Nabil M. Antaki (Canada)
Cecil O.D. Branson (Canada)
José A. Cárdenas (U.S.)
James H. Carter (U.S.)
Rodolfo Cruz Miramontes (Mexico)
Carlos Loperena Ruíz (Mexico)
José Luis Siqueiros (Mexico)

Subcommittee V

Nabil N. Antaki (Canada)
Thomas C. Drucker (Canada)
John M. Dickenson (U.S.)
Deborah Enix-Ross (U.S.)
Neil Gold (Canada)
Rona R. Mears (U.S.)
José María Abascal Zamora (Mexico)
Miguel Estrada Sámano (Mexico)


Appendix D: Alternative Dispute Resolution in International Contracts

    Parties entering into international contracts may wish to consider several alternative methods of resolving disputes without going to court. Since neither party may want to find itself in the courts of the other party's country, these methods, which are generally known as Alternative Dispute Resolution ("ADR"), offer a neutral mechanism for resolving disputes that may arise.

    It is important to consider at the time of drafting the contract whether the parties will want to use one or more of these methods should a dispute arise. A well-drafted clause may not only result in a more effective resolution of any dispute that might arise, but it may also deter breaches of the agreement by providing for an effective mechanism of enforcing contractual rights.

    This brochure outlines some of the possible methods of ADR available to parties contracting within the NAFTA region. It provides model clauses that may be inserted into contracts, as well as a description of additional matters that may be effectively included in such clauses. It also describes the principal arbitration institutions available in the NAFTA region and some criteria to aid the parties in choosing which institution may be most appropriate for the particular contract, if the parties decide to use an institution to administer the arbitration. The principles described in this brochure can necessarily only be basic. Parties should consider consulting one of the arbitral institutions listed in the brochure or others with expertise before finalizing any contract terms.

  1. Description of ADR Mechanisms

    There are many forms of ADR. The two most commonly used are arbitration and mediation.

    1. Mediation

      Mediation provides a forum in which an impartial person -- the mediator -- facilitates communication between the parties in the hope of achieving a settlement of the dispute. The mediator acts as an intermediary to whom each party should feel comfortable discussing its view of the dispute. The mediator seeks to focus the parties on the critical issues in dispute and on the interests of each party to achieve a settlement. The mediator may propose settlement options for the parties to consider, but the views of the mediator are not binding on the parties.

      The mediator may or may not be an attorney. It is recommended that he or she be someone whom both parties trust. Mediation is often conducted without involvement of counsel representing the parties.

    2. Arbitration

      While mediation is designed to encourage the parties to find a mutually acceptable settlement, arbitration is an adversarial process that results in an award that is binding on the parties. Depending on the agreement of the parties in the arbitration clause (see below), the decision may be rendered by one or three arbitrators. The parties generally present arguments, witnesses and documentary evidence to the arbitrators. Judicial rules of procedure and evidence do not apply, and the rules followed in arbitration are generally very flexible. Attorneys are frequently involved in representing the parties, but it is not always necessary to retain counsel. Arbitrators are often attorneys, but they may also be businesspeople or other professionals with knowledge or skills that would be relevant to the dispute.

      Most arbitration awards are paid voluntarily by the losing party. However, if the losing party does not voluntarily comply with the award rendered by the arbitrators, it may be enforced by local courts with jurisdiction over the losing party. Canada, Mexico and the United States are parties to various international treaties that require their courts to enforce arbitration awards with very few exceptions (such as fraud or corruption). Thus, unlike a court judgment, there are very few grounds to appeal an adverse arbitration award.

  2. Model ADR Clauses

    1. Mediation

      A model mediation clause for international contracts is set forth below.

      If a dispute, controversy or claim arises out of or relates to this contract, or the breach, termination or validity thereof, and if either party decides that the dispute cannot be settled through direct discussions, the parties agree to endeavor to settle the dispute in an amicable manner by mediation pursuant to [identify rules]. If this mediation does not result in a settlement, then the dispute shall be resolved by arbitration pursuant to [clause (b) below]. [Alternatively, the parties may provide for litigation in a court specified by the parties.]

    2. Arbitration

      A model arbitration clause for international contracts is set forth below. This model clause, while offering a number of specific options, does not purport to exhaust all the possible provisions that may need to be considered or may be desirable in particular contracts. In short, this model clause should serve as the beginning, and not the end, of the process of drafting an arbitration clause.

      1. Any dispute, controversy or claim arising out of, relating to, or in connection with, this contract, or the breach, termination or validity thereof, shall be finally settled by arbitration. The arbitration shall be conducted in accordance with [identify rules] in effect at the time of the arbitration, except as they may be modified herein or by mutual agreement of the parties. The seat of the arbitration shall be [city, country], and it shall be conducted in the [specify] language. The arbitration hall be conducted by [one or three] arbitrators, who shall be selected in accordance with [the rules selected above].

      2. The arbitral award shall be in writing and shall be final and binding on the parties. The award may include an award of costs, including reasonable attorneys' fees and disbursements. Judgment upon the award may be entered by any court having jurisdiction thereof or having jurisdiction over the parties or their assets.

      The following points should be considered when drafting the arbitration clause. Keep in mind that this is only a Checklist.

      1. Arbitration Rules. The first decision to be made is whether to proceed under ad hoc or institutional arbitration. Institutional arbitration means that the proceedings are administered or supervised by an organization (such as the American Arbitration Association, the British Columbia International Commercial Arbitration Centre, CANACO [Mexico City Chamber of Commerce], the Commercial Arbitration and Mediation Center for the Americas, or the International Chamber of Commerce), in accordance with its own rules of arbitration. By choosing institutional arbitration, the parties can rely on the expertise of the institution and its resources for selecting arbitrators and for administering the arbitration.

        Ad hoc arbitration means there is no formal administration by any established arbitral organization. Instead, the parties create their own procedures for a given arbitration. This can be accomplished, for example, either by

        1. drafting a set of ad hoc procedures in a contract,

        2. referring to a set of generally accepted ad hoc arbitration rules, such as the UNCITRAL Arbitration Rules or the Center for Public Resources Rules for Non-Administered Arbitration of International Disputes, or

        3. allowing the arbitration tribunal to produce its own procedures after the dispute has arisen. Ad hoc arbitration can sometimes be less expensive, but it places more of a burden on the parties to organize and administer the arbitration. As a general proposition, the arbitration clause should be coordinated with and reflect the arbitral rules of the institution or ad hoc procedure chosen.

      2. Place of Arbitration. The parties should select a site for the arbitration that is convenient to them and to those who may eventually become witnesses in any proceeding. The laws of the three NAFTA countries all support international arbitration, so that one should not hesitate to place the arbitration in any of those countries. If the parties wish to select a place of arbitration outside the NAFTA countries, they should consider various aspects of national law that may affect the conduct of the arbitration, such as the likelihood and extent of involvement of the national courts in the conduct of the arbitration; whether the country is party to either the New York Convention or the Panama Convention on enforcing arbitral awards, which make enforcement of the final award substantially easier; the extent of any mandatory procedural rules that must be adhered to in the conduct of the arbitration; and any restrictions on the ability of non-nationals to serve as arbitrators or as counsel.

        If institutional arbitration is chosen, it is not necessary that the administering body chosen be located in the forum. For example, most of the institutions listed in Part IV below often administer arbitrations outside their home countries.

      3. Applicable Law. It is not necessary to designate the law to be applied by the arbitrators to determine the substantive issues before them. However, it is highly desirable for the parties to agree upon the applicable law, if possible. Failure to do so is a significant factor in increasing the time and cost of an arbitration. Moreover, the decision of the arbitral tribunal on the matter (for it is an issue to be decided by the arbitrators, even if institutional arbitration is used) may bring an unpleasant surprise to one of the parties. Finally, where an institution is to select the chair or sole arbitrator, it is, as a practical matter, far easier to appoint the best possible person when it is known in what country's law the arbitrator should be most expert. When deciding upon the applicable law, parties should consider:

        1. a legal system that has developed a body of law relating to the specific issues likely to arise;

        2. whether to exclude the conflicts of law provisions of the chosen law;

        3. that the chosen law considers the subject matter of the contract to be arbitrable (for example, copyright, patent and antitrust matters may not qualify in some countries). There may be occasions when one might consider having the arbitrators apply general principles of law or usages of trade, but it is sometimes difficult to apply such principles without reference to a particular law.

      4. Composition of the Arbitral Tribunal. If the parties can agree, it is wise to indicate the number of arbitrators to be appointed. For complex arbitrations or those with a significant amount in dispute, three arbitrators are preferable. If the arbitration is likely to involve only a few straightforward issues and the amount in controversy is relatively small, one arbitrator may be chosen. Having one arbitrator may be cheaper and more expeditious. However, if the amount in dispute is likely to be substantial enough to warrant it, three arbitrators increase the likelihood of a fair, well-reasoned result. A three-arbitrator panel also provides the parties with more control over the nature of the tribunal, since the parties will generally each select a party-appointed arbitrator, but it increases the cost and logistical difficulties of the arbitration. The parties should also, where appropriate, specify qualifications they wish the arbitrators to possess.

      5. Language. If the parties come from countries with a common language, they may believe it is not necessary to include a provision regarding language. They may mistakenly believe that the language in which the contract is written will automatically be the language of any arbitration arising out of that contract. However, the arbitral tribunal will decide the question if the parties have not agreed on it. It may be possible to conduct the arbitration in two languages, but that is not recommended.

        If the parties are from countries with different languages, it is even more important to provide for the language of the arbitration. Simultaneous interpretation at hearings and translation of all documents into two or more languages are enormously expensive and time-consuming. If it is not possible to agree on a language in the arbitration clause, then it would be desirable to try to agree that costs for interpretation and translation are either shared or borne by the party requiring the interpretation or translation.

  3. Other subjects to be considered for inclusion in the Arbitration Clause

    An arbitration clause need not be lengthy or complicated in order to be effective. Indeed, a lengthy clause specifying too many procedures may limit the flexibility of the parties and the arbitrators in conducting the arbitration in the most efficient means possible should a dispute arise. Nevertheless, the parties should think about the nature of the disputes that might arise and consider whether some of the following matters should be included in the arbitration clause. Discussing the matters together at the time of contract drafting, when relationships are cordial, may result in saving time trying to resolve these matters after a dispute has already arisen.

    1. Discovery and Production of Documents. Usually, the arbitration rules chosen will contain provisions with respect to discovery and production of documents or provide that such discovery and production shall be made in accordance with the rulings of the arbitral tribunal. In certain circumstances (e.g., where one party will have possession of most of the documents relevant to the dispute), it may be advantageous to provide specifically for more discovery than is available under the applicable rules. In other circumstances, it may be advantageous to provide in the clause for specific limits on discovery.

    2. Interim Relief. Some arbitration rules deal specifically with the question of interim relief, i.e, whether the parties may apply to a court for a preliminary injunction, an order of attachment or other order preserving the status quo until the arbitrators can decide the case. The rules of most arbitration institutions provide that resort to a court in such circumstances is not incompatible with, or a waiver of, the right to arbitrate under those rules. Moreover, most rules provide that the arbitrators, once selected, may order such relief. However, if the parties believe that it may be necessary to resort to such relief to maintain the status quo, then they should check the rules chosen and, if necessary, add a specific clause providing for the availability of such interim relief.

    3. Consolidation. If there are more than two parties to the contract, or if the parties are entering into several related contracts, the parties may wish to consider a provision that any arbitrations among the parties or with respect to the related contracts shall be consolidated into a single proceeding. The drafting of such a clause is very difficult, and the parties should refer to one experienced in such matters for assistance in drafting it.

    4. Relief to be Granted. Ordinarily, the arbitral tribunal may grant any remedy or relief within the scope of the agreement of the parties which is permissible under the substantive law applicable to the dispute. However, if the parties wish the arbitrators to decide the case, not according to a specific law but according to the common usages of trade, or if there is a particular kind of relief that the parties wish the arbitrators to be able to award, then the parties should so provide in their arbitration clause.

    5. Time Limitations. Most national laws provide specific time limits, usually consisting of several years, for when claims must be brought. The parties may also wish to consider whether a specific time limit should be placed on the conduct of the arbitration. If any time limit is chosen, it must be realistic. Again, the parties should check with the appropriate arbitration institution to determine what a reasonable timetable would be.

    6. Costs and Expenses. The rules of various arbitration institutions and ad hoc rules vary with respect to who will pay for the costs of the arbitration, including attorneys' fees. Usually, however, the rules provide that who shall bear these costs is within the discretion of the arbitral tribunal. The parties may wish to consider whether they want to include a provision specifying how costs and expenses, including attorneys' fees, shall be apportioned in any arbitration.

  4. Principal Arbitration Institutions in the NAFTA Region

    1. Canada

      1. British Columbia International Commercial Arbitration Centre
        670-999 Canada Place
        Vancouver, British Columbia, V6C2E2 Canada
        TEL: (604) 684-2821
        FAX: (604) 641-1250

      2. Quebec National and International Commercial Arbitration Centre
        295, Boulevard Charest Est
        Bureau 090
        Quebec, G1K 3G8 Canada
        TEL: (418) 649-1374
        FAX: (418) 649-0845

    2. Mexico

      1. Chamber of Commerce of Mexico City (CANACO)
        Paseo de la Reforma 42
        Delegacion Cuauhtemoc
        06048 Mexico, D.F.
        TEL: (011-525) 703-2862
        FAX: (011-525) 705-7412

    3. United States

      1. American Arbitration Association
        140 West 51st Street
        New York, NY 10020-1203 TEL: (212) 484-3268
        FAX: (212) 246-7274

      2. CPR Institute for Dispute Resolution
        366 Madison Avenue
        14th Floor
        New York, NY 10017-3122
        TEL: (212) 949-6490
        FAX: (212) 949-8859

    4. Multi-national

      1. Commercial Arbitration and Mediation Center for the Americas
        American Arbitration Association
        International Center for Dispute Resolution
        140 West 51st Street
        New York, NY 10020-1203
        TEL: (212) 484-3268
        FAX: (212) 246-7274

      2. Inter-American Commercial Arbitration Commission
        c/o Organization of American States
        Administration Building, Room 211
        19th & Constitution Avenue, N.W.
        Washington, D.C. 20006
        TEL: (202) 458-3249
        FAX: (202) 458-3293

      3. International Chamber of Commerce International Court of Arbitration
        38 Cours Albert 1er
        75008 Paris, France
        TEL: (011-331) 4953-2828
        FAX: (011-331) 4953-2933

    In addition, trade associations for particular industries frequently have their own dispute resolution mechanisms for disputes in that industry. One may wish to consult an appropriate trade association to see if they have such a mechanism that may be useful for the contract.

  5. Criteria to consider in selecting an appropriate Arbitration Institution

    Selecting an appropriate set of rules or arbitration institution is an important step in the arbitration process. The institutions listed above, plus others in the NAFTA countries and elsewhere, offer varying levels of experience and qualifications for particular disputes.

    Listed below are some criteria that parties may wish to consider in selecting an appropriate institution. The institutions listed above and others will be happy to provide information on these matters to any parties considering selecting their rules.

    1. History and Experience

      1. When did the institution first begin to administer international arbitrations?

      2. How many international disputes has the organization been involved in?

      3. From what countries have the parties to those disputes come?

      4. Has the institution handled disputes of a similar nature to the subject of the contract?

    2. Method of Selecting Arbitrators

      1. Do the parties have any involvement in selecting the arbitrators, or is it left entirely to the discretion of the institution?

      2. Does the institution automatically select arbitrators from a neutral nationality, or do they do so only on request of one or both of the parties?

      3. Who is on the roster of potential arbitrators? Do they come from a variety of countries and backgrounds?

      4. Can the parties select arbitrators not on the institution's roster?

      5. Does the institution have arbitrators with expertise in the type of matter that is expected to be disputed?

    3. Conduct of the Arbitral Proceeding

      1. Do the rules of the institution permit flexibility in the arbitration process?

      2. Do the rules provide for specific time limits for some or all aspects of the arbitration process? If so, are these time limits observed or ignored?

      3. Does the institution limit any procedural rules selected by the parties?

      4. Are the institution's rules of procedure clear and neutral to both parties?

    4. Cost

      1. What are the administrative fees charged by the arbitration institution? Are they fixed or do they vary based on the size of the dispute?

      2. How are the arbitrators paid? Are their fees based on the amount of time spent or on the size of the dispute?

      3. Are there a large number of locally available qualified arbitrators, in order to reduce travel and accommodation expenses?

    5. Services Offered by the Institution

      1. How large is the staff of the institution?

      2. Is the staff experienced in international disputes?

      3. Does the staff possess language capabilities for the parties in the dispute?

      4. Is the institution a for-profit institution or is it a non-profit institution?

      5. Is the institution involved in alliances with other institutions within the NAFTA region or elsewhere, which may facilitate the administration of the arbitration?

Source: International Trade Canada


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