Perfecting the Midnight Clause: Is your contract getting the job done?
Updated: Sep 14, 2020
(CADRIn Campaign for Professionals, Part II)
“Any dispute arising under this agreement shall be referred to arbitration.”
In the Caribbean, it is not uncommon for parties to use the above clause to evidence their intention to resolve their dispute by arbitration. While this arbitration clause is valid and enforceable in most, if not all, Caribbean jurisdictions, it can present challenges when the parties attempt to appoint an arbitrator. As the clause is silent on the issue of the appointment of an arbitrator and fails to reference any procedural rules which make provision for such an appointment, if the parties cannot agree, they must follow the procedure set out in the law of the seat. Unfortunately, arbitration legislation in the Caribbean is generally outdated and out of step with international arbitration best practice. The result is parties wasting valuable time and money filing court proceedings to secure the appointment of an arbitrator. Such applications would be unnecessary if the parties considered the appointment process during the clause drafting stage.
Ultimately, the appointed arbitrator or arbitral tribunal will make the final decision in an arising dispute between parties. Given the lack of or limited right to appeal against arbitral awards, arbitrator selection is critical and should not be left to luck and chance or the discretion of the Courts. In this article, we provide responses to five questions every attorney should ask before drafting their midnight clause.
1. Can I find qualified, competent and affordable arbitrators in the region to preside over any dispute arising under the contract?
Arbitration can only effectively work if the right arbitrators are available and the parties can afford to pay their fees. While there was a long-held perception that the Caribbean Region wanted for competent dispute resolution professionals, this is no longer the case. Over the past ten years, several international and regional non-profit organisations have worked tirelessly to build the Region's capacity. There now exists, across the Region, qualified regional arbitrators with both Caribbean and international experience with competitive rates when compared to the international market as parties can benefit from reduced travel costs and expenses.
The Chartered Institute of Arbitrators website provides the names and experience of its members and allows for searches by speciality, region and country. The Region also has reputable centres which offer appointment services and have rosters of highly qualified and diverse arbitrators. The British Virgin Island International Arbitration Centre, Arbitration and Mediation Court of the Caribbean as well as Dialogue Solutions are excellent starting places.
More information can be found on their respective websites.
Chartered Institute of Arbitrators - https://www.ciarb.org/membership/member-directory/
British Virgin Island International Arbitration Centre - http://www.bviiac.org
Arbitration and Mediation Court of the Caribbean - https://www.caribcourt.org
Dialogue Solutions - https://dialoguesolutions.org/
2. What criteria should parties consider when appointing prospective arbitrators?
The criteria for arbitrator selection are highly dependent on the nature of the commercial transaction. Where the dispute is international, there may be legitimate concerns that an arbitrator who shares the same nationality as one of the parties may potentially be biased. If this is a valid concern, the parties may wish to consider using rules which address questions as to nationality.
More important is the question as to whether specific qualifications should be set out in the arbitration clause itself, particularly where potential disputes involve complex legal, commercial or technical issues. There are risks associated with adopting this approach, including narrowing the pool of potential candidates or presupposing characteristics which may not be appropriate. The parties can only determine the right course of action after considering the disputes likely to arise and the expertise required by a decision-maker to deliver an award.
3. How will the arbitrator be selected if the parties cannot agree?
As mentioned above, when an arbitration clause is silent as to the appointment of an arbitrator, the law of the seat will dictate the appointment process. Under the various outdated Caribbean arbitration laws, in default of agreement, the parties must apply to the Court to appoint the arbitrator. This process can result in substantial delay, particularly in Caribbean jurisdictions with significant backlogs in their court systems. To avoid lengthy and costly court proceedings, attorneys should either set out an appointment procedure or reference appropriate procedural rules in their arbitration clause. When selecting procedural rules, ensure the appointment procedure results in the selection of a candidate most suitable for the disputes which are likely to arise in the transaction.
4. Should there be one or three arbitrators?
While arbitration laws do not frequently prescribe the number of arbitrators the parties are allowed to choose, it is generally not advisable to choose two or an even number. In fact, under many arbitration acts in the Caribbean, where the parties choose two arbitrators, the legislation prescribes the appointment of a neutral referred to as an umpire. If the two arbitrators selected cannot decide the dispute, the umpire makes the final decision. If the parties failed to consider the law of the seat, they might find themselves bound by a decision-maker not contemplated when the parties agreed to arbitrate their disputes.
The appropriate number of arbitrators will depend on the nature of the contract, the amount that may be in dispute and the complexity of the potential issues arising. Selecting one arbitrator is less expensive and can be faster, but a three-person tribunal can often better analyse complex factual and legal issues. A party may prefer to spend more to secure a better-reasoned award. However, if the dispute is smaller or does not need a great deal of analysis, a single arbitrator may be preferable.
5. Should the arbitrators have the power to determine issues relating to jurisdiction?
It is generally accepted in arbitration practice that arbitrators have the authority to rule on whether they have jurisdiction to hear a dispute. Nevertheless, this power is not as of right. In line with international best practice, most updated arbitration acts and procedure rules expressly give arbitrators the power to rule on issues of jurisdiction, subject to review by national courts on application by one of the parties.
Given the current legislative landscape in the Caribbean, such provisions are unlikely to exist in the Region's arbitration acts. For this reason, if attorneys want to empower their arbitrators to rule on jurisdiction, provision must be expressly made in the arbitration clause or, as is more common, procedure rules incorporated which provide these powers to arbitrators.
In the coming weeks, CADRIn will host expert representatives to discuss best practice and provide tips on appointing an arbitrator in the Caribbean. Let us know what challenges you have encountered when drafting an arbitration clause or appointing an arbitrator.
Author: Shan M. Greer
CADRIn co-Founder, Shan M. Greer is a Caribbean arbitrator, mediator and lawyer associated with the law firm Floissac, Fleming & Associates in Saint Lucia. For almost 20 years, Shan has dealt with a wide range of disputes in banking and finance, construction and infrastructure, energy, telecommunications, oil and gas sectors in capacity as counsel, meditator and arbitrator. Shan Greer has also been regularly appointed in ad hoc international and domestic arbitrations governed by the laws of civil and common law jurisdictions under various arbitration rules including the ICC and UNCITRAL Rules.