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

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

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
         (BCICAC)
         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?