Implementation of alternative dispute resolution mechanisms in cross border mergers: International legal study

B: issues to avoid when drafting the Arbitration clause

There are issues to avoid when drafting the Arbitration clause inserted in the merger contract. The most important are figured out from business practice: there are equivocation, on the one hand and inattention, on the other hand.

First, if drafters of the merger contract fail to state clearly that they have agreed to bind Arbitration. The result may be the following: "in case of dispute, the parties undertake to submit to Arbitration, but in case of litigation the Tribunal of Tunis have exclusive jurisdiction". What this clause commits the parties to, is nothing other than years of litigation about how to resolve any dispute that may arise! The principal goal of the drafter of an Arbitration clause should be to draft a provision that if a

206 The ICC and UNCITRAL Rules provide for the arbitrator to choose the language, while the AAA stipulates that the language of the Arbitration agreement will be used in the proceedings.

dispute arises, will help the parties obtain an Arbitration award without detour through the court system. For an international lawyer, the touch stone of Arbitration drafting is article 2 (1) of the UN Convention of the Recognition and enforcement of foreign arbitral awards (the New York Convention), which provide that: "each contracting state shall recognize an agreement in writing under which the parties undertake to submit to Arbitration all or any differences which may arise between them...concerning a subject matter capable of settlement by Arbitration"²⁰⁷. Many civil law countries, including Tunisia have signed the New York Convention, which should render the drafting of an arbitration clause less complicated operation foe Tunisian lawyers negotiating an Arbitration clause before the drafting.

Second, practitioners who regularly deals with Arbitration has no doubt heard that " no none really paid any attention to the Arbitration clause", explaining that the drafters decided at 3 am on the morning on the day of the closing that they should provide for Arbitration and pasted in a copy of the nearest clause available. This describes the inattention: drafting an Arbitration clause with insufficient attention to the transaction to which it relates may increase misunderstandings; An Arbitration clause should be designed to fit the circumstances of the transaction and the party's needs. The drafters may well select a standard clause prepared by one of the well-known Arbitrations institutions, such as the American Arbitration Association or other Arbitration Centers"²⁰⁸ but the clause should be selected because it is right for the deal. The inattention to drafting a dispute resolution clause not only dissipates the opportunity offered by alternative dispute resolution techniques to exert party control over the process and to enhance the predictability of the process. An astonishing number of dispute resolution clauses in international contracts are inadequate or defective because the drafters fail to begin the drafting process by consulting and using readily available standard forms.

²⁰⁷ article 2 (1) of the UN Convention of the Recognition and enforcement of foreign arbitral awards (the New York Convention),

²⁰⁸ Local and International Arbitration Center a AL INSAF » at the Conciliation and arbitration Center of Tunis.

Given the wide spread availability of standard forms and suggested clause tested at Law and refined by experience, there can be no excuse for clauses that fail even the few elements necessary to an effective dispute resolution clause. When deciding on the type of clause to use, the drafter, should ask the following questions: what type of dispute resolution process is best suited to the transaction? Arbitration is not the only option; there are many alternative dispute resolutions processes; if Arbitration is selected do the parties understand that the Arbitration clause will commit them to a binding process? The drafter should be cautious about agreeing to arbitrate some types of disputes and go to court for others. This may be inevitable in some countries that do not allow certain types of disputes to be arbitrated; have the parties considered providing for steps preceding Arbitration, especially if the relationship between the parties is an ongoing one, like is the case in a merger? The parties should agree to mediate or negotiate before heading to Arbitration. They can always arbitrate if less adversarial techniques are unsuccessful.

A multi step clause can be drafted in the merger agreement; have the parties considered where they may want to enforce an arbitral award. This is particularly important in an international contract. The New York convention make Arbitration awards enforceable in most countries involved in international business transactions, as long as the country where the Arbitration takes place and the country where the award is to be enforced are parties to the same Convention. The key is to pay sufficient attention to the underlying transaction so that the Arbitration clause can be tailored to the transaction particular requirements and to possible disputes that may be anticipated.

There are just as many dispute resolution clauses that fail precisely because the drafters doesn't consider the range of options available to contracting parties. Many companies ' management participating in a cross-border merger seem to have difficulty in the fairly simple task of drafting an Arbitration clause or even replicating a standard form Arbitration clause.

This will create problems if the arbitration clause is used. The more effective the Arbitration clause that is negotiated the less likely it is that it will ever be used.