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Project Members

Christopher Bloch is a JD candidate with a certificate in international law, graduating in May 2010 from
Pace Law School. He completed his undergraduate coursework at Loyola College in Maryland with a
degree in political science and minors in marketing and Asian studies. Mr. Bloch taught in the business
school of Assumption University in Bangkok, Thailand before coming to Pace Law and has worked during
his law school summers at Clayton Utz in Sydney, Australia and Freshfields Bruckhaus Deringer in Cologne,
Germany. He is a research assistant at the Pace Institute for International Commercial Law and works as a
teacher’s assistant in Contracts, Civil Procedure and Constitutional Law. cbloch@law.pace.edu

Rebecca Emory is a JD candidate with a certificate in international law, graduating in May 2010. She
completed her undergraduate coursework at George Washington University with a degree in political
science. Ms. Emory is a dual citizen of Germany and the United States and spent her law school summers
working in Sierra Leone as an intern in the Judicial Chambers of the Special Court of Sierra Leone which
tries war criminals from the civil war. She has also done work as a summer associate for Freshfields
Bruckhaus Deringer in Dusseldorf, Germany where she worked in the Corporate Practice Group.
remory@law.pace.edu

Roberto Pirozzi received his LL.M in Comparative Law with a concentration in International Arbitration
from Pace Law School in December 2009 and completed his law degree at LUMSA, University of Rome
(2003, summa cum laude). As a qualified Italian attorney since 2006, Mr. Pirozzi worked in Rome as an
associate in the Alternative Dispute Resolution Department of Pagani & Partners LLP and a senior
associate in the Antitrust Department at Legance LLP. During his time at Pace, Mr. Pirozzi has worked as an
intern at Colliern, Halpern, Newberg, Nolletti & Bock LLP in White Plains, NY in their Commercial Litigation
Department and spent time as a judicial intern in the chambers of the Honorable Alan D. Scheinkman,
New York State Supreme Court, White Plains. rpirozzi@law.pace.edu

Leslie Nadelman is a JD candidate at Pace Law School, expecting to graduate in May 2010. She works at
the Brooklyn District Attorney’s Office, Trial Bureau and is interested in International criminal work. Ms.
Nadelman has worked at the Pace Institute for International Commercial Law on several research projects.
lnadelman@law.pace.edu
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Project Aims and Purpose
 Assess and compare the effectiveness and
general use of multi-step arbitration clauses in
international commercial contracts through
legal research and empirical study focusing on
corporate counsel
 Set forth best practices and model language to
be utilized in the application of multi-step ADR
clauses based on the survey results
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Survey Results
Survey Results
• Arbitration –
Definition and
Considerations for
Their Use
• Designating the
Substantive Law and
Governing
Procedures
• Enforcing an Arbitral
Award Under the
New York
Convention
Survey Results
Compelling Compliance
• Negotiation –
Definition and
Considerations for
Their Use
• Mediation –
Definition and
Considerations for
Their Use
• Practical
Application
Binding Processes
• What is a step
clause?
• Why have step
clauses become
the norm today
according to
survey results?
• Best Practices for
drafting a step
clause based on
survey
Non-Binding Processes
Step Clauses
Presentation Roadmap
• Court Enforcement
of Step Clauses
• Binding Nature of
Clauses on the
Parties
• Condition Precedent
for Steps
Survey Results
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What are Step Clauses?
Definition of a step
clause
Trend towards the use
of step clauses
Why are step clauses
important in
international contracts?
Single vs. Multi-Step ADR Clauses
18%
One Step
Multiple Steps
82%
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Four Basic Questions
 When are step clauses included?
 Why are step clauses included?
 Are step clauses effective compared to standard
ADR clauses?
 What are the essential ingredients in drafting a
step clause?
Survey Pool
Industries Represented in Survey
Most survey takers conduct business in North America (43%), Western Europe
(23%), and Southeast Asia (15%) with an annual revenue of over $1 Billion (58%)
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Alternative Dispute Resolution Processes
 Litigation
 Arbitration
 Mediation

Negotiation
Increasing Financial and Relationship
Costs
 Formalities of Arbitration Increase
• e.g., discovery procedures
 Parties Want to Keep Working Relationships
Total Contracts Including ADR Clauses
39%
15%
18%
0-25%
11%
9%
25%
Contracts Using One Step vs. Multiple Steps
26-50%
One Step
51-75%
Multiple Steps
76% or more
All Contracts
82%
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Binding Processes as a Last Resort
Step clauses are “grounded on the notion that
disputes are best resolved by relatively informal,
flexible, efficient and inexpensive means, and that
binding adjudication through arbitration or litigation
should be reserved as a final step in the event all else
fails.”
-Thomas Stipanowich, T A
P
(2007)
HE
RBITRATION ENUMBRA
Resolved Through Negotiations
Resolved Through Mediation
59%
60%
50%
50%
40%
40%
30%
20%
48%
9%
14%
25%
30%
18%
19%
10%
8%
10%
0%
0-25%
26-50%
Series1
20%
51-75%
76% or
more
0%
0-25%
26-50%
51-75%
76% or
more
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“Plug and Play” Drafting
 Since a procedure that may be appropriate for
one dispute may not be suitable for another, in
the event that parties can reasonably anticipate
disputes between them, their goal should be to
manipulate boilerplate or model clauses to fit
their individual needs.
• Boilerplate clauses should not be inserted directly
into contracts, or else they could leave major gaps
or lead to ambiguities in the application of such
clauses in specific agreements
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Basic Elements Necessary for a Valid Step
Clause
 Order of steps which must be followed
 Desired rules and limitations placed on each step
 Indication of time limits for each step (triggering the following step)
 Specifying an undisputable trigger for the tolling of such time limits
 Who must be notified when the step has been completed or moot
 How and when this notification should be completed
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Mandatory Negotiation Step
Generally, negotiation is more practical for settlement when
the parties' need to continue the business relationship
outweighs their need to get their way on a particular issue.
Successful Resolution Using Negotiation
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Benefits of Mandatory Negotiations
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Parties that include a mandatory negotiation step generally name
the following reasons:







Enhances working relationships (64%)
High percentage of successful resolutions at this step (58%)
Cost-efficiency (58%)
Less formal (45%)
Provides a better understanding of client needs (39%)
Client requests it (17%)
Other (e.g., the need or desire to encourage mid-level managers to
resolve issues at this level on their own) (5%)
Pursuing Negotiation Regardless of
Contract Language
 If the language does not specifically say that the
negotiation is mandatory, parties are not
required to enter settlement negotiations at all
Parties Negotiating Without the Requirement
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The Mandatory Mediation Step
“Mediation is the intervention of an acceptable, neutral, third
party with no binding decision-making authority, who assists
the parties involved in the dispute to reach a mutually
acceptable settlement of the issue in dispute.”
Christopher W. Moore, THE MEDIATION PROCESS: PRACTICAL STRATEGIES FOR RESOLVING CONFLICTS (2003)
Mandatory Mediation Step in ADR Clauses
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Requirements for a Mandatory Mediation
Step
 For any mediation step to be considered mandatory, there are
certain requirements that should be included in that portion
of a step clause:
I.
II.
III.
IV.
Reasonable transition from negotiation to mediation;
Any party or parties to a dispute may initiate mediation by making a
request for mediation;
Scope of the disputes intended to be submitted to mediation; and
Any desired rules discussed in the following slides
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Successful Resolution in Mediation
Although a mere 25% of respondents experience the
successful resolution of disputes more than 75% in the use of
mediation, several benefits are associated with the use of
mandatory mediation in ADR clause, as it will be shown in the
next slide
Successful Resolution Using Mediation
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Benefits of a Mandatory Mediation Step
 Some of these benefits (and percent of results) include:
•
•
•
•
•
•
Non-binding, but more structured than negotiation (30%)
Third-party neutral involvement (26%)
High percentage of successful settlements at this step (23%)
Enhances working relationships (21%)
Institutional support (13%)
Cost-efficiency (3%)
Allocation of Mediation Costs
Of those surveyed 54% equally share mediation costs,
regardless of resolution
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Post-Dispute Mediation Agreement
 If parties do not include a mediation agreement in their ADR
clause but still want to use a mediation institution to resolve
an existing dispute, they can enter into the following
submission:
 Post-dispute agreements are
not the norm:
•If parties want to mediate,
they are advised to include
mandatory language in their
ADR clause
•Current perceptions
Post-Dispute Agreements to Mediate
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The Binding Processes
 Pre-adversarial processes may not result in a complete
and final resolution of the dispute:
• Because of that possibility, it is necessary to include a binding
process that will finally resolve any outstanding issues
• 60% of parties will use arbitration rather than litigation to finally
resolve any outstanding disputes
Finishing with Binding Processes
There are considerations to
be taken into account in
favor of both processes as
shown in the following slide
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Arbitration Preference
 Avoidance of courts (39%)
 Time-efficiency (35%)
 Cost-efficiency (34%)
 Flexibility and Adaptability (31%)
Litigation Preference
 Established precedent (20%)
 Procedural Familiarity (17%)
 Codified rules of evidence (15%)
 Substantive Appeals (15%)
Ad Hoc v. Institutional Arbitration
 One of the most basic decisions in an arbitration clause
• 84 % prefer Institutional arbitration over ad hoc
• Common institutions named in the survey  American Arbitration
Association, International Chamber of Commerce, London Court of
International Arbitration)
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Ad Hoc v. Institutional Arbitration
 Ad Hoc: The arbitration agreement might simply state that
"disputes between the parties will be arbitrated", and if the
place of arbitration is designated, that will suffice. This
approach would leave all unresolved problems (e.g.,
appointment of the tribunal and how the proceedings will be
conducted) to be determined by the law of the "seat" of the
arbitration.
This approach will work only if the arbitral seat has
an established arbitration law. However, if the parties, at any
time in the course of an ad hoc proceeding, decide to engage
an institutional provider to administer the arbitration, they
are able to do so by mutual agreement.
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Ad Hoc Arbitration
 Ad hoc arbitration is managed by the parties and by the arbitrators
(once appointed) without the assistance of an administering
institution
 It requires the parties to make their own arrangements for the
selection of arbitrators and the designation of rules, applicable law,
procedures and administrative support
 In some ad hoc arbitrations, an institutional presence may not be
entirely absent – since the parties may designate an established set
of rules even without an administering institution and may also
designate an institution to act as an appointing authority for the
arbitral tribunal in the event that the parties are unable to agree
upon tribunal by themselves
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Benefits of Ad Hoc Arbitration
 Ad hoc arbitration places more of a burden on the tribunal,
and to a lesser extent upon the parties, to organize and
administer the arbitration in an effective manner.
The primary advantage of ad hoc arbitration is
flexibility, which enables the parties to decide upon the
dispute resolution procedure
A distinct disadvantage of the ad hoc approach
is that its effectiveness may be dependent upon the
willingness of the parties to agree upon procedures at a time
when they are already in dispute
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Institutional Arbitration
 An institutional arbitration involves a specialized institution
that intervenes, not to arbitrate the dispute, but to assume
the functions of administering the arbitral process
 When naming an arbitral institution at the contract stage,
certain factors should be taken into account:
I.
Nature of the dispute (institutional expertise and connection to
various industries)
II. Value of the dispute
III. Institutional rules (whether they are in line with current practice)
IV. Reputation of the institution
V. Location
VI. Type of Arbitrators
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Advantages of Institutional Arbitration
 Some advantages of institutional arbitration and percent of
responses:
•
•
•
•
•
•
•
•
•
•
Established procedural rules (46%)
Expertise in arbitration (42%)
Assistance in the appointment of arbitrators (37%)
Institutional reputation (33%)
List of qualified arbitrators (27%)
Cost-efficiency (21%)
Time-efficiency (19%)
Case management services (18%)
Aid in the enforcement of the award (13%)
Other (e.g., physical facilities) (2%)
Cost Myth – Ad Hoc
arbitration is not always
cheaper because there are
no institutional fees
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Allocation of Arbitration Costs
Another consideration to be taken into account when using either
institutional or ad hoc arbitration is the allocation of arbitral costs
Allocation of Arbitration Costs (Institutional or Ad Hoc)
Note: Most institutional
rules have a default rule in
place giving the arbitrator
complete discretion to
allocate costs
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Designating Substantive Law
The substantive law is that which governs the substantive rights
and obligations of the parties, presenting a significant step in
the drafting of any dispute resolution clause.
 Parties should be aware that they are able to
designate different laws to apply to the:
• Governing the performance of the
contract
• Governing the dispute
• Governing the procedure of the
arbitration
Percentage of Parties Designating
Governing Law
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Additional Considerations in Drafting the Arbitration
Provision of an Step Clause
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COMPELLING COMPLIANCE
WITH STEP CLAUSES
 “[A] party cannot be required to submit to arbitration any
dispute which he has not agreed to submit”
AT&T Tech., Inc. v. Commc’n Workers of America
 While the ultimate goal of ADR clauses is to stay out of court,
improper drafting and straying from the process created will
result in delays, or worse – litigation
 Parties should focus on drafting clear and unambiguous terms
including the types of disputes covered, the timelines, and
any conditions to move forward with the next step
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JURISDICTIONAL OBJECTIONS
• Consent is absolutely necessary
• Preconditions must be met to show consent
• Jurisdiction of the arbitrators is connected to
that consent – parties can resolve it in court
41%
59%
Court
Arbitration
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EXAMPLE OF JURISDICTIONAL ISSUE
 Mediation between A (claimant) and B
(respondent). Their step clause calls for A’s Chief
Operating Officer to attend the mediation. On
the day of mediation, the COO cannot attend due
to an emergency Board of Directors’ meeting.
COO sends a replacement. The mediation takes
place and no resolution is arrived at, so A files a
claim at the AAA for arbitration.
• Does B have to go to arbitration?
• What can B do?
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COURT REQUIREMENTS FOR COMPULSION
 Nature of the Dispute
• Compulsion only for disputes expressly agreed to
 Binding Nature
• If there are any options or ambiguities in the clause, the
court will not find the clause binding
 Conditions Precedent
• Be careful about what preconditions you set, because if
they are not met, most courts will not compel the other
parties to continue to the next step
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WAIVER
Parties may agree to skip a particular step or
waive a condition precedent (e.g., a time limit)
jointly
• No unilateral waiver or else no jurisdiction
Unsettled law, so be careful not to bring the
courts in at all – Draft Strong Clauses!
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Model Clauses
• For a breakdown of the common institutional
model clauses, please refer to the IACCM
Manual distributed with these presentation
materials
QUESTIONS AND ANSWERS
• Thank you for your attention
• We will now open up the floor for questions
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