Arbitration clauses international contracts have become increasingly common. Many global companies include arbitration provisions in their standard, pre-printed documents, such as estimates, purchase orders, and invoices. Are these arbitration clauses effective international commerce? The answer, surprisingly, is “probably not.”
Most international arbitration agreements are governed by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the “New York Convention.” Over 140 countries adhere to the Convention, which governs international commercial arbitration agreements. The Convention requires a commercial arbitration agreement between international parties to be “an agreement in writing,” which is defined as, “an arbitral clause in a contract or arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.”
Courts interpreting that definition have come to different conclusions as to its meaning. The controversy centers around whether the “signed by the parties” requirement applies only to stand-alone “arbitration agreements,” or to both “arbitral clauses” contained in larger contracts as well as stand-alone “arbitration agreements.” The Fifth Circuit Court of Appeals, which covers Texas, Louisiana, and Missouri, has held that the “signed by the parties” requirement applies only to arbitration agreements, and not arbitral clauses, meaning that if the agreement to arbitrate is a clause in a larger contract rather than a stand-alone contract, then it does not need to be signed. Most courts, however, including the Second Circuit (covering New York, Connecticut and Vermont), the Third Circuit (covering Pennsylvania, New Jersey and Delaware), and lower courts in Massachusetts, Washington, D.C., and the Southern District of California, have gone the opposite way, applying the “signed by the parties” requirement to both arbitration clauses and arbitration agreements.
What does all this mean? An international arbitration clause contained as part of a larger contract may not be enforced by a U.S. court unless it is signed by both parties, or otherwise acknowledged in an exchange of written correspondence. The exchange of purchase orders and invoices, alone, may not suffice. Thus, companies who wish to include arbitration clauses in their standard international purchase orders, invoices, or other contracts, should insist that both parties either sign the document or otherwise acknowledge the agreement to arbitrate in writing. Further, because different courts have interpreted the New York Convention in different ways, foreign plaintiffs seeking to compel American companies to arbitrate must be very careful in selecting the forum in which they proceed. As always, the advice of competent legal counsel, familiar with the New York Convention and international arbitration, will significantly assist international corporations in evaluating such decisions.