The interpretation of commercial contracts in arbitration
Many arbitration procedures involve the interpreting of the provisions of a contract. In such cases the arbitrator needs to determine the meaning of a certain phrase in a specific contract. One can however reach significantly different conclusions when faced with the same provision. Different countries also apply different rules to the interpretation of contracts; even within the European Union each member state has its own way of interpreting a contract.
The challenge that participants in arbitration face is predicting how the tribunal will approach the issue of interpretation within the legal framework chosen in the arbitration. It is thus important to ensure that the arbitrator is familiar with the right way of interpreting a contract under the applicable law.
Practical tips on how to ensure the right interpretation of a contract
Selecting the arbitrator
The parties generally choose the arbitrators themselves. The first practical tip is to make sure to select at least one arbitrator with extensive experience in the relevant contract law. An arbitrators can serve as sole arbitrator or as one of multiple arbitrators on a panel. Extensive experience in a comparable legal system of contract law could also be an advantage. When an arbitrator has a background in a legal system opposite to that of the applicable contract law, it can be challenging for the arbitrator to correctly understand and apply the relevant contract law. After all, the various approaches to contract interpretations can differ strongly.
The assistance of experts
An additional concern lies in the attitude of certain international arbitrators. According to research, there seems to be a widespread inclination amongst international arbitrators to interpret contracts according to their commercially reasonable meaning. In doing so the interpretative rules that are provided in the governing law are sometimes (unconsciously or consciously) ignored. To prevent this from happening, one should offer the arbitrator information regarding the correct interpretation according to the applicable contract law.
One of the opportunities arbitration provides is the possibility of submitting testimonies from experts. This means that a legal expert with an understanding of the relevant contract law and principles is allowed to offer assistance to the arbitral tribunal. Especially when the arbitrators are not familiar with the applicable law, an expert can explain and clarify the relevant foreign law principles to the arbitrators.
Questioning a legal expert can also aid an arbitrator in understanding the relevant contract law. The legal expert would preferably have specific contract law knowledge, strong communication skills, familiarity with the formal rules of the arbitration process as well as prior experience as an expert witness. Merely being an expert on the topic is not enough, given that the ability to communicate such expertise to the arbitrator(s) in a clear and concise manner is crucial.
bureau Brandeis’ arbitrage team has many specialists in (international) arbitration. For more information, please contact our specialists.