NOVEMBER 1996 REPORT OF
THE NAFTA ADVISORY COMMITTEE
ON PRIVATE COMMERCIAL DISPUTES TO
THE NAFTA FREE TRADE COMMISSION
I. ESTABLISHMENT OF COMMITTEE
In October 1994, the NAFTA Commission established the Advisory Committee on Private Commercial Disputes (Committee), as required by NAFTA Article 2022. The Committee is required to report and make recommendations to the Commission on general issues referred to it by the Commission on the availability, use and effectiveness of arbitration and other procedures for the resolution of private international commercial disputes in the free trade area. See Terms of Reference.
The Committee is composed of private sector members from each Party, and two representatives of each Party who jointly chair the Committee. See Current and Past Committee Members. Since its establishment, the Committee has held four meetings: November 14, 1994 in Mexico City; June 19-20, 1995 in Vancouver, British Columbia; February 12-13, 1996 in Phoenix, Arizona; and November 14-15, 1996 in Guadalajara, Jalisco.
At its first meeting, the Committee established four subcommittees, which are composed of private sector members from each NAFTA country, to examine the following priority issues:
||Subcommittee I: the compilation and development of criteria for the examination and assessment of existing laws, regulations, practices and institutions available in each NAFTA country for the non- judicial settlement of disputes;
||Subcommittee II: the compilation and assessment of specialized regimes available in the NAFTA region for the settlement of disputes;
||Subcommittee III: the means for promoting the use of arbitration and other procedures for resolving private international commercial disputes in the NAFTA area; and
||Subcommittee IV: issues relating to the enforcement of arbitration agreements and arbitral awards.
At its third meeting, the Committee established Subcommittee V to examine mediation as a means for the resolution of private commercial disputes in the NAFTA region.
At its fourth meeting, the Committee developed a new action plan for Subcommittee III for targeted outreach, in particular with regard to small and medium-sized businesses and in-house counsel. The Committee also developed an expanded action plan for Subcommittee IV, and established Subcommittee VI for liaison with the judiciary of the three countries.
II. SUBCOMMITTEE ACTIVITIES
The subcommittee members have worked together in a coordinated, trilateral manner, which has significantly enhanced the value of their work to the Committee. To date, the subcommittees have submitted a number of reports to the Committee.
The Subcommittee compiled the relevant commercial arbitration statutes for each NAFTA country, at both the federal and state/provincial levels, and information on the principal institutions available for international commercial arbitration in the NAFTA area. It developed guidelines for private parties to use in selecting an arbitration institution; however, the Committee determined that it would not be appropriate for the Subcommittee to undertake an assessment of the institutions. In addition, the Subcommittee compiled model arbitration and mediation clauses used by the principal institutions in the three countries; and it developed two new model clauses, based on the clauses used by the principal arbitration institutions: an arbitration clause and a mediation clause.
Subcommittee I also prepared a brochure that is aimed at potential first-time users of arbitration and mediation, especially small and medium-sized businesses, in the NAFTA region. The brochure includes a description of arbitration and mediation mechanisms, suggested language for mediation and arbitration clauses in international contracts, factors to be considered in drafting such clauses, a listing of the principal not-for-profit arbitration institutions in the NAFTA region, and guidelines for considering which institution to use (if any). Subcommittee I has completed its work, and Subcommittee III will assess the means for disseminating the work of this Subcommittee.
The Subcommittee developed an interim list of specialized alternative dispute resolution (ADR) providers which serve particular industry sectors in the NAFTA area. The Subcommittee also considered ways in which to supplement and update the list. It has completed its work and an assessment of ways to disseminate its compilation will be undertaken by Subcommittee III.
The Subcommittee examined the means for promoting the use of arbitration and other forms of ADR for resolving private international commercial disputes in the NAFTA area. It found that, even though the amount and type of promotional activities related to arbitration in the three countries are very different, the three countries use essentially the same means to promote arbitration. It also found that currently the target audiences in the NAFTA countries are largely lawyers, providers, prospective arbitrators and others active in the field, and that relatively little promotion is targeted at the end-user (business executives or in-house or corporate legal counsel) or the small business community, a segment of the business community in particular need of economical and effective means of resolving disputes. Overall, it concluded that current promotion efforts aimed at end-user audiences are not adequate.
The Subcommittee also conducted a limited survey of ADR practices and issues among companies involved in international business in an attempt to ascertain the perceptions and needs of firms doing business in the NAFTA countries. The survey suggests the existence of several perceptions that may inhibit the increased use of private international arbitration. The main concerns cited were difficulty in enforcing arbitral awards and the lack of pre-award remedies. It was the perception of a number of the respondents that arbitral awards are not easier to enforce than foreign judgments, although it is not clear, due to the limited nature of the survey, whether the perception arises from experience within the NAFTA region or experience in other countries.
According to the survey, business managers are not generally knowledgeable about arbitration and the initial decision to incorporate an arbitration clause in a contract is typically made by in-house counsel. The survey also revealed strong perceptions that mediation is an effective method of resolving disputes because it helps to preserve the business relationship between the disputants. The Subcommittee recommended that the survey results be verified by further research.
The Subcommittee also reviewed the level of judicial education regarding arbitration and other means of ADR. As a result of the increased levels of trade and investment caused by NAFTA, an increased number of cases involving international disputes are likely to come before judges without experience in such cases. The Subcommittee found that the level of training of judges on such subjects varies significantly among the three countries and even within the countries. Institutions involved in judicial training have expressed an interest in working with the Committee in developing programs specifically focused on arbitration and other ADR. The Subcommittee is exploring such collaborative efforts.
The Subcommittee surveyed conventions, laws, court decisions and related literature and practice in each NAFTA country concerning the enforcement of agreements to arbitrate and final foreign arbitral awards and related legal issues. Each country is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention), and Mexico and the United States are also parties to the Inter-American Convention on International Commercial Arbitration of 1975 (the Panama Convention). The Subcommittee sought to identify other legal issues that might be impediments to the enforcement of arbitration agreements and arbitral awards. The Subcommittee noted that intra-NAFTA enforcement of arbitral awards appears to be somewhat easier than enforcement of foreign judicial judgments, which do not share the benefits of treaty obligations and a common legal framework such as provided by the New York and Panama Conventions.
The Sucommittee examined mediation/conciliation as an alternative means for dispute resolution in the NAFTA region, focussing on five core topics: definitions and terms; a survey of laws and regulations dealing with mediation/conciliation; procedures and processes in use; description, analysis and enforceability of mediation/conciliation settlement agreements; and conclusions regarding the use of mediation/conciliation.
The Sucommittee concluded that "mediation" and "conciliation" are essentially equivalent procedures, and are recognized and used in all three NAFTA countries. The use of mediation/conciliation will increase in cross-border disputes as a result of the establishment of ADR centres that explicitly include procedures for mediation/conciliation. Mediation/conciliation affords disputing parties certain advantages, such as convenience and cost-effectiveness, that make it desirable to promote its use as a means of ADR for private commercial disputes.
The Subcommittee will continue its work by comparing and contrasting mediation/conciliation in the three NAFTA countries, exploring related legal issues such as the enforcement of mediation/conciliation agreeements, collecting and analysing empirical information on the practice and use of mediation/conciliation by the business community, preparing a summary of the advantages and disadvantages of mediation/conciliation, and considering educational and promotional efforts regarding mediation/conciliation.
III. COMMITTEE CONCLUSIONS
The Committee has reached several conclusions based on its work to date. Each NAFTA country has laws and procedures in place to support the use of arbitration, including the recognition and enforcement of arbitral awards, at both the federal and state/provincial levels. No new legislation is recommended at the present time. Although the three countries have supported the enforcement of arbitration agreements and arbitral awards, the Committee has identified some difficulties related to the recognition and enforcement of arbitral agreements and arbitral awards.
There is a wide range of arbitral institutions available in the three countries, including the American Arbitration Association, the British Columbia International Commercial Arbitration Center, The Quebec National and International Commercial Arbitration Center, the Mexico City National Chamber of Commerce and the International Chamber of Commerce. Moreover, a new trans-national organization, the Commercial Arbitration and Mediation Center for the Americas (CAMCA), was launched in December 1995 by the first four institutions listed above. Users of arbitration services have a similarly wide selection of procedural rules available for arbitration, including the 1976 UNCITRAL Rules. Given the number and high caliber of available arbitral organizations, the Committee sees no need for the NAFTA Parties to promote or fund the creation of any additional organizations at this time.
The business and legal communities in the NAFTA countries regard arbitration as an acceptable method of dispute resolution. According to the Committee's survey, a number of current or potential users of ADR expressed some reservations with international arbitration (although not necessarily limited to the NAFTA countries), stemming from perceived problems such as the difficulty in enforcing awards and the lack of pre-award remedies. There is a need for greater promotion of the use of ADR, in particular arbitration, targeted at end-users (business executives and in-house/corporate legal counsel) and the small business community. Such promotion should address the perceptions in the business community regarding arbitration. The distribution of a brochure and the presentation of seminars targeted at the end-users would represent a significant step forward in promoting the use of arbitration in the NAFTA region.
The Committee considered whether there are industries or sectors for which the increased use of arbitration and other forms of ADR would be particularly appropriate. It identified a diverse number of ADR mechanisms tailored to specific sectors. Because the specialized mechanisms and providers have developed as a result of factors specific to the particular sectors involved, the Committee has not been able to extract more than a few common characteristics that could be applied on a broader, cross-sectoral basis.
Based on its survey, the Committee also found a growing interest in mediation/conciliation and other forms of ADR. Members of the business and legal communities who have used mediation/conciliation have been very positive about the benefits of this form of ADR. They regarded mediation as an effective way to resolve disputes while preserving the commercial relationship. The availability, uses and effectiveness of mediation, conciliation and other forms of ADR are being explored further by the Committee.
The Committee expressed its support for the mandate and objectives of the NAFTA Advisory Committee on Private Commercial Disputes Regarding Agriculture (Article 707 Committee), which was established by NAFTA Article 707. The Committee noted the parallels between its mandate and that of the Article 707 Committee, and expressed its desire for the two groups, where appropriate, to cooperate closely and to explore ways of working jointly toward the shared goals of promoting the prompt and effective resolution of private international commercial disputes.
IV. FUTURE WORK OF THE COMMITTEE
Subcommittee III (Targeted Outreach)
Subcommittee III will be restructured to focus on targeted outreach. In consultation with the Subcommittee, the co-chairs of each Party will appoint up to 5 special advisors to assist the Subcommittee. The Subcommittee will focus, in particular, on:
a) small and medium-sized businesses engaged in, or considering engaging in, trade or investment in the NAFTA region; and
b) in-house counsel.
The Subcommittee should undertake the following, as appropriate:
a) identify individuals and entities who comprise targeted audiences, and the means of contacting them, including through trade associations;
b) disseminate, to the targeted audiences, in coordination with Subcommittees IV and V, by electronic and other means, the brochure prepared by Subcommittee I and other relevant information, which includes the importance of planning for dispute settlement in negotiating contracts, the advantages and disadvantages of arbitration and mediation and other ADR mechanisms, the role and choice of institutions and choice of rules;
c) provide educational opportunities for the targeted audiences, including seminars and interactive on-line discussions;
d) explore with bar associations and other groups the formation of voluntary organizations to provide arbitration and mediation services for small international commercial claims;
e) explore the possibility of enhancing ADR education in universities and other educational institutions; and
f) develop recommendations for consideration by the Committee.
Subcommittee IV (Enforcement Issues)
Subcommittee IV will undertake the following, as appropriate, in consultation with such outside experts as it deems necessary:
a) prepare a comparative monograph on enforcement issues in the three countries, for possible publication in the Committee's name;
b) evaluate (and revise, as necessary) materials compiled by the Subcommittee for possible public dissemination, including by electronic means; and
c)develop recommendations for consideration by the Committee.
Subcommittee V (Mediation/Conciliation)
To further its work on mediation/conciliation, Subcommittee V will undertake the following, as appropriate, in consultation with such outside experts as it deems necessary:
a)prepare documents that:
i) compare and contrast mediation/conciliation, in the three countries, and
ii) explore legal issues related to mediation/conciliation, such as enforcement of mediation/conciliation agreements, effects of combined mediation/conciliation processes and model clauses;
b) collect and analyze empirical information regarding the practice and use of mediation/conciliation by the business community;
c) prepare a summary of advantages and disadvantages of mediation/conciliation, especially in relation to arbitration, for public dissemination;
d)consider educational and promotional efforts regarding mediation/conciliation in coordination with Subcommittee III (Targeted Outreach), in particular electronic means, such as list servers and web pages, and examine the Committee's brochure to determine whether its treatment of mediation/conciliation is adequate, or whether a separate brochure should be prepared; and
e)develop recommendations for consideration by the Committee.
Subcommittee VI (Liaison with the Judiciary)
In consultation with the Subcommittee, the co-chairs of each Party will appoint up to 5 special advisors, endeavoring to include at least one judge, to assist the Subcommittee. The Subcommittee will undertake the following, as appropriate:
a) consult with the relevant federal and state/provincial judicial authorities with regard to training;
b) develop, as necessary, and contribute information about ADR of international commercial disputes –laws, methods and opportunities for application—to judicial training programs at the federal and state/provincial levels;
c) prepare a reference book for judges –federal and state/provincial—that addresses issues involved in ADR of international commercial disputes;
d) assess the availability of court-related programs to aid in the resolution of small international commercial disputes, and analyze whether changes in laws are required;
e) enhance the opportunities for judges from the three countries to share and understand the commonality of their experiences, which could include fostering visits, seminars and dissemination of court decisions on ADR, including exploration of holding the first inter-judicial meeting at the next meeting of the Committee;
f) explore sources of funding for all of the above activities; and
g) develop recommendations for consideration by the Committee.
The Committee recommends that the Commission:
Adopt a statement substantively in the following form: "The Free Trade Commission - confirming the commitment of the NAFTA Parties to encourage and facilitate, to the maximum extent possible, the use of arbitration and other means of alternative dispute resolution for the settlement of international commercial disputes between private parties in the free trade area; and acknowledging the obligation of the Parties to recognize and enforce arbitral awards under applicable international conventions and national laws -- states its support for the use of arbitration and other forms of alternative dispute resolution in the NAFTA area, and wishes to draw to the attention of the Judiciary the significant benefits inherent in the use of arbitration and other forms of alternative dispute resolution. In this connection, the Commission calls for the assistance of each Party to: (1) take appropriate steps to ensure that domestic laws do not provide for the judicial review of arbitral awards in a manner inconsistent with their international obligations, including the NAFTA and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention); (2) take appropriate steps to include issues related to arbitration and other forms of alternative dispute resolution in judicial training programs; (3) encourage courts to direct matters to arbitration or other forms of alternative dispute resolution, and enforce arbitral awards and arbitration agreements, where appropriate; and (4) promote dispute prevention."
The Committee further recommends that this report be appended to Minutes of the Commission meeting and be available on request and disseminated by Committee members through whatever means are appropriate.