Especially here in South Florida, businesses frequently find themselves doing business with entities based outside the United States. Whether your contractual partners are based in the USA or elsewhere, it is extremely important to make certain that the arbitration clause in your agreement is drafted with the utmost care. That’s because, whether you’re using Florida rules, federal rules or United Nations rules, if you’ve included provisions about how arbitration will occur (or if it is to occur at all,) the courts will generally follow what’s in that contract. This is another reminder of the profound importance of having a skilled and knowledgeable South Florida commercial contract attorney on your side as you negotiate and draft your commercial agreement, because even one seemingly small provision can have major consequences.
A recent CBD oil contract dispute from South Florida is a good example. The plaintiff was an El Salvador-based supplier of hemp-based biotechnology. The defendant was a Doral-based distributor of CBD oil products. The two entities had a distribution agreement whose arbitration clause indicated that “exclusive International Arbitration through JAMS International using UNCITRAL rules in New York.” The contract also specifically declared that a United Nations convention on International Sales of Goods did not apply.
Just four months after the two entities inked their distribution agreement, the supplier served a demand for arbitration on the distributor. Three years later, the dispute (which encompassed a mixture of contract and tort law claims) went before an arbitration panel, which found for the supplier, awarding $3.9 million in damages.
The case made its way to the 11th Circuit Court of Appeals, which also ruled in favor of the supplier. One thing you can customize in your commercial agreement obviously is a clause about arbitration and the terms under which any arbitration would take place. Beyond that, you can also include provisions in your contract that will impact what issues will, or will not, go before that arbitration panel.
The importance of the exact language of your arbitration clause
Your agreement can, for example, state that the issue of arbitrability is itself something that should be decided by the arbitration panel. (Courts, not arbitration panels, typically determine whether an issue is arbitrable, so if your agreement is silent on this issue, it’ll likely be decided by a court. However, the issue of arbitrability can be by the arbitration panel if there is clear and unmistakable evidence that the parties agreed to have the issue of arbitrability decided in the arbitration procedure.)
The agreement in this dispute had language that stated that dispute resolution would proceed under the rules of the United Nations Commission on International Trade Law (UNCITRAL.) UNCITRAL rules clearly says that an “arbitral tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.” So, when the distributor agreed to UNCITRAL rules, it agreed to arbitrate the issue of arbitrability.
Recently, the U.S. Supreme Court looked at a similar case where the two sides disputed whether the arbitrators or the judge should decide the issue of arbitrability. The high court made it clear that, if the parties’ agreement gave arbitrators the authority to decide issues of arbitrability, then that contract provision should be enforced, and the arbitrators should decide that question.
Whether you are entering into a contract with an entity in the same county or based in a different country, it is vital to recognize that every provision in that commercial agreement can be extremely important, so you need to be certain that each paragraph and every clause is negotiated and drafted with utmost care. To be sure you have the powerful resource and determined advocate you need for the negotiation and drafting of your commercial contract, rely on the skilled South Florida commercial contract attorneys at Stok Kon + Braverman, where we have decades of experienced providing the sort of effective legal representation your business needs.
Contact us online or by calling (954) 237-1777 to schedule your consultation.