Queen Mary, University of London

Centre for Commercial Law Course Essays

Student No: 231194518

Module Code: CCDD201: ICA: Theory and Context [A|23]
Word Count: 3000
Date Submitted: 16 December 2023

ASSESSMENT

First Marker’s Comments:

Mark:

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ALD Repip LLP
Disputes Department

16 December 2023

To: Sunny Slater

Surfr - In-house Counsel

From: [My name]

Associate, Disputes Department
ALD Repip LLP

Subject: Suitability of Dispute Resolution Mechanisms for the Licence Agreement

between Surfr and Magma

Introduction

The purpose of this memorandum is to provide an answer whether, considering the unique
circumstances of Surfr’s business and the License Agreement with Magma, Surfr should strive
for the inclusion of arbitration as a dispute resolution mechanism in the Licence Agreement.

We understand that the License Agreement establishes a substantial framework wherein Surfr
grants Magma the right to use its software for a fixed one-year term, automatically renewable
each year unless terminated by either party. Furthermore, in exchange for this licensing
arrangement, Magma is obligated to remit royalties to Surfr on all laptops it sells worldwide.
Given the scope of this licensing relationship, it is essential that the arbitration clause’s breadth
mirrors the complex nature of the contractual obligations and any claims potentially arising in
relation to these obligations.

We have thoroughly examined all aspects that seem to be of concern to Surfr, leading us to
the firm conclusion that arbitration is the most fitting avenue for resolving the issues at hand,
in contrast to pursuing litigation in Indian courts or any alternative jurisdiction. Our
determination favouring arbitration over litigation is based on an analysis of the unique
circumstances surrounding the case.

The following sections address (1) the question why Surfr and Magma should agree on
arbitration at all, (2) the rationale behind the details of the arbitration, (3) the arbitration clause.

1. Arbitration as a method of dispute resolution for Surfr and Magma

Our evaluation of the suitability of arbitration as a dispute resolution method for the parties
relies on an examination of five criteria:

- expert decision-making;
- confidentiality;
- speed and efficiency;
- enforcement;
- costs.

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1.1 Expert decision-making outside traditional courts

The software and hardware industry is dynamic and highly specialised, often dealing with
intricate technical details and considerations related to intellectual property.

Judges in litigation may lack the depth of expertise required, potentially resulting in less precise
outcomes in technical disputes. Conversely, arbitration panels have the flexibility to consist of
experts in the pertinent field, guaranteeing a nuanced comprehension of the technical facets
of the dispute. This expertise plays a crucial role in making well-informed decisions, particularly
in intricate matters that demand industry-specific knowledge. Furthermore, the possibility to
select arbitrators fosters a perception of fairness and equity within the dispute resolution
process.

Clearly, litigation judges have the option to consult experts. However, that differs significantly
from the opportunity presented in arbitration. The distinction lies in the fact that in arbitration,
arbitrators not only bring their expertise as advisors but also assume the role of decision-
makers. This dual capacity sets arbitration apart, as it combines specialised knowledge with
the authority to render decisions, offering a unique and comprehensive approach to dispute
resolution.

This is one reason why in identifying a dispute resolution method that recognises the intricacies
inherent in the upcoming Licence Agreement, precedence should be granted to arbitration.

1.2 Confidentiality

Unlike litigation, which is generally conducted in open courtrooms, arbitration proceedings are
private.1 Confidentiality is a cornerstone of arbitration, making it an attractive option for
companies engaged in sensitive transactions. This confidentiality protects the parties from
unwanted public scrutiny, allowing them to maintain the secrecy of proprietary information,
trade secrets, and other critical business details.

The protection of intellectual property and business strategies of Surfr’s is paramount. Surfr’s
involvement in the sensitive field of development of software and the necessity for the
protection of Surfr’s intellectual property underscores a strategic consideration in favour of
arbitration proceedings. An inclination towards arbitration proceedings would demonstrate a
strategic and prudent choice.

1.3 Speed and Efficiency

As a business operating in dynamic markets Surfr will clearly appreciate swiftness in resolving
any potential dispute with its business partners.

In general, arbitration is frequently favoured due to its efficiency in contrast to the typically
prolonged timelines linked with litigation. Occasionally expressed concerns about delays in
arbitration proceedings are valid. In specific situations, arbitration may indeed encounter
delays.

Nevertheless, such delays can be mitigated by a good procedure of selecting arbitrators.

Arbitrators with specialised knowledge in the software and hardware industry bring a unique
advantage to the table. Unlike traditional litigation, where the involvement of expert witnesses
may lead to delays, arbitrators well-versed in software and hardware matters may not require
additional expert testimony. Their inherent understanding of the industry allows for a more

1
Redfern and Hunter (2023), Chapter 1, para 1.125.

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streamlined and efficient evaluation of the dispute, potentially reducing the need for extensive
fact-finding processes.

Additionally, in cases where there is a specific requirement for a prompt resolution, opting for
arbitration rules that permit parties to request urgent measures can partially fulfil that need and
expedite the proceedings. This characteristic is frequently offered by reputable arbitration
institutions. The selection of a suitable institution will be discussed later.

1.4 Enforcement

The geographical distance between Surfr and Magma, specifically Surfr’s location in California
and Magma’s base in India, poses a potential challenge for enforcing claims. That is especially
true for court judgements. Cross-border disputes loike the one at hand require a mechanism
that guarantees the enforceability of the ultimate decision across multiple jurisdictions.

We believe that arbitration, with its international enforceability through conventions like the
New York Convention (1958),2 is well-suited for addressing the challenge Surfr and Magma
are facing. This convention facilitates the recognition and enforcement of arbitral awards in
over 160 countries, providing a streamlined and standardised process for enforcing awards all
over the world.

Setting aside an arbitral award and judicial review of such awards under the New York
Convention is exceedingly difficult. In total, there are seven grounds exclusively outlined in
Articles V(1) and V(2) of this Convention, which might lead to refusal of recognition or
enforcement. While we cannot delve further into this matter in this memorandum, we can affirm
that these grounds can be categorized into three overarching groups: procedural irregularity
or breaches of due process; lack of jurisdiction; and violation of the public policy of the
enforcement court’s jurisdiction.

When the arbitration institution, the procedural rules, the seat of arbitration and the arbitrators
are well selected, it is highly likely that resistance to the recognition and enforcement of an
arbitral award under that Convention in courts remains ineffective. This provides both parties
of the Licence Agreement with a level of assurance that the resolution reached through
arbitration will carry weight.

1.5 Costs

Arbitration may incur higher costs due to arbitrator fees and administrative expenses. In
contrast, litigation may be perceived as more cost-effective.

We believe that the potential challenge stemming from the higher cost in arbitration is mitigated
by the predictability of these costs. An upfront agreement on arbitration-related expenses could
contribute to a clearer financial picture. Also, the immediate costs for arbitration should be
balanced against the potential long-term financial implications and benefits of each dispute
resolution method. While arbitration may involve higher upfront expenses, its efficiency,
confidentiality, and potential for quicker resolution contributes to overall cost-effectiveness,
especially when dealing with complex or time-sensitive matters. The perceived cost advantage
of litigation in certain jurisdictions should be weighed against the potential drawbacks of a
lengthier and more public process.

2
h#ps://www.newyorkconven2on.org.

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2. The details of an effective arbitration clause

An arbitration clause should be therefore suggested to all the parties. Clearly, there is a need
for a workable arbitration agreement. We have assessed the workability of such an agreement
against the following criteria:

- submission to arbitration;
- scope of arbitration;
- choice of institution and procedural rules;
- choice of the arbitration’s seat;
- selection of arbitrators;
- language;
- governing law for arbitration agreement.

In the following considerations, constant consideration is given to the acknowledgment and

execution of the arbitral award. The arbitration clause also offers a resolution for the costs
associated with arbitration.

2.1 Submission to Arbitration

A well-drafted arbitration clause serves as more than just a procedural formality; it stands as a
crucial element in mitigating the risk of challenging the arbitration award due to the absence of
an arbitration agreement. A reference to Article 2 of the New York Convention is insightful in
this context. An arbitration clause should comprehensively cover all aspects outlined in this
provision.

Therefore, it should unequivocally express the shared intention of both Surfr and Magma to
opt for arbitration as their preferred method of dispute resolution, thereby affirming a mutual
commitment to resolving potential conflicts outside the conventional (Indian) court system. It is
imperative to avoid ambiguous terms such as “may submit to arbitration” or “may agree to
submit to arbitration” as they introduce uncertainty and can lead to misinterpretations. The use
of definitive and assertive language, such as “shall submit to arbitration” or “hereby agree to
arbitration,” enhances the clarity of intent and reinforces the parties’ commitment to the chosen
dispute resolution mechanism.

Also, the clause should be in writing, and the agreement should be drafted in a way that a court
does not find it “null and void” or “inoperative” or “incapable of being performed”.

2.2. Scope of Arbitration

Considering the intricate details of the contractual arrangement between Surfr and its
counterpart, Magma, it becomes imperative to create a comprehensive arbitration clause.

To ensure a thorough and effective resolution mechanism, the arbitration clause should
explicitly articulate its applicability to all conceivable claims and disputes emanating in relation
to the License Agreement. The arbitration clause should be defined to encompass not only the
core components of the licensing arrangement as such but also any ancillary matters that may
arise throughout the term of the agreement.

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2.3. Institution and Procedural Rules

It is advisable for Surfr and Magma to agree on a reputable institution with established rules to
ensure a structured and recognised framework for the arbitration process. The choice of an
arbitral institution and procedural rules is critical. Among other things, it has an indirect impact
on recognition and enforcement of the award, since national courts are generally prone to give
effect to arbitral awards issued in accordance with institutional arbitration rules. This is,
however, not the only issue to bear in mind, as will be shown below.

While the American Arbitration Association (AAA) may initially appear as a viable option for
Surfr, given its familiarity with American institutions, we firmly advocate for the International
Chamber of Commerce (ICC) as the more suitable arbitral body to be contemplated in the
future arbitration clause. This recommendation is grounded in two compelling reasons.

Firstly, the ICC enjoys a globally acknowledged and esteemed reputation, enhancing the
perceived equity and impartiality of the arbitration process. Also, choosing the ICC increases
the probability of Magma embracing arbitration as such.

Secondly, the ICC Rules, renowned for their comprehensiveness, align with the notion of
safeguarding Surfr’s business secrets. The ICC Rules do not incorporate any discovery
procedures, alleviating concerns about unauthorised access to sensitive business information.
This feature offers Surfr a level of assurance that its proprietary details and trade secrets will
be safeguarded throughout the arbitration proceedings.

The scenario would differ if Surfr were to consider the AAA as the designated arbitration
institution. While an arbitral tribunal operating under the AAA Rules would not initiate pre-
hearing discovery without specific provisions outlined in the arbitration agreement, it is
important to note that, per section 7 of the FAA, an arbitral tribunal possesses the authority to
compel witnesses to testify or mandate the production of “any book, record, document, or
paper deemed material as evidence in the case” during the arbitration hearing. This provision
could be interpreted as a legal foundation for pre-hearing discovery in arbitrations governed
by the US Federal Arbitration Act.3 Under the ICC Rules, this situation will not occur.

While it is accurate that an arbitral tribunal operating under the ICC Rules has the authority to
seek additional evidence as per ICC Rules Article 25(4), it's important to note that this request
is made to the parties and not directly to a witness. In such a scenario, Surfr retains the
discretion to decide whether it wishes to provide a document. This mechanism ensures that
Surfr has the ability to safeguard its interests by independently assessing the necessity of
submitting specific documents.

Last but not least, the ICC Arbitration Rules provide a streamlined process for parties to
request urgent measures.4 This process serves as a swift remedy for parties who cannot afford
to wait for the formation of an arbitral tribunal.

2.4. Arbitration’s Seat

The selection of the arbitration seat is significant. It determines the legal framework governing
the arbitration proceedings. The selection of the place of arbitration equates to choosing the
courts that will assist the arbitral tribunal.5 Given the cross-border nature of the dispute, careful
consideration should be given to selecting a neutral and arbitration-friendly jurisdiction.

3
Casey, How arbitration works (2002), page 9.
4
ICC Rules Article 29(1).
5
Cf. Redfern and Hunter (2023), Chapter 7, para 7.09.

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We suggest Paris as a place of arbitration for Surfr’s and Magma’s arbitration agreement.

Here are key reasons why we think Paris is an optimal choice. French courts are renowned for
fostering a supportive legal environment favouring arbitration. They possess extensive
expertise in assisting arbitral tribunals and have consistently demonstrated a pro-arbitration
stance. Thus, when tasked with handling challenges or enforcement of arbitral awards, French
courts consistently exhibit a favourable disposition toward preserving the effectiveness of such
awards. They adhere to what is termed a “delocalised” approach, signifying that French courts
treat an arbitration agreement as detached from the rules of any specific national jurisdiction,
whether procedural or substantive.6 This characteristic, in conjunction with the ICC's robust
framework, amplifies the enforceability and stability of the arbitral process.

2.5. Appointment of arbitrators

The process for appointing arbitrators should be clearly defined in the arbitration clause. Surfr
and Magma may agree on a specific number of arbitrators and set forth a method for their
appointment, ensuring a fair and impartial tribunal.

We recommend incorporating a provision in the arbitration clause specifying the appointment

of three arbitrators, aligning with the guidance outlined in Article 12(4) of the ICC Rules.

The proposed arrangement involves the appointment of an individual with expertise in the
software business by Surfr and an individual with expertise in the hardware business
suggested by Magma. Furthermore, to ensure a balanced and legally informed tribunal, in
adherence to Article 12(5) of the ICC Rules, the parties should stipulate that the ICC appoints
a third arbitrator possessing legal expertise in software and hardware law disputes. This
approach aims to construct a diverse and knowledgeable panel that can comprehensively
address the intricacies of the software licensing agreement between Surfr and Magma.

2.6. Language

The language of arbitration is crucial for effective communication between the parties and the
tribunal. Given the international nature of the parties involved, it’s essential to select a language
that all parties can comfortably engage in. That should be English. This is also the language
often encountered in the software and hardware industry.

2.7. Governing law for the arbitration agreement

It is imperative to explicitly designate the governing law for the arbitration clause, even though
challenging the validity of the arbitration clause before French courts will not entail application
of any national law as to the validity of that clause. Selecting a proper governing law holds
significant importance, if the arbitral award is to be challenged before other national courts.

Ideally the governing law should be one that remains impartial and detached from the interests
of either party holds significant importance. Opting for a governing law from a jurisdiction well-
versed in international arbitration principles, practices, and a signatory to the New York
Convention is essential, since this convention facilitates the global recognition and
enforcement of arbitral awards. Also, the chosen governing law should stem from a jurisdiction
with accessible legal resources and expertise, promoting a clear and effective arbitration

6
Cf. Redfern and Hunter (2023), Chapter 3, para 3.37.

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process. Additionally, it should feature arbitration-friendly legislation that upholds party
autonomy while minimising undue judicial interference.

The governing law should not be one associated with a country susceptible to sudden and
disruptive political transformations. Such a negative scenario would necessitate the inclusion
of a stabilisation clause, i.e. a provision designed to safeguard and maintain the agreed-upon
terms in the face of potential alterations in the governing law.7 We should keep the arbitration
agreement simple, so that Magma can adhere to it easily.

A widely favoured option for the governing law in international arbitration is English law as the
law of a jurisdiction renowned for its arbitration-friendly environment.

We assert that English law aligns seamlessly with all the aforementioned criteria and should
be the designated governing law for the forthcoming arbitration clause. American and Indian
parties should find this choice of law unsurprising, as it closely aligns with the legal frameworks
of their respective nations.

3. Draft arbitration clause

In line with this recommendation, we propose the following draft arbitration clause for inclusion
in the Licence Agreement:

“Arbitration Clause

1. Any dispute, controversy, or claim arising out of or relating to this Licence Agreement,
or the breach, termination, or invalidity thereof, shall be settled by arbitration
administered by the International Chamber of Commerce (ICC) in accordance with its
rules.

2. The place of arbitration shall be Paris (France), and the language of the arbitration
proceedings shall be English.

3. Surfr appoints a person with expertise in software business as its arbitrator, and Magma
appoints a person with expertise in hardware business as its arbitrator.

4. The third arbitrator, who will be appointed by the ICC, shall be a lawyer with expertise
in litigation and/or arbitration related to licence agreements.

5. The language of the proceedings for the third arbitrator shall be English.

6. This arbitration agreement is governed by English law.

7. Each party shall bear its own costs in connection with the arbitration, and the parties
shall share equally the arbitrator's fees and administrative expenses of arbitration”.

7
Cf. Redfern and Hunter (2023), Chapter 3, para 3.134.

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Bibliography

Blackaby, N., Partasides, C., Redfern, A: Redfern and Hunter on International Arbitration
Seventh Ed., Oxford University Press 2023

Casey, K.R.: How arbitration works: Discovery, Motions, Hearings (2002); at

https://www.stradley.com/-/media/files/resourceslanding/publications/2002/05/how-
arbitration-works-discovery-motions-hearings/files/krc-howarbitration/fileattachment/krc-
howarbitration.pdf?rev=2c1abe78c3bb4d179dcdd8b0674e1a01