International Arbitration: A Practical Guide

by Stuart Dutson, Andy Moody, Neil Newing

Overview

Written by leading experts Stuart Dutson from Simmons & Simmons, Andy Moody from Baker McKenzie and Neil Newing from Signature Litigation, this title explains the stages of the arbitration process in a straightforward manner and from a practitioner's perspective.

Product Details

ISBN-13:	9781787421608
Publisher:	Globe Law And Business
Publication date:	03/31/2019
Edition description:	Second Edition
Pages:	298
Product dimensions:	6.38(w) x 9.63(h) x 0.87(d)

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CHAPTER 1

What is international arbitration?

International arbitration is a method of dispute resolution that parties may select as an alternative to the courts. They may choose this option once the dispute has arisen, but more commonly, they will have made that choice in an agreement or arrangement prior to the dispute arising, often in the form of a dispute resolution clause in a contract.

Arbitration is therefore the product of an agreement between the parties. In accordance with their agreement, the parties appoint an arbitrator or set of arbitrators (an arbitral tribunal) to decide the dispute. The final decision of an arbitrator or arbitral tribunal is known as an award. This is final and binding on the parties.

International arbitration is increasingly the preferred method for resolving international disputes. As international trade and commerce increase, so too does the need to resort to international arbitration to enforce agreements and uphold rights internationally. Disputes related to international trade, finance, infrastructure and projects, and oil and gas are all increasingly resolved in this way. This positive correlation between increasing international business and international arbitration is no coincidence. It comes as a result primarily of the combination of one major multilateral international development with one very human concern: the creation of, and the worldwide subscription to, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the 'New York Convention'), and a reluctance on the part of many parties to litigate their disputes in the courts of less developed countries.

The international enforceability of arbitral awards is a key factor in the increasing popularity of arbitration as a method of commercial dispute resolution, at least at the international level. The New York Convention, which commits party states to recognising and enforcing arbitral awards made in other party states throughout the world, has been signed by over 140 countries. The New York Convention effectively provides for the worldwide enforcement of arbitral awards. It thereby builds the foundation for international arbitration as a universally recognised method for dispute resolution, particularly given the limited grounds under the Convention that can be invoked to resist recognition and enforcement. Arbitration would not enjoy the increased use that it does today without it.

In contrast, the lack in most of the world's jurisdictions of an equivalent multilateral international regime for enforcing a foreign court judgment means that this is still problematic. Although foreign court judgments may be recognised and enforced under regional regimes and between states that have entered into reciprocal enforcement treaties, the coverage of regional or mutual regimes is very small in comparison to that of the New York Convention.

At the national level, arbitrations and awards are given legal efficacy by national legislation which governs arbitrations held within that state. Each state has legislation governing the interaction of arbitrations and awards with the courts. This legislation varies between states, although it is increasingly based upon a model or template law – the United Nations Commission on International Trade Law (UNCITRAL) Model Law (the 'Model Law').

In general, states have increasingly treated arbitration more favourably, and have become less likely (or willing) to interfere with awards. In theory, an award made anywhere in the world should be enforceable anywhere else, without a court looking into the decision of the arbitrator(s). There are, naturally, qualifications to this. Yet the independence of awards from court scrutiny is another important factor in the rising number of parties agreeing to submit their disputes to arbitration.

International arbitration can therefore be understood, in general, as an agreement:

• between parties to submit a dispute to an arbitrator (or arbitrators) whose decision is final and binding;

• that is not subject to court review; and

• that is enforceable throughout the world.

1. The difference between arbitration and other methods of dispute resolution

Arbitration is in some senses a unique form of dispute resolution. This book looks at each stage in the process of a typical international arbitration, but before doing so, it is useful to examine how arbitration differs from other common forms of dispute resolution.

There are essentially two forms of dispute resolution: 'soft' dispute resolution, which involves parties resolving disputes themselves; and 'hard' dispute resolution, which involves some external person or body imposing a decision on the disputing parties. Arbitration is a form of hard dispute resolution, and is closer to litigation (at least in the form in which it is practised in the commercial world) than any other form of dispute resolution.

1.1 'Soft' dispute resolution

(a) Negotiation

'Negotiation' refers to the simple method of the parties themselves trying to find a resolution to their dispute. It can be conducted directly between the parties and/or their counsel on a less formal basis, either through an exchange of correspondence or in a face-to-face meeting. Arbitration differs from negotiation in several ways:

• Arbitration is an external process. Parties present their arguments to the arbitrator(s), who then makes a decision. Although the parties may negotiate between themselves about the arbitration procedure, and an arbitrator (like a judge) may encourage the parties to negotiate certain topics, in arbitration, decisions on the substance of the dispute are made external to the disputing parties.

• Arbitration is a binding process which the parties choose instead of going to court (it is not an interim stage before court). One party cannot, if it decides that an arbitration is proceeding poorly, decide to bring court proceedings instead (at least, not if it is party to a valid arbitration agreement, and it does not want to breach that agreement). The result of the arbitration is also binding.

• Arbitration is an enforceable process. Disputing parties that negotiate a compromise can reach a settlement agreement, which will be contractually binding on those parties. An award, on the other hand, is an enforceable decision in and of itself – although, like a court judgment, further steps may be required to enforce that decision.

Of course, arbitration, like litigation, does not exclude negotiation. Parties will invariably make at least some attempt to negotiate a dispute prior to commencing proceedings in arbitration. Once an arbitration has commenced, the disputing parties are still able (and often encouraged) to continue negotiating outside the arbitration, including by making 'without prejudice' offers to settle the dispute. These cannot be disclosed within the arbitration. Arbitration is therefore not so much an alternative to negotiation as a more formal method of dispute resolution that is available in addition to it.

(b) Mediation

Mediation is a flexible, voluntary and confidential process in which a neutral third-party mediator seeks to facilitate an agreement between the parties. However, unlike a tribunal, the mediator does not rule on the merits of the dispute. The parties therefore retain control of the decision to settle and on what terms. Once the parties have resolved to mediate and agreed upon the identity of a mediator, they will enter into a mediation agreement which will deal with, among other things, the procedure for the mediation, the mediator's fees, the documents to be produced by each party and confidentiality/privilege in those documents. This agreement will usually be provided in standard form by an alternative dispute resolution organisation, such as the Centre for Effective Dispute Resolution (CEDR), which will administer the process and provide a pool of potential mediators. However, for an ad hoc mediation, this may be negotiated separately.

Usually, the parties prepare and exchange concise case summaries supported by key documents in advance of the mediation. This is so as to identify the main issues and provide the mediator with a focus. The parties will agree that documents disclosed in the mediation cannot be produced in subsequent court/arbitration proceedings. However, this may not prevent their examination in certain circumstances. For instance, if a dispute arises as to whether a settlement was agreed during the course of the mediation. In terms of costs, a common approach is for the parties to agree to split the mediator's fees and any expenses related to the mediation itself, and to bear their own legal expenses. However, mediation agreements often provide for such costs to be recoverable as costs in the case should the mediation fail. The parties then resort to litigation or arbitration, where the court or arbitral tribunal has the power to assess or make orders as to costs.

While mediation also involves the appointment of a third-party mediator, the key difference between it and arbitration is that the latter involves a legally binding decision by the arbitrator, whereas a mediator is appointed only to assist the parties in negotiating an outcome between themselves. A mediator may be very forceful in doing so; might suggest the sort of offers which a party might consider making; and might even give his or her view as to the merits of a disputing party's case, the need for that party to reconsider urgently its view on the merits of the case and accordingly perhaps consider a corresponding increase in its offer of settlement. Nevertheless, any agreement struck in a mediation derives from the consent of the parties and is not imposed on them by the mediator. For this reason, parties in a mediation can agree any remedy that they wish.

In an arbitration, on the other hand, the decision of an arbitrator is not an agreement. The parties have agreed that the arbitrator will make a decision that will bind them. The decisions contained within the award will be confined to those matters which the parties have agreed are subject to arbitration. However, the decision itself is made externally – and may or may not be one with which both, either or indeed any of the parties are happy.

Furthermore, an arbitration, unlike a mediation, cannot fail to reach an outcome. Parties to an arbitration cannot walk away. Unless the parties reach a settlement, once an arbitration is commenced it will continue through to a decision by the arbitrator(s), which will bind the parties in their dispute, whether they agree with it or not.

(c) Other methods of 'soft' dispute resolution

There are, of course, a range of other dispute resolution services that may assist parties in resolving their dispute: conciliation, appraisal, expert evaluation and so on. The key element in these forms of 'soft' dispute resolution is that any recommendation or finding is not binding upon the parties. In that sense, any appraisal which is adopted by the parties has force not because of the appraisal, but because of the parties' agreement to adopt it.

1.2 'Hard' dispute resolution

Unlike 'soft' dispute resolution, 'hard' dispute resolution involves imposing a decision on the parties. Arbitration, like litigation, is an example of 'hard' dispute resolution.

(a) Expert determination

Expert determination is the referral of a dispute to a third-party agent who is an expert in a particular area. This may happen because the parties wish for an expert to use his or her own experience and expertise to determine the dispute, although it should be noted that he or she cannot use such expertise to provide new evidence for a party. An expert determination may or may not be final and binding: it depends upon the nature of the referral to the expert by the parties.

An expert decision is, in practical terms, a rewriting of the contract. The parties agree that they will abide by the decision of the expert in the same way as if it were a new term of the contract. This means that an expert decision is not self-executing in the same way as a court judgment or an arbitrator's award. A court judgment or an arbitration award can be self-executed (albeit in the case of an arbitration award with a largely administrative process from a court). In contrast, an expert determination, if not complied with, must be enforced through bringing court or arbitration proceedings. There is no international enforcement regime like the New York Convention for expert determination.

Expert determinations are common in cases where there are very specific disputes, such as accounting disputes, completion accounts or valuations in mergers and acquisitions (M&A) contracts, and construction aspects in specific parts of construction matters. They are also common in cases where the decision to be reached is really one that is commercial rather than legal – for example, a deadlock-breaking mechanism in a joint venture agreement.

Agreements to refer to expert determination in international contracts increasingly provide that they are to be enforced by way of arbitration – that is, the expert determination agreement is itself subject to an arbitration agreement. Whether in court proceedings or as part of an arbitration award, any expert determination will be enforced essentially in the manner of a summary judgment, unless the party refusing to comply is attempting to challenge an expert's determination.

(b) The difference between litigation and arbitration

Arbitral proceedings are, on their face, different from formal court proceedings. The styles of advocacy and the sorts of argument that are considered 'likely' to prove persuasive can be very different. As discussed in the preface to this book, the procedures of court litigation are heavily circumscribed, whereas arbitral procedures are at large and thereby demand the greater involvement of counsel and tribunals. The advantages and disadvantages of arbitration against litigation are discussed below. However, despite their differences, both arbitration and litigation are, at their core, dispute resolution processes in which a decision maker analyses the facts and law presented to him or her, and issues a binding decision.

Conceptually, however, there are three important differences between arbitration and litigation:

• The decision of an arbitrator or arbitral tribunal on the substantive dispute is final. There is no court of appeal that will consider an award. As discussed in Chapter 14, there are certain limited ways to challenge an award before the courts, and a party that is successful in an arbitration may find it necessary to re-argue certain matters about the award or the arbitration agreement if it hopes to enforce that award in another state. However, none of those procedures amounts to an appeal on the law, in the sense of an appeal that is available as of right from a first instance court proceeding.

• The basis for an arbitrator's jurisdiction is the agreement of the parties. Although an arbitration will have a particular place or 'seat' which provides for certain elements of the arbitration to be governed by the law of the seat. For example, a Paris-seat international arbitration will be governed in certain aspects by French international arbitration law (as laid down in Book IV, Title II, Articles 1504 to 1527 of the French Code of Civil Procedure). The fundamental basis for the arbitral tribunal's jurisdiction is not the law of the seat (eg, France), but the arbitration agreement. The basis for a judge's jurisdiction, on the other hand, is the inherent power of the court and, ultimately, the coercive power of the state. Once a tribunal has been constituted, the most significant consequence of this is that arbitrators have jurisdiction only over the parties before the tribunal. They have no inherent power to summon witnesses or compel third parties to join the dispute.

• The procedure is significantly more flexible. An arbitral tribunal will not be bound by strict rules of evidence or disclosure, or the application of court litigation civil procedure rules. Although many arbitral institutions have produced rules and procedural guidance for parties, this guidance is very different (and significantly shorter) from the rules which apply to court proceedings. The London Court of International Arbitration (LCIA) Arbitration Rules 2014, for example, have only 32 simple articles, whereas the Civil Procedure Rules 1998 (The White Book) governing English court procedures are comprised of 89 parts, of which the longest itself contains about 50 rules. Court proceedings in most jurisdictions have, of course, evolved and modernised. Most significant commercial jurisdictions have adopted commercial lists, use case management conferences to allow a judge to tailor the applicable procedural rules to fit the circumstances of a case and no longer impose evidential rules, especially in commercial proceedings, as strictly as they once did. However, the most responsive commercial court still does not offer the flexibility of arbitration.

(Continues…)

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Table of Contents

Preface, 5,
1. What is international arbitration?, 7,
2. The legal framework, 25,
3. The legal effect of agreeing to arbitrate, 45,
4. Drafting arbitration clauses, 55,
5. Pre-commencement of arbitral proceedings, 83,
6. Commencing an arbitration, 111,
7. Selecting the tribunal or arbitrator, 131,
8. Dealing with the tribunal, 143,
9. Establishing procedure, 151,
10. Interlocutory applications and provisional measures, 179,
11. Developing the case, 189,
12. The hearing, 217,
13. Costs, 237,
14. After the hearing, 251,
15. Table comparing key provisions of arbitration rules, 271,
About the authors, 287,
Index, 289,