June 2015 | ROUNDTABLE | LITIGATION & DISPUTE RESOLUTION
Financier Worldwide Magazine
In a complex and expansive global business environment, the relationships between businesses, investors and third parties are, for the most part, diverse and far-reaching. Yet business relationships conducted on a global scale involving cross-border investment and trade can, and often do, break down. In such circumstances, the recourse is increasingly becoming arbitration; a fast, reliable alternative to litigation now recognised by the international community as the first port of call for resolving transnational commercial disputes.
Betancourt: Could you provide a brief overview of some of the key trends and developments you have noted in international arbitration over the past 12 to 18 months?
Knowles: One of the key developments we’ve seen over the past year is a significant uptick in the number of energy & oil and gas related disputes. That’s down to two factors. First, the collapse in the oil price has put a lot of contracts under stress and caused a number of companies in the sector to face financial difficulties or go under. Second, there has been significant global instability, particularly in the Gulf and Middle East region, in places such as Libya, Yemen and Iraq. This has resulted in contracts coming to an end prematurely and has given rise to a large number of contractual claims. Some of this is purely financial, while some of it stems from force majeure, frustration and other similar concepts, which come into play as a result of sanctions or the rise of the ‘Islamic State’, for example. Non-performance of contracts where one of the parties is unable to perform because of financial difficulties is also a factor generating disputes.
Bell: We are seeing quite a few cases involving contract disputes arising from alleged breach of commercially reasonable efforts (CRE) provisions. These are fascinating cases to be involved in as an expert witness. From a liability perspective, there are complex issues involving how one might go about inferring whether a breach of CRE obligations occurred based on indicators that may be observed either in the market or in data collected by the parties in the ordinary course of business. From a damages perspective, we face issues of modelling sales and costs over a potentially lengthy period under the counterfactual assumption that effort levels would have been different than they actually were.
Bédard: Just in the past year, several institutions have or are currently reviewing their rules. The Drafting Committee of the London Court of International Arbitration (LCIA), chaired by Johnny Veeder QC, circulated a ‘final draft’ of the new Arbitration Rules in February 2014. Those new rules came into effect 1 October 2014. Also, the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) commissioned a review of the secretarial and administrative services provided by the SCC as an appointing authority for arbitration under the UNCITRAL Arbitration Rules. The stated aim is to update SCC procedures and services to reflect international best practice for UNCITRAL arbitrations and to promote the SCC’s role as an UNCITRAL appointing authority. New legislation is under consideration or has been introduced in several jurisdictions.
Lee: International arbitration is at a critical defining moment in its history. Recent developments over the past 12 to 18 months reaffirm this state of affairs. The volume of international arbitrations is continually increasing, and a concurrent trend has been a noticeable expansion in the scope and number of issues being raised. Economic and political stakes have become higher as the broadened definition of what is arbitrable has led to new issues previously falling outside the scope of arbitration. Consequently, commercially-oriented aspects of arbitration once viewed as inherently defining are now being tried and tested in this new environment of expansion. Evidence collection seems to exhibit aspects of litigation, wherein broader document requests are often made to entertain indirect arguments. Within this backdrop, an ultimate question has emerged: will international arbitration yield to elements of issue overextension weighing down on many courtrooms, or will it maintain its identity as an efficient forum for resolving cross-border disputes? This will be the question that will define international arbitration in the years to come.
Johnson: We consider that the differences in approach between international arbitration institutions are narrowing. There is an increasing consistency in rules and procedures across the majority of forums. This is highlighted by CIETAC amending its rules starting in 2015, specifically with regard to emergency arbitrator provisions, consolidation of related arbitration proceedings and a single arbitration covering multiple contracts. The recent survey conducted by the school of international arbitration at Queen Mary College of the University of London suggests that arbitration is becoming more prevalent in the financial services industry. The establishment of the Panel of Recognised International Market Experts in Finance (PRIME Finance) provides users with ready access to specialist knowledge and expertise. The financial services branch of the Arbitration Club in the UK has also responded to demand and produced its own set of rules for a financial services expedited arbitration procedure. Financial services arbitration is becoming more prominent, the only surprise really is that it has taken the industry this long to take arbitration to heart given the standard advantages it offers compared with litigation.
Kleiman: The last remarkable changes in French arbitration law were introduced by the 2011 reform, and the major innovations of this reform concerned the enforcement phase. Indeed, an award is now immediately enforceable in France while a challenge against it is pending – except where immediate enforcement would cause ‘serious prejudice’ to the award-debtor’s rights. Case law on the immediate enforceability of awards has therefore been rendered, strictly limiting the scope of the exception in order to guarantee the pre-eminence of the principle coined by the reform. Over the past 12 to 18 months, French courts have also proved to be increasingly demanding with regard to the independence and impartiality of arbitrators, implementing stringent standards of disclosure. There is therefore a salient trend to enhance the efficiency of arbitral justice while ensuring that the legal process remains flawless to reinforce its legitimacy.
Betancourt: Have any particular cases caught your attention? What insights about the current international arbitration environment can we draw from their outcome?
Lee: Intellectual property arbitrations arising from the cross-border transfer of technology is gaining greater attention. These arbitrations often emerge where parties enter into an agreement to apply technology to a given region, where one party provides access to innovative technology and the other party provides access to a potential market. The disputed issues often involve differing interpretations as to the extent of technology transfer. This dynamic can be seen in the case of Roquette Freres, S.A. v. Solazyme, Inc., where the parties were in a dispute involving a US research and development joint venture on microalgae-derived products. An arbitration held that Solazyme was entitled to certain improvements to the intellectual property belonging to the joint venture, and Roquette Freres subsequently filed a suit in Delaware federal court in November 2014 to vacate the arbitration award, seeking a declaration of joint ownership of relevant intellectual property rights. Similar cases as to what constitutes transferrable technology are becoming more frequent through arbitration, and such decisions will impact the extent to which a party can successfully conduct business in a given region.
Bell: From the expert witness perspective, the work that is done on any particular case tends to be highly fact specific. Accordingly, it is less likely that specific approaches taken in any one case can be directly transferred to another. At the same time, there are more general insights that do translate from case to case. One of these is that arbitrators are generally willing to engage in serious consideration of industry-specific issues underlying damages claims, even if they may not be familiar with these from their own prior work. In these contexts, joint reports from opposing experts may help to crystallise issues and expert witness conferencing during the proceedings may be particularly effective.
Kleiman: The analysis of recent case law demonstrates that French courts are committed to ensuring that Paris remains an arbitration-friendly seat by requiring that the arbitral process meets the highest standards of ethics and fairness. In particular, a decision of the Paris Court of Appeal rendered on 17 February 2015 made clear that a zero-tolerance approach will be adopted concerning awards rendered fraudulently. The court upheld an application to revise an arbitral award for fraud since one of the arbitrators failed to disclose his connection with one of the parties’ counsel and acted proactively in the interests of this party. The court ruled that the fact that the award was decided unanimously was irrelevant since the arbitrator had influenced the tribunal into finding for the party who appointed him. Consequently, the court ordered the ‘withdrawal’ of the award and decided that it must be reviewed on the merits.
Bédard: The three Yukos awards were significant, as they highlighted several issues of concern in international commercial arbitration, namely the ability of the winning party to enforce the award, corruption and any reliance on evidence that may have been illegally obtained, in addition to the role of the tribunal’s secretary. Russia filed three writs seeking the annulment of the awards with the District Court of The Hague at the end of January earlier this year. The writ cites four grounds why the awards should be set aside: that the tribunal did not have jurisdiction to hear the claims, violated its own mandate, failed to give reasons or gave inconsistent reasons for key aspects of its rulings, and violated public policy “including the Russian Federation’s fundamental right to due process in defending itself in economic disputes”.
Johnson: The combined $50bn compensation obtained by the three claimants constituting the majority shareholders of Yukos in the proceedings against Russia when compared to the almost parallel ECHR claim, where nothing was awarded for the value of the company, was of note. Such a huge difference brings into stark relief just how important the quantum arguments are.
Knowles: One of the interesting developments is the Gazprom case which seems to suggest that the anti-suit injunction may return as a tool within the EU. The Advocate General of the Court of Justice of the European Union (CJEU) gave his opinion on whether an EU member state can refuse to enforce an arbitral award containing an anti-suit injunction because it is inconsistent with Council Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of civil and commercial matters, also known as the Brussels Regulation. He recommended that the Brussels Regulation be interpreted as not requiring an EU member state court to refuse to recognise and enforce an anti-suit injunction issued by an arbitral tribunal on the basis that recognition and enforcement falls exclusively within the scope of the New York Convention. The CJEU then gave its decision in the case on 13 May 2015, mirroring the Advocate General’s opinion that an anti-suit award made by an arbitral tribunal should be left to be determined by the national arbitration legislation in the state of enforcement. In other words, it is not affected by the Brussels Regulation. This decision reaffirms the primacy of the New York Convention by taking the Brussels Regulation out of the equation when it comes to the enforcement and recognition of an anti-suit award.
Betancourt: What do you consider to be the most pressing issues facing parties and practitioners in today’s evolving international arbitration landscape?
Kleiman: One of the most pressing issues in today’s arbitration landscape relates to the funding of the proceedings. The costs of the proceedings may indeed be an issue to the parties and some of them may thus turn to third-party funding. Nonetheless, third-party funding raises concerns particularly as to its articulation with arbitration’s ethical and procedural rules – for example, influence of the funders on the choice of counsel, distribution of powers between the funders and the parties concerning the legal strategy to adopt, conflicts of interests between funders, arbitrators and parties counsel. In this respect, in June 2014, the Club des Juristes, a think-tank composed by legal practitioners and academics, published a report concerning third-party funding in France. This report aimed at promoting the use of third-party funding in France and addressed the compatibility of third-party funding with French law.
Bédard: Challenges to arbitrators are, of course, an essential right of the parties to preserve the integrity of the appointment process in international arbitration. But frivolous challenges have become all too frequent and destroy much of the efficacy of international arbitration in creating unnecessary delays.
Johnson: A pressing issue is the transparency and consistency of awards. Many corporations use international arbitration as a form of dispute resolution due to the confidentiality it provides. The flip side of this, however, is the standard and consistency of decisions and awards issued by tribunals can be variable. This can also be pertinent to experts as to the consistency of approach and opinions and the extent of explanation of the reasoning that is provided in relation to quantum. Tribunals need to make clear the basis upon which a particular level of damages is awarded. Similarly, greater transparency of awards would ensure consistency of expert evidence, regardless of whether acting for the claimant or defendant, reinforcing the fact that the responsibility as expert is to the tribunal.
Knowles: Since the days of Dickens and Jarndyce vs. Jarndyce, speed and cost have been matters of concern to practitioners and clients alike. There is no one size fits all answer, so looking at it from a client perspective it is a matter of proportionality. Generally speaking, clients want small matters to be resolved as quickly and efficiently as possible, but in relation to larger matters, while speed and cost remain important, clients want an opportunity to have their case properly heard. These issues have been addressed by different arbitral institutions and law firms in various ways. The speed/cost balance tends to be better in medium-sized cases, whereas in larger cases there is a tendency for arbitrators to rush things through without giving sufficient time for the issues to be properly dealt with. On the other hand, the proceedings for the smaller cases are often too slow and expensive.
Lee: Due process is a most pressing issue facing parties and practitioners in today’s international arbitration landscape. The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards provides that the lack of due process is a ground to refuse to award enforcement. In practice, however, a high standard of proof is frequently placed on the party asserting the lack of due process, and there is often a post-award presumption that due process has been met. Transparency is also a pressing issue recurring in today’s arbitration climate. Parties often choose arbitration due to confidentiality. However, confidentiality without a consistently enforceable mechanism to prevent sanctionable activity can result in a lack of transparency. While numerous arbitration institutions have addressed these concerns, updates to institutional rules of the LCIA seem to demonstrate leading efforts to increase transparency by clearly defining sanctionable activities, wherein parties arbitrating under LCIA Rules are required to ensure that their representatives comply with a set of guidelines annexed to the LCIA Rules to not submit unmeritorious claims.
Bell: In today’s interrelated and ever-changing business environment, practitioners – including experts – need to focus on simplifying the issues, illustrating the significance of key facts, and teaching the sometimes complex concepts that are fundamental to understanding and adjudicating the case. Arbitrators come from different backgrounds and may need more or less assistance in absorbing some of these key points. Being able to teach concepts in a way that is clear and approachable yet also grounded in the necessary degree of rigour can make a huge difference in the course of an arbitration proceeding. It can also offer the side making these efforts an important tactical advantage.
Betancourt: The rising cost of arbitration continues to be a concern. In your opinion, how significant is this and what can be done to tackle the issue?
Bédard: Parties should provide for executive negotiations and mediation in addition to arbitration, build flexibility into the number of arbitrators, challenge the traditional language assumptions and allow multilingual parties and counsel to use their language skills, use fast-track arbitration when appropriate, assess the case early, choose arbitrators who are good managers and have time, promptly hold a preliminary conference focus on major claims and arguments, and leverage technology.
Johnson: The key drivers behind the growth of international arbitration as a dispute resolution remedy were the lower costs, confidentiality and enforceability of awards. Even with the narrowing of the gap between litigation and arbitration costs, the other drivers still exist and are likely to continue to exist for the foreseeable future. However, increased focus on ensuring the right size of team for each case would help. Whether to seek bifurcation also needs to be considered carefully. Whilst it can reduce cost if there is a good chance quantum arguments won’t need to be heard, if that is not the case, it can increase overall cost and reduce settlement opportunities. Costs have to be measured as a whole, also taking into consideration potential ancillary claims, appeals, and so on. Third-party funding is an option for claimants who may not have the financial means to pursue an international arbitration claim or who are intimidated by the cost of making a claim. By transferring the litigation risk for part of any proceeds, a claimant is able to pursue a good claim whilst better managing risk. Third-party funders are also very familiar with cost management.
Bell: There is no doubt that many proceedings are costly. Yet they are evidently not so costly that parties are turning en masse to other forms of dispute resolution. Arbitration has a prominent and growing position in resolving complex commercial disputes, particularly those dealing with international issues. Complex cases between parties with fundamentally different perspectives will tend not to settle, and can be expected to be costly to resolve via any form of dispute resolution. In terms of what might be done to better control costs, working with the arbitrators from an early stage to narrow the range of issues in dispute and to limit the scope of briefs exchanged and the discovery process can go a long way toward controlling costs.
Lee: The rising cost of arbitration is very significant as it reflects extended proceedings and an increased volume in submissions. Bearing in mind that a rise in costs is only a manifestation of an expanding process, the key to its resolution is to adopt a strategy that tackles its originating source rather than the costs themselves. Prior to incurring costs, setting the overall parameters of key arguments and issues is recommendable. Not only will this approach reduce costs, it will also increase the chances of success given that the arbitration will be more focused. Fundamentally, parties and their counsels should share the same view that the arbitration is to be efficiently handled, with extraneous issues deemed as being outside the scope of dispute. Several institutions have rules in place to promote an efficient process. For example, the ICC Rules of International Arbitration encourage expeditious proceedings and allow for early issues clarification pursuant to a Terms of Reference hearing. Nonetheless, effectively managing costs will ultimately be a matter of internal policy, where parties delineate their goals at the outset of a case.
Kleiman: The rising cost of arbitration may be a concern; however, arbitration offers the crucial advantage of being inherently flexible. Therefore, in order to avoid excessive costs, parties can adapt their procedure to their specific needs and agree to opt for a monolingual proceeding, to reduce the scope of document production, to limit the number of expert or fact witnesses involved and the number of written submissions. Failing such an agreement, the tribunal must have an active role and make early decisions concerning these procedural issues. Parties may seek guidance from the ICC Guide on Effective Management of Arbitration and in the ICC Report on Techniques for Controlling Time and Costs in Arbitration, which provides for useful case management techniques.
Knowles: The rising cost of international arbitration is a significant issue, albeit that outside of bilateral investment treaty arbitration, the cost of commercial arbitration in relation to the biggest cases has remained flat over the last few years. With the entry of litigation funding into arbitration, as yet not widespread, costs are likely to come under scrutiny. Tribunals should lead the way in relation to cost management because the reality is that lawyers are trained to leave no stone unturned to prosecute or defend claims. The extent of the role played by tribunals depends on individual arbitrators but there is certainly scope for them to do more in relation to the smaller cases.
Betancourt: What has been the impact of the UNCITRAL rules on transparency in treaty-based investor-state arbitration? Do you believe the arbitration landscape is becoming more transparent?
Johnson: In 2014, of known investor-state disputes, 11 were intra-European Union cases and half of those were brought pursuant to the Energy Charter Treaty. Multiple actions have been brought against Spain for changes in incentives for clean energy. ICSID has registered 11 such cases against Spain since 2010, with more likely. The Czech Republic, too, is facing at least seven claims. Three cases were also registered against Ukraine, which is connected to the recent turmoil with Russia. The EU’s suggestion of a global arbitration court raises some interesting questions as to whether the current process is fit for purpose and if so, what advantage is to be gained by changing it. If not, how could a global arbitration court be structured in order to best promote the needs of all stakeholders? Governments wish to be protected from claims due to changes in legislation and the regulatory environment taken in response to economic emergencies. However, if inward investment is to continue where those legislative changes take place, investors need recourse for compensation in the event of breach.
Knowles: There is a risk of users on both sides of the equation losing confidence in the system. For example, there is a growing sense among governments in both the developed and the developing worlds that investor-state arbitration is an unwelcome restriction on their ability to change laws and to govern. Increasingly, investors consider the process too long and expensive. The advantage of investor-state arbitration is that it gives a remedy where otherwise no fair remedy would exist. However, it is noteworthy that many of the cornerstones of arbitration, including confidentiality and reasonable cost and speed, are not recognised or respected in investor-state arbitration.
Bédard: UNCITRAL commenced in 2010 an important study on transparency, which ultimately led to the adoption of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (2013). The Transparency Rules give the public a role as a stakeholder in investor-state disputes and provide for an unprecedented level of transparency and accessibility to the public regarding these disputes.
Lee: The UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration has set a new precedent toward how arbitration is perceived, and has the potential to trigger a movement to reshape international arbitration as an institution. Prior to the Rules on Transparency, international arbitration proceedings were largely confidential, and privately and efficiently resolved between commercial parties through regulated proceedings. However, the Rules on Transparency have changed the picture by making investor-state arbitration public. Public access will continue to subject investor-state arbitration proceedings to heightened scrutiny, especially given the large-scale economic and political stakes involved. This heightened scrutiny will in turn likely have an effect on the manner in which the arbitration is conducted. Rules of evidence, such as establishing a proper foundational basis for submitting evidence, may be more strictly enforced so as to not result in potential due process issues. Further, an issue will likely emerge in the future as to whether or not to extend the Rules on Transparency to other types of high-stakes arbitrations.
Kleiman: Investor-state arbitration is currently being criticised by pressure groups. Indeed, partly because they incorporate arbitration clauses, both Canada-EU and USA-EU free trade agreements, CETA and TTIP, which are currently being negotiated, have raised public concerns. As long as there is no permanent international court for investment disputes, arbitration will remain the only available neutral forum for businesses to settle their disputes with states. The public image of arbitration needs to be improved. Transparency is becoming an increasingly important issue in investor-state arbitration today. France, among other states, has recently signed the UN Convention on Transparency in Treaty-based Investor-State Arbitration. By ratifying the Convention, parties to investment treaties concluded before 1 April 2014 agree to apply the UNCITRAL Rules on transparency. This therefore enhances the impact of these rules, which champion the use of public hearings as well as the publication of the parties’ submissions, and also allow third parties to submit written submissions regarding a matter within the scope of the dispute.
Betancourt: What steps can parties take to smooth an arbitration process involving entities from jurisdictions with little synergy? How should parties go about increasing integration and overcoming potential cultural difficulties?
Lee: A mature legal system and an independent judiciary will often facilitate the flow of an arbitration process involving entities from jurisdictions with little synergy. If the chosen seat of arbitration is one that comprises a mature legal system and an independent judiciary, this will better ensure integration and cooperation given the additional safeguards provided to the parties. Second, a mature legal system will be more apt at handling international arbitration issues, providing parties with access to independent judicial measures to facilitate participation by other parties. These may include interim measures to preserve assets or enforcement of emergency arbitrator awards early on in a case, prompting parties to focus their attention on pending arbitration issues directly impacting their business. To further increase integration, the ground rules of what is expected from the parties should clearly be made in writing throughout the arbitration process, usually through procedural orders. Thus, while integration and cultural difficulties may affect the dispute, the expectations will be clear and the rules of the proceedings will remain consistent.
Kleiman: International arbitration is meant to take on board the needs of parties and practitioners coming from different jurisdictions. As it constitutes an inherently flexible dispute resolution mechanism, parties may adopt bespoke procedural rules and decide on crucial aspects of the proceedings – for example, the role of expert and fact witnesses, the scope of document production, and so on. Parties and practitioners are hence able to overcome the difficulties derived from their different legal cultures. Difficulties may also arise in relation to the ethical rules and professional standards applicable to counsel and arbitrators, since their activities may be regulated by different rules and authorities. These difficulties may be remediated by applying sets of rules specifically designed for international disputes – for example, IBA Guidelines on the taking of evidence or on party representation.
Johnson: From an expert point of view, parties must recognise that there are differences in approach from different systems in terms of what the lawyers or the experts do and ensure that people from different backgrounds working on a given case are approaching issues in a similar fashion.
Bédard: Education is key. Overcoming differences without knowing that they exist is unlikely to succeed. Overcoming differences requires great care to learn about potential differences and potential means of addressing them in a manner satisfactory to all involved. The Arbitration Committee of the International Bar Association plays an important role in attempting to bridge the gap among legal cultures.
Knowles: In international arbitration we have all been in situations where the parties have responded to a procedural direction in completely different ways. This can happen in relation to disclosure, presentation of witness evidence and at stages throughout the arbitral process. The key to handling this issue is to recognise and understand the system or systems from which the arbitrators and opposing counsel emanate, and to consider the case from the cultural perspectives of the opposing counsel, the tribunal and the parties involved, all of which may be completely different. This takes experience and preparation.
Bell: In our experience, cultural differences can be managed effectively by experienced counsel and experienced arbitrators working together. There is no reason why any relevant cultural differences cannot be brought to the fore early in the process so that all parties are on the same page in terms of how they might be approached. Additionally, by the time a matter reaches the arbitration proceeding stage, it is expected that the parties will already have had ample opportunity to interact, reducing some of the barriers that cultural differences may raise, at least with respect to perspectives on the issues, if not leading to settlement.
Betancourt: For certain arbitration cases, how important is it to use expert witnesses to illuminate complex issues and provide an informed perspective?
Johnson: The need for an expert in any case is ultimately dependent upon the facts. Some cases do not need testifying experts. At times, complex cases can still be resolved on the basis of the law. We have acted in cases where a testifying expert was not necessary but where our role was to advise on project management of client information and assessing the commercial aspects of the case at an early stage and the range of outcomes. Accounting experts can make a valuable contribution by providing an early indication of the potential quantum so that the effort and expenditure can be put in a commercial perspective. It is important that in such cases the quantification issues are explored at an early stage to ensure that client expectations match reality and thus avoid disappointment. Strategies can also be developed on approaches to how best inform the tribunal of complex issues.
Bell: Effective use of expert witnesses can be a huge asset in dispute resolution. In particular, with respect to international arbitration proceedings, the rate of technological change and the growth in the volatility of the international business environment typically means that an effective assessment of liability and damages requires the use of experts skilled in technical issues, business, economics, accounting and finance. These experts have a critical role to play in identifying key issues, elucidating core concepts and developing a framework for the business and economic issues in the proceedings. As such, they can be an important resource for arbitrators as they seek to understand the issues and grapple with the claims made by each side. Accordingly, it is important for counsel to recognise the independence of experts and not hamper them with a large number of instructions that may have the effect of predetermining conclusions.
Lee: It is very important to use expert witnesses to provide an informed perspective on key areas requiring specialisation. One of these areas is governing law. When a critical issue of law may have a significant bearing on a certain case, it is essential for the arbitration to involve an expert who can accurately explain how the governing law interprets the issues and related facts. Which law governs the arbitration is in and of itself often a highly contested issue, given that parties do not always include the governing law in an arbitration agreement. While some jurisdictions require that the law of the seat of arbitration apply, other jurisdictions interpret the law of the main contract as being applicable. Different treatment of the same facts under differing laws will lead to strikingly different results. For example, key concepts such as due process, breach of contract and recoverable damages are often treated differently under common law and civil law jurisdictions. Accordingly, clarification from an expert on issues of law may be highly relevant toward the interpretation of the facts.
Knowles: There are certain sorts of cases which are impossible to resolve without the use of expert witnesses dealing with technical issues. Examples might include claims in relation to environmental damage, failure of machinery or construction claims. Experts are required to bring their understanding of the technical issues to the arbitral process so that the arbitrator is in a position to understand the issues and make an appropriate decision. However, there has been creeping use of non-technical experts, typically accountants, to pull together the financial elements of the damages claim in order to clarify the figures for the tribunal. Anecdotally, while tribunals appreciate the assistance of accountants to get the numbers right, they seem to be less impressed by the use of generic experts presenting complex financial models to justify the overall damages claim. It’s also the case that the use of generic experts can massively increase the cost of arbitration. It would appear that the use of these experts has probably hit its peak.
Kleiman: In international arbitration, the evidence of an expert witness is often crucial to the outcome of the case. Where the dispute involves highly technical issues, their intervention is necessary so that counsel can build their case, which in turn also contributes to the enlightenment of the arbitral tribunal. Experts views may additionally be fundamental to assist counsel and the arbitral tribunal in quantifying damages. Legal expert opinions, often delivered by specialised academics, may also be necessary where it is necessary to support a certain interpretation of a highly complex legal issue. Expert witnesses may be party-appointed or appointed by the tribunal. In disputes involving complex technical aspects, particularly in construction, if the experts are party-appointed, it is advisable that they first submit a joint statement on specific issues on which they agree, and then issue separate statements where their opinions dissent in order to save time and money.
Betancourt: Are we likely to see continued growth in the number and spread of established arbitration centres? Do you expect other regions to gain a foothold over the next 10 years or so, to become credible arbitral seats? What challenges and issues exist for parties conducting arbitration in these regions?
Bell: It is likely that growth in the number of centres specialising in international arbitration will continue to the point at which parties to contracts determine a sufficient variety of choice is available in arbitration-friendly jurisdictions. As economic activity expands in developing markets, this means that market opportunities for additional centres focused on parties doing business in those markets and regions will continue to arise. Nonetheless, given the need for supportive court systems and a general preference for a neutral location, there are limits on how much additional growth can be expected.
Lee: The continued growth in the number and spread of established arbitration centres is foreseeable. Commercial parties are prone to select an established arbitration centre with a proven track record in handling international arbitrations. Companies conduct thorough risk analysis in choosing a proper arbitral seat, and are willing to go overseas to arbitrate if their assessment is that the domestic seat is unsuitable. Further, pre-designated choices involving established arbitration centres are made in order to maintain a certain level of consistency. For example, upon agreement by parties, an ICSID arbitration can be held in another location based on a pre-established arrangement often involving an established arbitration centre. Notwithstanding, certain regions can gain a foothold over the next 10 years if a combination of three factors are present. First, the region contains a high level of cross-border commercial activity leading to a large volume of arbitrations. Second, the region becomes distinguished vis-à-vis certain niche categories of arbitrations from which a more general practice may develop. Finally, the region has a mature legal system in place to attract commercial parties to its borders.
Knowles: For the foreseeable future, international arbitration can only grow as the amount of cross-border investment increases. We will certainly see growth in the number and spread of established arbitration centres. For example, there are all sorts of centres establishing themselves in different African jurisdictions. They are responding to the growing requirement, brought about by a huge increase in FDI, for affordable and reliable dispute resolution processes which circumvent the need to offshore disputes to expensive foreign centres. As such, they are developing in a different way and it is likely that we will see increasing divergence in the ways in which centres from different parts of the world operate. Some of these emerging arbitration centres will gain traction, but others won’t survive. It’s also clear that Singapore and Dubai are likely to grow as arbitration centres.
Bédard: It’s doubtful whether there is much room for new arbitration centres to be created. Local and regional arbitration centres play an important role but should not be expected to grow exponentially. For a new venue to establish a reputation for arbitration may take a long time. And political stability is an important factor. Mauritius, for example, may currently be suffering from political uncertainty.
Kleiman: Even if the ICC, the LCIA and the SCC remain the most attractive arbitration centres, there has been a continued growth in the number and spread of arbitration centres in recent decades. Indeed, the HKIAC in Hong Kong, the SIAC in Singapore and the DIAC in Dubai have all emerged as credible centres. A number of other promising centres have also recently opened, such as the Russian Arbitration Association in April 2013 – which uses UNCITRAL rules, the Casablanca International Mediation & Arbitration Centre, which opened in November 2014, and the OHADAC Caribbean Centre for Arbitration and Conciliation, which is due to open in September 2015. Potential challenges may be related to local regulations governing these centres’ activities and their capacity to deal with high scale disputes. In choosing an arbitral institution, parties should particularly consider the following elements – firstly the adequacy of the institution’s rules to the dispute. Secondly, parties should consider the availability, proactiveness and reputation of the institution in question. The type of services rendered by the institution, such as administrative services, prima facie control of arbitral jurisdiction and review of awards, must also be considered. Equally, parties should factor in the fees of the institution and costs of the services, including the hearing rooms, translation and equipment.
Johnson: We believe that the promotion of new international arbitration centres will continue. What is less clear is whether there will be a real move from the established centres of London, Paris and New York. London is likely to remain an integral link between East and West though more China, Hong Kong and Singapore seats look likely. Dubai has the potential to develop more as an arbitration centre. Singapore is taking proactive steps to promote itself as the independent centre for Asian disputes. New moves are afoot for a further regional arbitration institution in Africa and Latin American continues to build local bodies. The challenges for all young arbitration centres are credibility and enforcement of awards. When parties conduct arbitration proceedings in these cities, those are the issues that are raised – for example, how easily will national courts accept such an award? As with arbitrators, there are plenty of choices, but will parties take the risk on new locations or stick with those that are already tried and tested?
Betancourt: In terms of the enforcement of arbitration awards, what particular hurdles do parties face and what recourse do they have if arbitration orders are not appropriately enforced?
Johnson: One major hurdle which is sometimes overlooked is identifying where the assets are, to determine how best to enforce. We have acted pre-action to investigate where there are assets that any award could be applied against in order for the legal team to decide if, where and how to pursue action. Many know those they are suing well so this is not necessary but there are some cases where such aspects need to be ascertained very early in the case in order to inform the best commercial approach. One opportunity in relation to enforcement that is often overlooked is the ability to appoint insolvency practitioners in a number of jurisdictions.
Bédard: The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, which was established to foster the enforcement of arbitration awards, remains a useful treaty producing its intended effects in many jurisdictions. However, the enforcement of arbitral awards annulled at their seat remains a vexing issue. Article V (1) of the New York Convention provides that the courts of a Contracting State “may” decline to recognise an international award that was annulled by the courts at the seat of arbitration. This discretion, which allows a court to either enforce or deny enforcement without specific guidance, creates uncertainty in many countries.
Kleiman: Under the New York Convention, which has been ratified by 155 countries, domestic courts may only refuse to enforce awards on limited grounds – the capacity of the parties and the invalidity of the arbitration agreement, due process, the scope of the arbitration agreement, the composition of the arbitral tribunal, the arbitrability or otherwise of the dispute, the infringement of international public policy and the previous annulment of the award by the courts of the seat. However, in order to deny enforcement, domestic courts may sometimes broaden the scope of public policy and, if it is not arbitration-friendly, the country of the seat may even conduct an in-depth review of arbitral awards on the merits. It is noteworthy that, in France, an award may be enforced even though it has been annulled by the courts of the seat or while challenges against the award are still pending.
Knowles: Typically enforcement takes place through the New York Convention and one of the issues relates to jurisdiction in the US. Historically, the US may well have been the easiest place to enforce awards. However, increasingly, a requirement for local jurisdiction over and above the New York Convention rules and seemingly at odds with them is leading to a situation where local courts are declining jurisdiction for enforcement purposes. If an award is not properly enforced there may be other remedies available, depending on the nature of the non-paying party. If they are particularly dependent on having a good reputation for the purposes of obtaining finance, pressure may be applied through the media in order to encourage payment. From time to time, diplomatic pressure may be applied, but ultimately it is the job of a good commercial lawyer to draft the contract in such a way that enforcement is possible if there is the potential for disputes, for example, by using parent company guarantees. A good arbitration lawyer should advise on enforcement and consider the options well before proceedings commence.
Lee: When enforcing an arbitration award, an obstacle may arise where a party chooses to delay compliance with an enforcement order. While a non-complying party may be subject to sanctions for delay, the act of delay can create a serious obstruction to the flow of business. Thus, parties may wish to take a proactive position at the early stages of a case rather than to react to possible post-arbitration non-compliance. As a countermeasure, it is recommendable for a party seeking damages to take measures to secure assets in advance of an arbitration. While available mechanisms by which assets may be secured differ according to jurisdiction, many jurisdictions allow for a preliminary attachment of a party’s assets to secure potential damages during the arbitration. A mechanism which exemplifies this preservation process is the Rule B attachment procedure, available in maritime claims under US federal civil procedure and having its roots in English common law principles of protection of parties’ rights through admiralty attachment of assets.
Betancourt: When drafting international contracts, what considerations should parties make in terms of outlining the possibility of resolving disputes through arbitration?
Knowles: When drafting international contracts there are a number of things to consider. Parties clearly need to think about the forum for resolving disputes and whether or not the counterparty will be good for the money if there were to be a claim – for example, obtaining parent-company guarantees or other guarantees to secure performance. The lawyers need to consider whether an arbitration award would be enforceable where the counterparty has its assets. In certain circumstances, for example where arbitration is not going to be enforced in a particular jurisdiction, it may be best to have a court clause rather than an arbitration clause. Draftsmen might also want to consider more complex arbitration clauses such as those that permit arbitration during the course of a contract, those that allow for ‘slim-lined’ arbitration proceedings for smaller cases, and those that permit other ADR approaches prior to arbitration proceedings.
Lee: Parties should carefully consider the potential long-term impact to their business of choosing to resolve a dispute through arbitration. A potential long-term after-effect of immediately filing arbitrations without prior good-faith negotiations is that this may lead parties to become more concerned about risk management and protection rather than innovation and business cooperation. This is especially the case for product manufacturers, where necessary collaborative research for new products and technological innovation may take second stage to risk mitigation. Notwithstanding, the commercial reality is that a dispute may emerge, and thus an adequate dispute resolution forum is necessary for an adequate remedy. Further, there are a growing number of claimants asserting damages as a means to leverage settlement with other parties. Accordingly, parties may wish to equip themselves with a proper dispute resolution clause which allows them to protect their interests, while providing an avenue to maintain a sound business relationship. Arbitration may provide the sought-for balance due to its commercially-oriented nature.
Bédard: Primarily, every arbitration clause should define precisely the disputes subject to arbitration and state that arbitration is mandatory and final. The parties should also indicate the number of arbitrators and the method for their appointment. The clause should state a neutral or otherwise suitable venue that recognises arbitration as a valid dispute resolution mechanism, as well as the language or languages of the arbitration. Also, depending on the circumstances, the parties may consider further features. If there are more than two parties to the agreement, the arbitration clause should address the method of appointment and possibly joinder or intervention, where appropriate. If the contract is linked to other agreements between the same, related or different parties, the parties should consider providing for a mechanism to consolidate arbitrations arising under different contracts. If a sovereign entity is party to the agreement, consider including a waiver of sovereign immunity in the arbitration agreement. Under certain circumstances, the parties may want to establish an expedited arbitration by providing for specific deadlines for filings and tribunal rulings, subject to discretionary extensions to preserve the jurisdiction of the tribunal. Finally, to the extent permitted by the arbitration law in the place of arbitration, the parties may consider providing for the jurisdiction of the arbitrators to issue preliminary injunctions while preserving their ability to seek interim relief from the courts.
Kleiman: Arbitration offers business operators a truly neutral forum to settle their disputes, as well as a flexible and confidential procedure which will allow them to obtain an award which will be easily enforceable across the world. When choosing to refer their disputes to arbitration, parties must operate a careful choice of the seat of their arbitration proceedings. Indeed, the law of the seat will constitute the default applicable procedural law and this law will also provide the available recourses against the award. In order to maximise their chances of a successful outcome when undertaking arbitration, parties must consider the following key points when drafting their arbitration agreement – the seat of the arbitration, the number of arbitrators and the process to designate them, the language of the proceedings, the chosen institutional rules and the level of confidentiality covering the proceedings.
Johnson: From our perspective, parties should first work out if the issue is best solved by arbitration or some alternative mechanism such as expert determination, or set out types of dispute applicable to each. They should also ensure that the relevant provisions of the calculation of determination of quantum or the applicable technical or accounting standards are reviewed by lawyers and experts with experience of disputes. We often see cases where the relevant provisions are difficult to apply because in the heat of a looming deadline to close a deal, less attention was paid to the provisions at issue.
Betancourt: What major developments and trends do you expect to see in international arbitration over the next 6 to 12 months?
Bell: Parties will continue to make widespread use of international arbitration in the years to come. Contractual disputes will continue to arise that will be ideally suited for resolution in the international arbitration forum. Consistent with the trends we have seen in cases litigated in North American courts, we expect expert testimony will play an ever growing part in the hearing of these cases, especially as parties realise the value that can be obtained through explanation of the issues by professionals that specialise in addressing them on a regular basis.
Bédard: We will continue to see the implementation of the new arbitration rules we discussed earlier. The latest edition of the CIETAC Arbitration Rules came into force on 1 January 2015, and the new Beijing Arbitration Commission (BAC) arbitration rules came as recently as 1 April 2015. Also, UNCITRAL is actively working on the revision of the ‘Notes on Organizing Arbitral Proceedings’. It is also expected that new national legislation regarding arbitration may be passed, including reforms or new acts in Australia, Canada, Ecuador, England and Wales, India, Myanmar, New Zealand, Russia, South Africa and Switzerland. Finally, I would think that the challenges of international arbitrators will continue to be much discussed this year.
Johnson: International arbitrations are likely to remain common in the sectors of energy and natural resources in the coming months. The Energy Charter Treaty is now the most invoked international investment agreement and the need for resources by developing countries continues to drive investment in natural resources. However, there has to be an agreed approach between international investors and resource rich countries to make such investments a success for all, which is not always successful, hence disputes. We expect to see more energy disputes as the shockwaves of recent energy price volatility work their way through the various markets. Also, slowly but surely we expect the trend of increasing financial services arbitrations to continue. Geopolitical turmoil, such as the annexation of Crimea by Russia, also gives rise to ICSID claims and we expect to see an increase in the number of such claims. The current negotiations on Transatlantic Trade and Investment Partnership (TTIP) on a proposed free trade agreement between the European Union and the US continue to have opposition on both sides of the Atlantic with some arguing that the agreement would endanger the sovereignty of the signatory states by allowing for a small circle of legal experts sitting in a foreign court of arbitration an unprecedented power to interpret and void the signatory states’ legislation. Although this has been refuted at the highest levels it will continue to have an impact on how investment treaties are viewed.
Lee: The essential character of international arbitration is changing, and major developments point to the likelihood that arbitration will experience a quantum leap this year within this larger process of change. Amended arbitration rules have triggered key events likely to continue over the next 6 to 12 months. These events seem to indicate that arbitration has passed a certain threshold that may in fact be irreversible. Once strictly confidential, the UNCITRAL Rules on Transparency have opened arbitration’s door to the public in investor-state arbitrations. Once highly-efficient and narrowly-defined, amendments to the UNCITRAL Model Law on International Arbitration have broadened the definition of an arbitration agreement and what is arbitrable. Once conclusive, increased filings to vacate arbitration awards have resulted in greater court involvement and new challenges to enforcement. More significantly, these developments show that international arbitration is in the midst of forging a new identity. Inherent in this process is the emergence of competing interests; one side arguing for further changes to account for growing complexities, and the other side advocating a return to arbitration’s original character. Which position will prevail in this cross-continental tug of war will have a profound impact on how commercial disputes are resolved in the future.
Kleiman: In January 2015, Italy sent a formal notice to the ECT Depository announcing its withdrawal from the Energy Charter Treaty (ECT). Italy’s withdrawal will only become effective one year after the date of notification, and ECT protection will be afforded to the country for the next 20 years under a ‘sunset clause’. Therefore, investments made before January 2016 will still be protected until January 2036. Even if Italy justifies its withdrawal by its need to reduce the costs resulting from the participation to treaties and international organisations, the fact that an investment case against it was registered in 2014 under the ECT and the risk of further disputes in the energy sector may have constituted incentives to its decision to withdraw. Foreign operators considering investing in Italy may therefore contemplate the possibility of undertaking these investments before January 2016 and it will be interesting to watch if other ECT members with a significant exposure to energy claims will follow this trend.
Knowles: We would expect the uptick in energy disputes to continue. Regrettably, there is latent pain in the sector. Some parties haven’t prosecuted disputes because of limited finances but as matters start to improve again it is likely that some of those disputes will come to the fore. The issue of cost will remain an area of focus. The secretariats of the largest centres probably have the biggest problem in relation to costs and need to look at how they can make reductions. If the costs at these organisations are not continually managed, we would expect to see the continued drift of cases away from them to other lower cost alternatives.
Julio César Betancourt was admitted to the practice of law in 2001. He holds postgraduate law degrees in the areas of Damages, Procedural Law, International Business Law, Constitutional Law, and Contract and Damages. Mr Betancourt obtained his Master´s in Law from University College London, specialising in Alternative Dispute Resolution, Dispute Resolution and Conflict Management, and International Arbitration. He is currently a Visiting Research Fellow at King’s College London, and is Head of Research and Academic Affairs at the Chartered Institute of Arbitrators in London, United Kingdom. He can be contacted on +44 (0)20 7421 7434 or by email: email@example.com.
Ben Knowles is co-chair of the Global Arbitration Group and has extensive experience of dispute resolution and international arbitration including at the ICC, ICSID, LCIA, LME and LMAA. He focuses on the Upstream Oil & Gas and Trade & Commodities sectors and also advises extensively on international sanctions. He can be contacted on +44 (0) 20 7876 4732 or by email: firstname.lastname@example.org.
Dr Gregory K. Bell frequently testifies as an expert witness on damages in intellectual property, finance, and antitrust litigation in courts and arbitration proceedings in North America, Europe, Asia and Australia. Dr Bell’s business consulting engagements focus on the economics of business strategy, working with firms to develop sustainable competitive advantages in specific product markets. He has led numerous projects concerning game theory and competitive strategy, global launch strategy, product pricing and positioning, capital budgeting and real options and cost-benefit analyses. He can be contacted on +1 (617) 425 3357 or by email: email@example.com.
Elie Kleiman is a partner at Freshfields Bruckhaus Deringer LLP. He is a member of the dispute resolution team and managing partner of the Paris office. Mr Kleiman’s clients come from a variety of sectors and industries. He has in-depth knowledge of the oil and gas, mining, chemicals and pharmaceutical areas. He can be contacted on +33 1 44 56 33 18 or by email: firstname.lastname@example.org.
Colin Johnson is Head of International Arbitration at Grant Thornton UK LLP. His background as an emerging markets investment manager and a project financier is used extensively in cross-border disputes and investigations. He specialises in projects in energy, natural resources and infrastructure around the world and has acted in a number of assignments in each of Europe, Latin America, Africa, Middle East, Asia and Eastern Europe/Russia/CIS region. He can be contacted on +44 (0)207 728 2103 or by email: email@example.com.
Lance Lee is the head of the litigation and arbitration department at Lee International IP & Law Group. Mr Lee has extensive experience in representing clients in litigations and arbitrations in a wide range of business areas. He also has extensive experience advising clients on corporate M&As, contract negotiations, joint ventures, and intellectual property licensing and infringement protection for multinational corporations and global conglomerates. He can be contacted on +82 2 2262 6037 or by email: firstname.lastname@example.org.
Julie Bédard concentrates her practice on international litigation and arbitration. She regularly advises clients on the drafting of dispute resolution clauses and has served as counsel in international arbitration proceedings held under the auspices of the International Chamber of Commerce, the American Arbitration Association, the International Centre for Dispute Resolution and the International Centre for Settlement of Investment Disputes. She can be contacted on +1 (212) 735 3236 or by email: email@example.com.
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