June 2013 | ROUNDTABLE | LITIGATION & DISPUTE RESOLUTION
Financier Worldwide Magazine
Arbitration is becoming a preferred method of resolving cross-border disputes. Offering substantial time and cost efficiencies, along with greater predictability in the outcome, arbitration also draws on the commercial expertise of arbitrators and provides the freedom to select and design procedures. New ICC rules contain provisions making arbitration even more efficient. However, although virtually all major economies are now party to the New York Convention, problems can still arise when enforcing and executing awards.
FW: Would you say that corporate disputes are being resolved more frequently through arbitration proceedings than in previous years? What are some of the recurring themes you have seen at the centre of recent arbitration cases?
Chalk: Arbitration is increasingly becoming the preferred method of resolving corporate disputes, especially cross-border disputes. I have also seen a growing number of arbitrations involving disputes over shareholders’ agreements, joint venture agreements and M&A-related issues. One noticeable trend is that greater attention is clearly being paid by corporations to their dispute resolution clauses, and, increasingly, corporations have specific dispute resolution policies in place, with a shift in favour of arbitration over litigation for international contracts. Another recurring theme has been the rise of multi-party and multi-contract disputes. In the past, the typical arbitration would involve two parties and one or two contracts, but increasingly we are seeing a suite of related and overlapping contracts which are all engaged in any given dispute. Joint ventures, for example, often involve a number of contracts, as do finance-related disputes. In such cases, the importance of consolidation, and the ability to join third parties into the arbitration process, has become more important.
Litt: International arbitration is woven into the fabric of international commerce and it grows as the world of international transactions expands. In recent years, we have seen an increasing number of cases involving parties from India, China and Brazil, and each of those jurisdictions poses its own unique challenges and opportunities. The global balance of commercial transactions continues to shift to countries with less established and efficient enforcement regimes, forcing parties to international transactions and disputes to focus on enforcement of awards at an earlier stage, and with increasing intensity. As a result, we have been litigating the enforcement of arbitral awards – and agreements – and cross-border litigation judgments in jurisdictions around the world. In many cases these days, while the first question may still be how to win, it should be followed closely by how winning translates into recovery.
Venegas: Corporate disputes are being resolved more frequently through arbitration, but it varies by jurisdiction. While in some countries arbitration is becoming a recurring method to resolve disputes, in others the use of arbitration by private parties is decreasing. This phenomenon is caused by different factors, but mainly because of law amendments favouring arbitration, or judicial decisions favouring enforcement of awards or upholding their validity. For example, some years ago Peru introduced a new arbitration regulation that was perceived as positive by investors and that even made arbitration mandatory in governmental contracts. Since the law entered into force, the number of arbitration cases in Peru has increased dramatically. The worldwide economic crisis has played an important role in defining the themes of some disputes. Many of the arbitration cases we have handled have been concerned, directly or indirectly, with a party’s inability to comply with its obligations due to its present financial circumstances.
Colbridge: Broadly, we are seeing a rise in the number of arbitrations taking place, whether these are international commercial arbitrations or more specialised forms such as investor state-state arbitration. One trend we are seeing, especially in the more complex ‘high-stakes’ disputes, is for parties to be increasingly tactical in their use of arbitration. A party may, for example, initiate arbitration with a view to undermining court proceedings already underfoot or, when faced with a request for arbitration itself, initiate court proceedings in a jurisdiction it perceives to be more favourable. There may also be a consideration of whether an anti-suit injunction is available in circumstances where foreign court proceedings are commenced in breach of an arbitration clause. One result of this is the potential for the dispute resolution process to become more unpredictable with corresponding cost implications for the parties.
Luycks: More and more companies acknowledge the advantages of agreeing to resolve disputes with their counterparties through arbitration rather than through litigation. This is, in general, the trend in international business and especially the case where companies enter emerging markets. In cross-border acquisitions, joint ventures, consortia and other shareholder and investor arrangements, more often, parties opt for arbitration rather than leaving it to the competent national court to resolve disputes between them. Due to the economic downturn, recurring themes are issues regarding financing. Some of the themes we see more nowadays involve deadlocks between partners and co-investors as to alleged obligations to provide further economic means. This way a party may try to safeguard its investment or assist the enterprise to overcome financially difficult times. Damages claims following disinvestments or withdrawal from the negotiation table are often at the heart of the dispute.
FW: How important is it to insert clear arbitration clauses into business contracts and agreements, to manage disputes if and when they surface down the line? Is this area often overlooked when companies are negotiating new ventures?
Litt: A well drafted arbitration clause is essential to a straightforward, efficient and fair dispute resolution process. Proper drafting advice is particularly important because courts in different jurisdictions interpret arbitration clauses differently. A recent example is the 2 April 2012 decision by the US Supreme Court not to review the Ninth Circuit’s 2011 decision in Titan Marine v. Cape Flattery. The Ninth Circuit had determined that the parties’ arbitration clause was narrow and did not require arbitration of the plaintiff’s tort claim, despite taking note of contrary precedent in four other circuits. Because the Supreme Court chose not to review the decision, the law with respect to fairly standard arbitration clause language may remain different in different parts of the US. Sophisticated counsel can help companies work through these issues to draft arbitration clauses that are more likely to work as intended, when and where they are needed.
Venegas: It is extremely important to include a clear arbitration clause in a contract. Otherwise, all the benefits parties seek when agreeing to submit their disputes to arbitration might be lost, as they could eventually be involved in an additional and completely unnecessary dispute as to the terms and scope of the arbitration clause, and as to whether they can resolve their controversies in arbitration or must go before domestic courts. Further, a poorly drafted clause can result in problems that could eventually lead a court to vacate an award or to deny its enforcement. Thankfully, as the use of arbitration has become more common over time, pathological arbitration clauses are not found as frequently as before. Today, many international arbitral institutions, such as the International Court of Arbitration of the International Chamber of Commerce (ICC), the International Centre for Dispute Resolution (ICDR), and the London Court of International Arbitrational (LCIA), have published ‘model arbitration clauses’ that use broad language covering all disputes arising from a contract and that the parties can simply copy-and-paste into their agreements.
Colbridge: It is of the utmost importance to ensure that arbitration clauses are clearly drafted. Not only can a lack of clarity waste time and incur costs for clients, but in a worst case scenario it can work to undermine the very rights that they have specifically negotiated in their agreements – for example, where an arbitration award cannot readily be enforced in a particular jurisdiction. I have seen many examples of arbitration clauses which cause practical difficulties for clients seeking to commence arbitration proceedings or enforce an award. These include defects such as a reference in the clause to a non-existent institution or to rules which are not in fact the rules of the stated institution, a lack of clarity about who is a party to the arbitration clause, or what disputes properly fall within its ambit. Parties should also give careful consideration to dispute resolution mechanisms in their contracts and would be well advised to have the clause reviewed by a specialist at the drafting stage.
Luycks: A clear and unequivocal agreement to arbitrate is essential. Ambiguous or pathological wording potentially renders the arbitration clause invalid, could give rise to discussions as to the competence of the tribunal or could lead to problems when enforcing the award. Clear and adequate arbitration clauses are also essential to avoid lengthy discussions about the arbitral proceedings. Parties to business contracts often copy and paste clauses from contracts previously used instead of tailoring the arbitration agreement to their specific needs – for example, with regard to the seat of arbitration, the number of arbitrators, the expertise of the arbitrator, the possibility of arbitral appeal, and so on. It often proves to be more difficult to agree to deviate from the clause when the parties are no longer on friendly terms. Also, alternative methods for dispute resolution, such as mediation, conciliation or expert determination, should not be overlooked as a suitable mechanism for resolving disputes.
Chalk: I have certainly noticed that clients are now paying more attention to their arbitration clauses, and to dispute resolution issues in general, at the drafting stage. This has not always been the case and in the past, these clauses were often regarded as ‘boilerplate’ clauses to be agreed only on the eve of signing a contract. As a result of this trend, dispute resolution practitioners are now much more involved in helping to structure and draft key provisions in significant contracts, particularly where these involve a complex suite of contracts or where they involve higher risk investments. Indeed, in especially complex high profile investments, we are also increasingly being called upon to help structure investments so that clients are able to attract adequate bilateral investment treaty protection. This trend underscores the increasing importance that clients are placing on ensuring that their dispute resolution clauses are both technically correct and also effective in resolving any disputes which may arise.
FW: What factors often lead contracting parties to choose arbitration over litigation? Could you outline some of the key benefits of the arbitration process for the parties involved?
Venegas: When two parties based in different countries execute a contract, arbitration serves as a neutral ground on which they can resolve any possible future dispute without engaging in litigation before the courts of the country where one of the parties is domiciled – a strategic disadvantage. In arbitration, the parties have some control over who will serve as the tribunal members, therefore eliminating any concern as to any possible mistrust of the courts with jurisdiction over the dispute. In most cases, where the arbitral tribunal is composed of three arbitrators, each party will get to nominate an arbitrator whom they trust, and the arbitrators nominated by each party will agree on the person that should serve as president of the tribunal. Arbitration is commonly used to resolve highly complex disputes over which domestic judicial courts often lack expertise. In this respect, each party could choose an arbitrator with vast experience in, for example, the construction of hydroelectric projects. And this expertise will lead to a more informed decision by the arbitral tribunal, and will save time and costs as the tribunal will not need to be educated by the parties as to the complexity of the issues in dispute.
Colbridge: There are several important factors which may influence the parties in their choice of arbitration. The first is enforceability. Because of the New York Convention to which some 146 countries are now a party, arbitral awards are often more readily enforceable than court judgments. Another important factor is the neutrality of the forum. Parties in different jurisdictions may be cautious about getting involved in litigation in the local courts of their adversary, especially where, for example, the other party is a state owned or controlled entity. The courts in some jurisdictions may simply not be so used to dealing with the types of dispute that are likely to arise for particular parties and they may therefore have more confidence entrusting any eventual dispute to arbitrators whom they perceive to have an expertise in that area. The opportunity for each party to choose an arbitrator also provides some comfort that the tribunal will be composed of members who are well equipped to deal with the dispute at hand. Other considerations include the fact that arbitration proceedings are generally private and the proceedings are more likely to remain confidential than they are with litigation, as well as the fact that arbitral decisions are generally not subject to review on appeal.
Luycks: One of the main advantages of arbitration over litigation is that arbitral awards are internationally recognised and are relatively easy to enforce due to the large number of parties to the New York Convention. Another important factor is the possibility for the parties to decide on the composition of the panel and select impartial and knowledgeable persons. In technically complex, high profile cases, parties may want to ensure that the appropriate experts and best arbitrators sit on the panel. The brevity of the proceedings, because the decision is final and the grounds for challenging awards are limited, and the parties’ influence over the proceedings, are equally seen as an advantage over litigation. Although confidentiality is often regarded an important factor in choosing arbitration, there is no universal requirement of confidentiality and, depending on the applicable laws and arbitration rules, parties are advised to enter into a confidentiality agreement.
Chalk: Contracting parties may choose arbitration over litigation for a variety of reasons; one of the key drivers is often the international recognition of arbitral awards. The traditional view has been that arbitral awards enjoy much greater international recognition than judgements of national courts and, although there are small signs that this is changing, this remains generally the case, and can be attributed mainly to the success of the New York Convention regime. Other factors which weigh in favour of arbitration include the ability of parties to select the arbitrators; the parties’ desire for a final, binding decision; confidentiality; neutrality; and procedural flexibility. All these reasons point to the perceived key benefits of the arbitration process and have also been cited in surveys which have been carried out on arbitration users.
Litt: It probably is no surprise that many parties choose international arbitration in part for reasons that have little to do with the arbitration process, and a lot to do with the courts. A well-drafted arbitration clause is intended to give businesses assurance that they will have a qualified, neutral tribunal to resolve their disputes and avoid litigation in hostile or unreliable jurisdictions. Arbitration also promises an award that is difficult to challenge in court and is more likely to be enforced in many countries than a foreign court judgment, thanks to widely-adopted treaties on the enforcement of foreign arbitral awards. These factors are as important today as they have ever been. Many parties also seek decision makers with commercial experience and a confidential process and, in some instances, arbitration can be cheaper and more expedient than complex international litigation.
FW: New ICC arbitration rules were introduced at the start of the year. In your opinion, how will the new rules affect international arbitration processes going forward? What are the benefits and drawbacks of the revised framework? In what ways do the new ICC rules address multi-party and multi-contract arbitrations, for example?
Colbridge: The new rules will undoubtedly have a positive impact overall in terms of streamlining the process for arbitrating certain disputes, particularly with regard to the express provisions for joinder of additional parties, claims between multiple parties, multiple contracts and consolidation of arbitrations. The changes are a recognition of the fact that modern commercial relationships may not be, and are often not, exclusively based around a single agreement between two contracting parties. It remains to be seen quite how significant all of the changes will be in practice vis a vis the majority of ICC arbitrations that take place, given that it is still not possible to compel a third party to join arbitration proceedings if that third party is not also a party to the arbitration agreement.
Luycks: The new ICC rules contain provisions that can make procedures more time and cost efficient. Both the tribunal and the parties are made responsible for the cost effective and expeditious conduct. The tribunal first convenes a case management conference to set realistic deadlines for the submission of statements. In its decision on costs the arbitral tribunal may take into account the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner. This may be an incentive for parties to refrain from adopting delaying tactics. The new ICC rules contain several provisions to facilitate complex arbitrations – for example, multi-party or multi-contract arbitrations. Claims regarding more than one contract may be submitted in a single arbitration. Requests for joinder of a party must be filed before appointment of the arbitrators. In a multi-party arbitration, claims may be brought against any other party provided that jurisdiction is established prima facie.
Chalk: Under the previous version of the ICC Rules, concerns were sometimes raised by certain users over the cost and efficiency of arbitral proceedings, and it was said that ICC proceedings could be disproportionately expensive for certain types of disputes. There was also criticism that the rules lacked adequate provisions to deal with complex arbitrations involving multiple parties or contracts, which are an increasingly common feature of complex contracts today. To their credit, the ICC has very carefully listened to these comments and has introduced a number of new provisions to address these concerns. Provisions to cater for emergency arbitrators, joinder and consolidation, and various enhanced measures to promote cost and time efficiency have all been introduced. It is still too early to tell if these changes will achieve their full desired effect, but there is no doubt that they are a welcome improvement to the ICC regime.
Litt: The changes in the ICC rules that will appeal most to many arbitration consumers are the new provisions aimed at reigning in the costs of arbitration and the time it takes to get to a final award. These changes are the product of longstanding efforts at the ICC. The ideas that many of us generated several years ago on the ICC’s Task Force on Reducing Time and Costs in Arbitration have been incorporated into the new rules, which provide for early case management conferences, authorise the arbitrators to consider the parties’ efforts to act in an ‘expeditious and cost-effective manner’ when allocating costs and provide a menu of other ideas that may be helpful in various contexts. Ultimately, the conduct of the individuals involved in each case will still have the greatest impact on time and costs, but these rules can help motivated counsel and arbitrators press for efficiency.
Venegas: The ICC is one of the most respected arbitration institutions in the world and its new rules will undoubtedly have an impact on international arbitration practice. The rules were drafted by a committee of 20 members, who worked for nearly three years. The new rules encompass a variety of amendments to the 1998 rules, particularly relating to the prima facie jurisdictional analysis of the case; the availability requirement of the arbitrators; the constitution of the arbitral tribunal; and the conduct of the proceedings, principally with regard to efficiency, means of communication and case management. The amendments also concern the emergency arbitrator, who would rule on urgent interim relief required prior to the constitution of the tribunal; the circumstances surrounding disputes involving states; and multi-party and multi-contract arbitration. On this last point, the rules expressly allow the joinder of an additional party, regulate multiple claims by multiple parties in one single proceeding, and confer broader powers to the court to consolidate proceedings under specific circumstances. There is no question that these new rules are sophisticated and will allow for more efficient and speedy proceedings.
FW: How important is the commercial and legal expertise of the arbitrator to the success of the process? What can parties do to ensure the right individual is appointed?
Luycks: Legal disputes frequently have commercial aspects and implications, so in any arbitration it is necessary that the arbitrators grasp the commercial background of the dispute and the commercial consequences of an order or decision. In order to ensure the right individual is appointed as arbitrator, in the arbitration agreement parties can refer to an appointment procedure that gives them a say in who is appointed as arbitrator or include their own mechanism for appointing an arbitrator. Depending on the type of contract and disputes that may arise from it, parties may wish to include specific qualifications that arbitrators need to have, but they should avoid making these requirements too specific as this may make it difficult to find suitable arbitrators.
Chalk: To ensure an efficient and successful arbitration, it is essential for an arbitrator to have a combination of both solid commercial experience, legal acumen and familiarity with the arbitration process. Arbitrators in international arbitrations should also be able to demonstrate cultural empathy when dealing with different, and sometimes conflicting, cultures. In my view, the best guide for clients to the selection of arbitrators is to ask your own legal counsel who – if they are sufficiently experienced with arbitrations – should be familiar with which arbitrators are most suitable in each situation and which arbitrators will be able to devote the necessary time to the matter at hand. In this regard, personal experience, as well as the experience of a law firm’s own arbitration group, is irreplaceable.
Litt: If you are trying to pick the right arbitrator for your case, the first thing you need to do is to know your case. A party that is looking for a clear, confident application of the law of the contract should consider appointing someone with expertise in that law. If the case revolves around industry custom and usage, an arbitrator with industry experience may be the best bet. If a party has concerns about discovery, it may help to appoint someone who is experienced in a legal tradition that is attuned to those concerns. You cannot make those decisions, of course, unless you have meaningfully evaluated your case and developed an arbitration strategy at the earliest stages of the process.
Venegas: Arbitration is a complex proceeding that, if handled improperly, can lead to a vacated award and therefore, to the pointless expenditure of economic resources and time. Parties should appoint arbitrators with experience in handling arbitration disputes. Arbitration practitioners with vast experience as counsel can make excellent arbitrators – they are very well equipped to prevent procedural complexities, and very familiar with the application of notions of burden and standard of proof. Parties should seek advice from experienced counsel when deciding who to choose as their arbitrator. The appointment is crucial to their case, and many factors should be weighed, such as experience on the case issues, legal background, reasoning in previous publicly available awards or commentary, how busy the candidate is, and so on.
Colbridge: The parties will generally be keen to ensure that the arbitrators have sufficient technical expertise to deal with the arbitration at hand, whether that is in terms of a particular area of law or type of dispute, the law of a particular jurisdiction relevant to the dispute, or even a particular industry. The parties may also be keen to keep the arbitration in line with their expectations of domestic litigation in their respective jurisdictions. For example, a party from a civil law jurisdiction may seek to appoint an arbitrator with a background in civil law, and, vice versa, a party from a common law background. The differences in approach between common and civil law jurisdictions can have a significant impact on arbitral procedure.
FW: Under what circumstances should parties consider bringing expert witnesses into the process? How can they contribute to case analysis and even settlement discussions?
Chalk: Expert opinions are necessary where the dispute involves highly technical or specialised issues, including complex points of foreign law. In common law jurisdictions, an expert is typically appointed by a party and will usually provide evidence which supports the appointing party’s case; correspondingly, party-appointed expert witnesses are almost always necessary where your counterparty intends to call an expert to give evidence. However, an expert may also be requested jointly by the parties, or by the tribunal, to clarify difficult issues. Consideration of whether or not to use and present expert evidence should begin at the very earliest stages of the arbitration process. In my experience, it is rare to involve an expert in overall case analysis, although the expert’s views may be crucial in helping a party to reach a view on specific issues raised in an arbitration. As for settlement discussions, it is certainly rare to directly involve an expert in the discussions, which usually take place between the parties’ respective principals, or between their legal counsel. However, experts can help facilitate the settlement process, by quantifying a claim, and setting, for example, the upper and lower boundaries of a claim, which can then be negotiated and agreed by the parties. A word of caution however: expert evidence can be very expensive and of variable quality.
Litt: If the case raises a highly technical issue or a question of particular industry usage or custom, expert input can be essential both for early case evaluation and planning, and for the ultimate presentation of the case to the tribunal. However, parties and counsel should be wary of using experts when they are not really necessary. They can add significantly to the time and costs of a case and irritate some arbitrators, who may have little patience for experts who merely restate the evidence or trade in conclusions that can be reached with ordinary intelligence. Experienced arbitrators also are familiar with common theories of damages and may react badly to experts who advocate overly creative theories.
Venegas: The use of expert witnesses is required whenever the understanding of a technical issue in a case directly or indirectly determines the scope of the contractual obligations of the parties, and this technical issue is one that tribunal members find difficult to grapple. Experts contribute greatly to the analysis of the case, and also to the task of convincing the tribunal members of the technical merit of a parties’ case. In this respect, parties should engage experts that are not only highly knowledgeable and respected in their field, but that also have the ability to transmit their ideas in an orderly fashion, and in a convincing manner. Expert witnesses are usually called to the hearing and interrogated by opposing counsel and the tribunal members about their analysis and findings. In this respect, the character of the expert is also important, as she should have the personality to publicly defend her position, especially if confronted with the expert appointed by the other party.
Colbridge: Parties are likely to have recourse to experts when there are technical questions that need to be resolved in a dispute and about which there is scope for some disagreement. There is a vast array of areas where an expert’s knowledge and experience can be very useful, including, for example, the qualification of damages or financial loss, company valuations, valuations of other property such as IP, and providing an opinion in relation to a specific industry relevant to the contract – for example, whether certain behaviour was reasonable or conformed with industry standards. Experts can sometimes also be used for the purposes of settlement by, for example, narrowing down the issues in dispute or by quantifying a claim, so that the parties can enter into settlement negotiations.
Luycks: Where technical or legal questions are at issue and the arbitrators lack the expertise necessary to answer these key questions in order to resolve a conflict, expert witnesses can be of great assistance. They can shed light on causes and effects of defects, value of shares, legal questions in particular areas of the law, and more. Hearing the expert witnesses presented by both sides in confrontation can be extremely helpful to reveal their actual differences as to the specific issue and for the arbitrators to quickly get to the crux of the dispute. Alternatively, parties should consider jointly appointing an expert or having the tribunal appoint an expert to avoid excessive costs. Where technical rather than legal questions are at the heart of a dispute, binding expert determination can be a cost and time effective alternative to arbitration and lead to a fruitful settlement.
FW: What advice would you give to parties on how to control their arbitration costs?
Litt: A well-drafted arbitration clause is a key to avoiding protracted gateway disputes about jurisdiction, which can eat up lots of time and money without moving you any closer to a substantive resolution of the dispute. Arbitrator selection also can have a big impact on costs. Look for arbitrators with a proactive case management style, who have the time, confidence and commitment to move a case forward. Finally, hire experienced counsel who understand your goals and are committed to pushing the case forward quickly and efficiently. Counsel fees generally are the largest driver of costs, and counsel that is experienced in the forum and type of dispute can help you streamline the process and avoid unnecessary expenditures. If your lawyers and the arbitrators are committed to controlling time and costs, you are off to a good start.
Venegas: The majority of costs in arbitration proceedings are incurred in counsel fees. A statistical analysis published by the ICC in 2007 showed that 82 percent of the total costs in arbitration are incurred by the parties in presenting their cases. Therefore, our main advice is to hire experienced arbitration counsel, but with reasonable hourly fees or under a reasonable fixed budget. Parties should expand their possibilities and seek counsel other than US and UK based arbitration firms, as many firms in other jurisdictions have similar or more experience, and their fees tend to be considerably lower. In other words, parties should pay attention to the experience of the counsel they intend to engage vis a vis their fees, seek three or four alternatives, compare them, and make an informed decision when electing their counsel.
Colbridge: Once the arbitration process is initiated many of the associated costs will, unfortunately, be unavoidable. Disclosure, for example, is an area that can often involve significant expense for a client. Once the arbitration process has commenced it is important to have an agreed procedure that will regulate how such matters as disclosure are to take place. Agreeing to an international standard such as the International Bar Association (IBA) Rules on the Taking of Evidence may assist in keeping costs down. Other unavoidable expenses include the fees of the arbitrators and any institution that is administering the proceedings. At the time of contract drafting – before a dispute has arisen – the parties could give consideration to whether they want particular disputes dealt with in a particular way. It may be appropriate to refer certain disputes to expert determination instead of arbitration. It may also make sense to have a split liability and quantum hearing. That way if the claimant is unsuccessful at the liability stage, the parties do not need to incur the costs of determining quantum, which very often includes instructing experts.
Luycks: Rather than immediately initiating arbitral proceedings, parties should consider alternative mechanisms for dispute resolution such as mediation or conciliation, which have generally high success rates and are cheaper than a full fledged arbitration. These mechanisms are a good alternative to arbitration if parties continue to do business together. In arbitration, costs can be saved by selecting counsel with time and the relevant expertise, selecting a sole arbitrator for straightforward questions, keeping procedures simple by agreeing the procedural rules beforehand and well-defining the dispute in the terms of reference. The key to effective proceedings is a tribunal that is skilled in case management. Such a tribunal will adhere to a tight timeframe and avoid duplication, extensive discovery procedures, unnecessary submissions or witness or expert hearings. Using a single language for the arbitration, limiting physical meetings and making effective use of IT and teleconferencing can further help to limit costs.
Chalk: I have noticed in recent years that clients have placed a much greater emphasis on resolving disputes earlier and on controlling the cost and time spent on arbitrations. Experienced clients are taking an increasingly active role in the management of arbitrations, ensuring that disputes are not escalated prematurely, and where proceedings are necessary, to ensure that we are fully involved in their strategic thinking and in their commercial decision making process. Parties should continually review their costs position as the arbitration progresses and weigh this against their objectives and settlement opportunities. This will invariably change in the course of an arbitration and it is important to keep this under review and to appreciate that many variables will come into play over the lifetime of an arbitration which may affect the initial analysis.
FW: What additional challenges tend to arise in arbitrations when the disputing parties are resident in different jurisdictions, compared to domestic cases? How can these obstacles be overcome?
Venegas: If parties come from jurisdictions where a different language is spoken, the most obvious challenge is with respect to the language of the proceedings. Therefore, it is always useful to determine in the arbitration clause what the language of the proceeding should be. A second challenge may arise where parties come from jurisdictions with a different legal culture, for example, when a dispute arises between a company based in a common law country and a company based in a civil law country. There are many things that are done differently in each jurisdiction. For instance, while preparing witnesses is a practice that is condemned in Mexico, it is most appropriate in the UK. Further, witness examination techniques tend to vary a lot in each jurisdiction, and disagreements between counsel are not unusual during hearings.
Colbridge: One major challenge can be language since there may be documents in various jurisdictions which need to be translated, adding significantly cost to the proceedings. Briefs will need to be submitted and oral hearings heard in the language of the arbitration, which may not be the client’s own language or the language of key witnesses. Interpreters may therefore be required at hearings. I have seen many arbitration proceedings conducted in more than one language, with each party submitting their brief in different languages. There may be other practical matters such as document retention which are affected by the way a client organises itself internally within its own jurisdiction. There can be fairly big differences in litigation culture – for example, a US party may have different expectations about the disclosure process compared with a German party. These matters are generally resolved at a procedural hearing where the procedure for the arbitration is agreed and fixed.
Luycks: Where parties come from different countries and cultures, such different backgrounds will be reflected in the tribunal and legal representatives handling the case. Parties from different legal backgrounds – common law vs. civil law – will have different approaches, for example to procedure and evidence. Trade usages from one country, to be taken into account by the arbitral tribunal, may vary from those of another country. Also, problems in communication may arise. Selecting counsel that has international experience is essential in these types of cases. Furthermore, agreeing to the application of the IBA Rules on the Taking of Evidence may avoid unwelcome surprises and manage expectations as to procedural issues and evidence. Challenges in the enforcement phase may be limited by choosing the right seat of arbitration to be able to benefit from the New York Convention.
Chalk: Arbitrations involving parties resident in different jurisdictions usually raise a number of challenges because the complexity of an arbitration and the number of variables tends to increase as the number of jurisdictions involved increase. For example, on the legal front, more laws tend to come into play in cross-border disputes, ranging from the governing law of the dispute, the procedural law of the arbitration, the law of the place of enforcement and, at times, the laws governing the parties themselves. As a practical matter, parties also often encounter management difficulties, particularly with respect to evidence collation, discovery and location of witnesses. International conventions or guidelines, for example those issued by the IBA, have helped surmount some of these difficulties. However, where complex issues of foreign law are involved, it is crucial to work with capable local counsel who can use their local knowledge and expertise to guide parties through these various complications at the local level.
Litt: In cross-border disputes, there is a very real possibility that the parties’ local courts will be out of step when it comes to enforcement of an arbitration agreement or enforcement of an arbitral award. Some of this can be overcome through careful drafting of the arbitration agreement, but a disputing party should not assume that an agreement to arbitrate will permit them to completely avoid interference by the opposing party’s home courts. In addition to drafting arbitration clauses that clearly define the parties’ rights and obligations, disputing parties in international arbitration should always have their eyes open to the possibility that another party will bring an action in its home court or elsewhere to interfere with the proceedings, and it should be prepared to take necessary steps to combat such efforts.
FW: In your experience, is the process of enforcing arbitration awards and remedies around the world becoming easier? Should parties still be wary of pitfalls in this respect?
Colbridge: There are many countries which can be said broadly to have ‘arbitration-friendly’ regimes because, for example, they are a signatory to the New York Convention and/or have based their national legislation on the UNCITRAL Model Law designed to take into account the particular features and needs of commercial arbitration. Courts in particular jurisdictions may also have a policy of being receptive in general to arbitration. However, even where a country is a signatory to the New York convention, there may nevertheless be practical difficulties encountered with regard to the enforcement of an arbitral award. The convention itself provides some limited grounds for refusal to enforce an award such as the arbitral procedure not being in accordance with the agreement of the parties or the arbitration agreement being invalid under the applicable law. Care should be taken to minimise the chances of the respondent being able to utilise one of these grounds.
Luycks: This still very much depends on the country where the enforcement or remedy is sought. In New York Convention contracting states it is in general fairly easy to obtain leave to enforce an award. In some countries, such as the Netherlands, it may even be possible to enforce an award which has been set aside at the place of arbitration, as happened in the Yukos case. In that case, the Dutch court ruled that the Russian annulments had no effect as they were “the result of a partial and dependent judicial process”. Parties are to ensure that the tribunal is aware of the local requirements as to the award both at the seat of arbitration, where the award may be challenged, and in the country where enforcement may have to be sought. There may be specific requirements as to form and content of the award or the service thereof.
Chalk: Taking first the enforcement of awards, virtually all the major economies in the world – including many important developing countries – are now parties to the New York Convention. Notwithstanding this, the reality is that there may still be significant difficulties encountered in the enforcement and execution of awards in certain developing jurisdictions, and particularly in Asia. China is often cited as one jurisdiction that is especially problematic, particularly for foreign parties, although the position appears to be improving. China has in recent years been releasing its own figures to show that the enforcement of foreign awards has apparently been good. Turning now to the enforcement of interim measures, this has become an increasingly contentious area in recent years. The enforcement of interim remedies remains problematic although there are signs that in specific jurisdictions there are possible ways of overcoming this problem.
Litt: As the locations of your trading partners multiply, so do the questions about enforcement of arbitral awards and court judgments. Parties should consider how they will collect on an award before filing an international arbitration or lawsuit, and perhaps even before entering into an international contract. New York’s highest court attempted to make judgment enforcement easier in 2009 by ruling, in Koehler v. Bank of Bermuda, that non-parties can be required, in certain circumstances, to turn over a judgment debtor’s assets in New York even if the assets are actually located in a different country. However, the aftermath of the decision has been anything but easy, entangling banks and other parties in dozens of disputes about extra-territorial jurisdiction and conflicts between the laws of different jurisdictions. Three years later, we still are actively litigating cases in New York courts to define the limits of Koehler’s reach.
Venegas: Award enforcement is becoming easier with time, as enforcing courts now tend to be more educated on the scope of enforcement refusal grounds, particularly with respect to their familiarity with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (NYC). Also, given the increase in the number of arbitration cases globally, judicial courts are now more experienced in the enforcement of awards. Domestic courts are even enforcing arbitral awards that have been vacated by the courts where the award was rendered. In fact, this trend is undoubtedly becoming a general rule, as there are very strong arguments to hold that the NYC allows such enforcement. Nevertheless, award enforcements against states or against government-owned companies can still be problematic, particularly in jurisdictions where arbitration law and practice is still in its early development. We have participated in cases where, perhaps for political reasons and not legal, the notion of ‘public policy’ is still being misused to deny enforcement of awards, or to vacate them.
FW: To what extent are you seeing new centres of arbitration emerge and consolidate their presence in different regions? Do you expect to see arbitrating parties gravitate towards particular countries to resolve their disputes, perhaps in the search for procedural predictability, perceived neutrality, or otherwise?
Luycks: The well established institutions are moving into new markets. The ICC, LCIA and AAA/ICDR, with presence in various countries, are neutral and international and are thus most frequently chosen to administer arbitrations. Due to the growing complexity of business transactions and financial products, there is an increased need for specialised arbitrators and institutions. Prime Finance was established at the beginning of this year in the Netherlands as a new arbitration centre for financial disputes. This may lead to more parties operating in the financial sector to choose arbitration in this neutral and arbitration-friendly country. Parties tend to base their choice on whether the country is a New York Convention signatory, is perceived to be impartial and its courts are arbitration-friendly. Convenience, language and culture also play a role. Singapore and Tokyo attract an increasing amount of arbitrations, but London, Paris, New York and Geneva are probably still the most frequently chosen places of arbitration.
Chalk: London, Paris and New York continue to be important seats of arbitration. However, given the success of many Asian economies in recent years, it is no surprise that the volume of international arbitration in the region continues to grow rapidly. Asian arbitration institutions such as the HKIAC and SIAC, among others, have, to varying degrees, been successful in boosting the profile of arbitration in the region. This has been strengthened by the ICC opening its secretariat in Hong Kong and by the opening of Singapore’s Maxwell Chambers, a dedicated dispute resolution facility. Although virtually every economy in the Asian region has its own arbitration centre, in practice few of them will develop into serious alternatives to the established centres of Hong Kong and Singapore. A few of them are growing their case loads and are becoming more sophisticated, but in general, the gap between the leading arbitral centres and the other centres in the region is unlikely to narrow in the next few years.
Litt: London is still the world leader, followed by Geneva and Paris in Europe, and New York is the leading destination in the Americas. These venues will continue to do well because their courts have a long history of effective support for arbitration, and they also have stable and predictable commercial law. Still, regional centres have a meaningful chance to succeed; travelling around the globe for hearings is expensive and disruptive. Singapore built a much discussed facility for arbitration with high-quality hearing space, but I doubt it would have done so well in the last few years except that the government and courts have provided support for arbitration in a region where some of the largest commercial powers have famously difficult court systems. Regional centres can be effective, but only if the world is convinced that they are located in a consistent, reliable venue.
Venegas: Domestic arbitration centres have grown considerably over the past 10 years, mostly because of their lower costs when compared to the usual international centres. As a general rule, arbitration has grown in importance in those countries that have been able to attract new investments, and where the economic situation is healthier. For instance, Brazil has become an important commercial arbitration venue due to the investment it has received in recent years. More investment means more contracts, and more contracts mean more arbitration clauses. The seat of arbitration is indisputably important, and new places have arisen as appropriate venues to resolve disputes. Places like Singapore, Hong Kong, Dubai, Sao Paulo or Mexico City are now familiar seats of arbitration proceedings, although New York, London and Paris remain the most common.
Colbridge: In recent years we have seen some of the more traditional institutions gradually expanding their geographical scope and opening up centres in strategic jurisdictions. The LCIA, for example, now has centres in India and DIFC Dubai and is looking to open more centres in Mauritius and Singapore. The parties’ choice of arbitral seat will be influenced by many factors which can include the location, cultural background of the respective parties and the subject matter of the dispute. Parties may also have regard to whether a particular jurisdiction is arbitration friendly as described above or whether there are arbitrators practising in that jurisdiction who have a particular expertise and experience offer in a given case. We have also seen new institutions emerging with particular specialisms or which cater to particular categories of potential litigant. One example of note is PRIME Finance, an institution set up to deal specifically with disputes involving complicated financial transactions.
Dr Karen Akinci has 15 years experience in arbitration and leads one of the Akinci teams in international arbitrations before ISCID, ICC and ad hoc arbitrations under UNCITRAL. Brought up in the UK, she graduated with honours in mathematics from Exeter University before moving to Turkey. Followed by a doctorate in mathematics and an undergraduate LLB degree in law (England and Wales), she now works primarily in international construction arbitration.
Thomas G. Rohback is an experienced trial and appellate lawyer. He has been praised in Chambers as being “great at simplifying complex matters for a jury” and as having a “great reputation”. Throughout the United States, his cases have involved diverse areas of the law ranging from antitrust to anti-terrorism litigation. The industries in which Mr Rohback has represented clients include manufacturing, financial services, insurance, utilities and telecommunications.
Peter Yuen is a Hong Kong-based dispute resolution lawyer whose practice spans a number of areas including international and regional arbitration. He has acted for clients in a number of high profile China related commercial arbitrations, and complex commercial litigation. His experience in arbitration covers both institutional (mainly, ICC, SCC, LCIA, HKIAC) and ad hoc (mainly UNCITRAL) arbitrations in English and Chinese languages.
Jérôme Richardot is a seasoned litigator with over 25 years’ experience, mostly at international law firms. His practice has included business and corporate litigation, and international arbitration. He has managed cases in connection with turn-key industrial agreements, claims based on contractual representations and warranties, intellectual property disputes, construction contracts, and many others. Mr Richardot is a member of the Association Française d’Arbitrage and is a registered ‘mediator’ with the Centre de Médiation et d’Arbitrage de Paris (CMAP).
Elie Klieman is a member of Freshfields’ dispute resolution team and the managing partner of the firm’s Paris office. Mr Klieman cares deeply about having satisfied clients and sees arbitration and litigation as routes to solving their business problems. He puts considerable emphasis on the information that he supplies to them at every stage throughout a case. His clients acknowledge him for possessing a rare combination of innovative advocacy skills and as being a formidable market force.
Tony Levitt is a founding partner of RGL Forensics, a leading forensic accounting and consulting firm. In addition to being a chartered accountant, he is also an accredited expert witness and a chartered arbitrator. Mr Levitt acts as an expert witness and presides over arbitration proceedings in cases where quantum is in dispute. His assignments take him to the United Kingdom, Europe, Middle East, Far East, Australia, Africa and North and South America.
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.
Marco Tulio Venegas’ area of practice includes all types of complex transnational and domestic litigation, as well as arbitration of commercial, construction and investment disputes under various rules. Other than his experience at Von Wobeser y Sierra, Mr Venegas was a member of the arbitration practice group of a ‘Magic Circle’ firm, and early in his career worked in the Secretariat of the ICC International Court of Arbitration. He is fluent in Spanish, English and French.
© Financier Worldwide
Karen Denise Akinci
Akinci Law Office
Thomas G. Rohback
Axinn Veltrop Harkrider LLP
Skadden, Arps, Slate, Meagher & Flom LLP
Marco Tulio Venegas
Von Wobeser y Sierra