disruption of arbitration (challenges arbitrators) · truncated tribunal – what is it? –...

Disruption of Arbitration (Challenges of Arbitrators)

John Savage

Singapore, December 3, 2012

2

Theme of Presentation

•

challenges: safeguarding integrity of tribunals and procedural fairness?

•

or opportunities to disrupt proceedings and resist enforcement?

3

Outline of Presentation

1. Context: realities of international arbitration

2. Disclosure

3. Legal standard for challenges

4. Procedure for challenges

5. Consequences of challenges

6. Using challenges to disrupt proceedings

7. Using challenges to annul or resist enforcement of award

8. How to mitigate these risks

9. When is a challenge worthwhile?

4

1. Context: Realities of Int’l Arbitration

•

nature of int’l arb today: transnational, harmonised, sui generis

beast, or offshoot of local litigation?

•

applicable norms/sources:

–

NY Convention

–

Model Law (and other arbitration statutes)

–

Uncitral Rules (and other arbitration rules)

–

IBA Guidelines

–

published court and institutional decisions on challenges

–

special case of ICSID

5

…Realities of Int’l Arbitration…

•

relationship between the different applicable norms?

•

institutional arb’n vs ad hoc

•

annulment and enforcement risk in the real world

•

how effective is int’l arbitration as a result?

6

…Realities of Int’l Arbitration…

“Regrettably, this subject [conflict of interest and bias] has

become of much greater contemporary importance [since

1989] … The continuing deterioration in the spirit of

arbitration entails that objections are now being made on the

grounds of supposed interest or bias which would never have

been put forward in the past. These are, we hope and believe,

largely rejected, and they serve the purpose only of wasting

time and money.”

(Mustill and Boyd 2001)

7

2. Disclosure

•

concept:

–

I

must

disclose

circumstances

which

may

give

rise

to

justifiable

doubts

as

to

my

independence

and

impartiality

but

which

I

don’t

think

actually

do

give

rise

to

justifiable

doubts (otherwise I would decline the appointment)

•

see Uncitral Rules, Art 11, Model Law, Art 12.1 etc

•

necessarily a different (higher) standard than for challenges

•

current practice today on disclosure (institutions, arbitrators

themselves)

8

3. Legal Standards for Challenges

•

what is a challenge?

•

typical standards for challenges:

–

arbitration

rules

(eg

Uncitral

Rules,

Art

12:

“[challenge]

if

circumstances exist that give rise to justifiable doubts as to

the arbitrator’s impartiality or independence”)

–

law

(eg

Model

Law,

Art

12:

“[challenge]

only

if

circumstances exist that give rise to justifiable doubts as to

his

impartiality

and

independence,

or

of

he

does

not

possess qualifications agreed to by the parties”)

9

…Legal standards for challenges…

•

typical standards (cont’d)

–

conventions

(eg

NY

Convention,

Arts

V.1.d

(arbitration

agreement),

V.2.b

(public

policy)

and

possibly

V.1.b

(opportunity to present case))

–

ICSID Convention, Arts 57 and 58

–

“soft law”, especially IBA Guidelines

10


•

independence and impartiality

–

independence:

absence

of

relationship

with

parties

(or

their counsel?) An objective matter

–

impartiality: absence of bias towards parties or their cases.

A subjective matter, goes to arbitrator’s state of mind

–

relationship between independence and impartiality?

–

justifiable

doubts:

would

a

“reasonable,

fair‐minded

and

informed person”

have justifiable doubts? (National Grid v

Argentina)

11


•

IBA Guidelines–

red

list

(waivable

or

nonwaivable):

leads

to

removal

if

nonwaivable or waivable but not waived

–

orange list: requires disclosure

–

green list: does not require disclosure

–

problems really arise around orange list

12


•

typical circumstances relied on for challenge–

repeat appointments

–

connection

with

a

party

(often

through

law

firm

or

directorship)

–

issue conflict

–

actual bias?

13


•

some examples in the public domain of recent challenges

–

Vivendi v Argentina II (annulment, Kaufmann‐Kohler)

–

Telekom Malaysia v Ghana (challenge, Gaillard)

–

Perenco v Ecuador (challenge, Brower)

–

Tecnimont v J&P Avax (annulment, Jarvin)

14


•

some examples of recent challenges from my practice

–

SGS v Pakistan (challenge, Thomas)

–

French claimant v Singaporean respondent (challenge,

Savage)

–

US claimant v SE Asian respondent (challenge,

respondent’s party‐appointed)

–

US claimant v Pakistani claimant (challenge, anti‐suit

injunction, Boo)

15


•

failure to possess qualifications agreed by the parties–

current tendency by parties to specify too many (generally

useless) qualifications

–

consequence:

small

pool

of

qualified

arbitrators

or

risk

of

challenge

16


•

what if arbitrator misconducts himself or is incapable?

–

can be de facto

challenge (eg, Uncitral Rules, Art 12.3)

–

or separate procedure for removal (eg, Model Law, Art 14)

17


•

note somewhat different approach (or is it just wording?) in ICSID arbitration

–

ICSID Convention, Art 14.1: persons on ICSID panel shall be

“of

high

moral

character

and

recognized

competence

in

the fields of law, commerce, industry or finance, who may

be relied upon to exercise independent judgment”

–

Art

57:

challenge

available

if

“any

fact

indicating

a

manifest lack

of the qualities required by [Art 14.1]”

18

4. Procedure for Challenges

•

Uncitral Rules, Art 13–

short

notice

(challenge

within

15

days

from

appointment

or learning of circumstances)

–

with reasons

–

parties may all agree, or arbitrator may withdraw (without

admission of validity of challenge)

–

if

not,

challenging

party

may

pursue

challenge

within

30

days

of

notice,

with

appointing

authority

deciding

(no

parties submissions specified, no deadline specified)

19

…Procedure for Challenges…

•

typically, no reasons are given in decisions

•

but note LCIA, PCA and ICSID now publish their decisions

•

why the different approaches to publication?

20


•

challenges in ad hoc

arbitration?

–

If

no

institution/no

agreement

on

challenge

procedure,

challenge

can

be

brought

to

arbitral

tribunal

(Model

Law,

Art 13.2) or directly to the court (English Arb’n Act, s 24.1)

21


•

ICSID

–

challenge decided by other tribunal members

–

or by Chairman of ICSID Admin Council if sole arbitrator or

majority

of

tribunal

challenged,

or

if

other

arbitrators

are

divided (ICSID Convention, Art 58)

22

5. Consequences of Challenges

•

consequences of pending challenge on continuing arbitration?

–

some rules provide for suspension of proceedings

–

others leave it to discretion of institution (SIAC Rule 12.2)

–

nothing

specific

in

Uncitral

Rules

or

Model

Law,

although

latter does say arbitration can continue pending challenge

or appeal to a court–

opportunity for delay and disruption of proceedings

23

…Consequences of Challenges…

•

consequences of unsuccessful challenge–

tribunal continues in place

–

possible

appeal

to

the

courts

(of

the

seat)

of

decision

by

institution/appointing authority on challenge? Model Law,

Art

13.3,

English

Arb’n

Act,

s.

24.2.

But

not

in

France

or

Switzerland

–

appeal is a further opportunity for delay and disruption

–

impact

of

unsuccessful

challenge

on

tribunal

and

on

challenged member?

24


•

consequences of successful challenge:–

replacement

of

challenged

arbitrator,

by

same

method

as

for

his

appointment

(see,

eg,

Uncitral

Rules,

Art

14.1,

Model Law, Art 15)

–

but

note

Uncitral

Rules,

Art

14.2:

if

appointing

authority

determines

“in

view

of

the

exceptional

circumstances

of

the

case”

that

it

should

deprive

party

of

right

to

appoint

substitute arbitrator, it can appoint the substitute itself, or

allow tribunal to continue in truncated form

–

proceedings continue, but may need to be repeated

25


•

should proceedings be repeated, and if so how much should be repeated?

–

Uncitral

Rules,

Art

15:

“the

proceedings

shall

resume

at

the

stage

where

the

arbitrator

who

was

replaced

ceased

to perform his or her functions, unless the arbitral tribunal

decides otherwise.”

–

nothing in the Model Law, but some statutes also provide

for tribunal’s discretion

–

when would tribunal decide otherwise?

–

repeating

proceedings

an

opportunity

for

delay

and

disruption of proceedings

26


•

truncated tribunal–

what is it?

–

truncated tribunal now expressly permitted under Uncitral

Rules, Art 14.2. Also LCIA Rules, Art 12

–

how

will

these

provisions

fare

on

annulment

and

enforcement?

–

classic case of truncated tribunal: Himpurna v Indonesia

27


•

appeal of successful challenge decision before annulment and enforcement stage?

28


•

unsuccessful challenge = ground for annulment (setting aside)

–

eg

Model

Law,

Art

34.2.a.iv

(composition

of

tribunal

not

consistent

with

agreement

of

parties),

b.ii

(public

policy),

or possibly a.ii (party unable to present case)

–

ICSID

Convention:

Art

52.1.a

(tribunal

not

properly

constituted)

29


•

unsuccessful challenge = ground for resisting enforcement

–

same

or

similar

as

grounds

for

setting

aside.

Eg,

Model

Law,

Art

36.1.a.iv

(composition

of

tribunal

not

consistent

with

agreement

of

parties),

b.ii

(public

policy),

or

possibly

a.ii (party unable to present case)

–

same grounds in NY Convention

30

6. Using Challenges to Disrupt Proceedings

•

why would a party (usually the respondent) want to delay or disrupt arbitration?

–

keep the claimant from his remedies for longer by delaying

issuance of unfavourable award

–

allow more time to prepare case

–

allow more time to seek remedies in competing forum

–

divest assets, destroy evidence

–

increase expense for claimant

–

and thereby force settlement, withdrawal of claims, or less

unfavourable award

31

…Using Challenges to Disrupt Proceedings…

•

how challenges can achieve delay and disruption

–

suspension of arbitration pending outcome of challenge

–

suspension of arbitration pending outcome of appeal

–

repeating proceedings

–

preventing issuance of (unfavourable) award

32


•

how effective are challenges in delaying arbitrations?

–

may depend on whether court is involved

–

and

then

may

depend

on

where

seat

is

located,

and

the

courage

of

the

arbitrators

in

deciding

to

continue

the

arbitration (eg, in the face of an anti‐suit injunction)

33


•

downsides to challenges intended to disrupt

–

intention

to

disrupt

is

usually

evident

and

not

welcomed

by majority of tribunal at least

–

tribunal

may

accelerate

subsequent

stages

of

arbitration

to make up time

–

challenging party’s overall credibility may be harmed

34

…Using Challenges to Disrupt Proceedings

•

but a challenge (of sorts) can also be used to prevent disruption by an arbitrator (eg Uncitral Rules, Art

12.3, where an arbitrator fails to act)

35

7. Using Challenges to Annul or Resist Enforcement of an Award

•

several grounds available to annul (set aside) or resist enforcement of an award

–

Art 34 Model Law (for annulment)

–

Art

36

Model

Law/Art

V

NY

Convention

(for

resisting

enforcement)

36

…Using Challenges on Annulment or Enforcement…

•

must have raised challenge during the arbitration (assuming facts relied on were known then)

•

but interlocutory challenge decision may preclude annulment

•

assuming not precluded, how successful will the challenging party be at this stage?

–

new facts

–

in a strong court

–

in a weak court

37

8. How to Mitigate Risk of Challenge‐ Related Disruption

•

modern rules expedite challenges before respectable authorities

•

exclude interlocutory appeals (can you? should you ‐ ‐

double‐edged sword?)

•

presumption in favour of not suspending arbitration pending challenge or appeal

•

clarification of standards?

•

raise threshold (eg, reasonable lawyer not reasonable man?)

38

…How to Mitigate Risk of Challenge‐Related Disruption…

and most importantly, in your contracts…

•

choose a sensible seat

•

choose institutional arbitration and a sensible institution

39

9. When is a Challenge Worthwhile?

•

assuming you’re not out to delay, is a challenge really worth it (especially when you’re the claimant)?

•

you choose one arbitrator, you often have a voice in choice of chairman, and you may not really care

about the bias of the opponent’s party‐appointed…

•

but the position may change during the arbitration, even regarding your own party‐appointed…

40

John Savage

Partner, King & Spalding (Singapore)

[email protected]

www.kslaw.com

mailto:[email protected]

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