Category Archives: Litigation Mediation & Arbitration

Publication of international adjudication decisions and arbitral awards: confidentiality v transparency

 

  1. Introduction

In his entertaining and erudite address to celebrate the 150th anniversary of The Incorporated Council of Law Reporting for England and Wales[1], Lord Neuberger drew particular attention to the following wartime words of Lord Atkin in his famous (if not infamous) speech in Liversidge v Sir John Anderson[2], described in the Foreword to the 150th Anniversary Edition of the Law Reports as a dissent of “power, eloquence and passion”.

The Lord Chief Justice went on to point out in his Foreword[3]:

First, the case demonstrates the importance of a dissenting judgment, for, less than 40 years later, Lord Diplock was to accept in R v Inland Revenue Comrs, Ex p Rossminster Limited that Lord Atkin was right:

‘For my part I think the time has come to acknowledge openly that the majority of this House in Liversidge v Anderson were expediently and, at that time, perhaps, excusably, wrong and the dissenting speech of Lord Atkin was right.’

Second, it demonstrates the courage necessary to take an unpopular decision and to withstand all pressures.  The then Lord Chancellor attempted to persuade Lord Atkin to omit his reference to Alice in Wonderland; and Viscount Maugham subsequently wrote to The Times to deplore Lord Atkin’s characterisation of the Crown’s arguments as those which might have been used at the time of Charles I.  The case thus illustrates why Lord Atkin must be regarded as one of our greatest judges”.

(emphasis added)

This quotation of antique authority serves the sole purpose of emphasising the immense importance under Common Law systems of having accurate and comprehensive law reporting, where such systems inherently depend upon reference to precedent cases.

Such a system is inevitably eroded when important cases (and issues) are decided by private “judges”, as has happened, by way of example, in the United Kingdom, following the coming into force of the Housing Grants, Construction and Regeneration Act 1996 (the HGCRA) (as amended by the Local Democracy, Economic Development and Construction Act 2009 (the LDEDCA)) and, on the international stage, by ad hoc, or institutionally administered, arbitration.

This article sets out to weigh in the scales of balance the question of confidentiality, which is so vital to private adjudicatory proceedings (such as domestic UK adjudication proceedings, dispute adjudication boards (DABs) under FIDIC and other standard from contracts and international commercial arbitration), with the perceived need for greater transparency and a “level playing field”, in which all participants (not just the MAFIA[4]!) are able to source any relevant precedent.

The availability of such precedent is seriously eroded when adjudicators, DABs and arbitral tribunals make decisions (for example, upon the proper interpretation of commonly-used standard forms), which never see the light-of-day in the public domain, unless the decision in question happen to become the subject-matter of enforcement proceedings (usually (in England and Wales) in the Technology and Construction Court), or on appeal (usually (in the same jurisdiction) in the Commercial Court).

Confidentiality

As Avv Mauro Rubino-Sammartano accurately observes at section 19.17 of his International Arbitration Law[5] (under the heading “Confidentiality of the award”):

The award, contrary to court decisions, is not in the public domain until it is published, with the consent of a party, or it is attacked before a court or its recognition is applied for.

The problem of classifying a possible breach of confidentiality by the arbitrators, or by participants to the proceedings, has been raised. It has been argued that such conduct would amount to a breach of confidence. The publication of awards is in a border-live region between the duty to preserve confidentiality on the one hand, and the great advantage which their publica­tions provides in the study and progress of the law of arbitration on the other. The formula of publishing long passages of awards, from which the names of the parties has been eliminated, tries to satisfy both requirements.

The publication of awards[6] is expressly allowed by the Russian arbitration rules[7]:

‘With the permission of the President of the Arbitration Court the awards of the Court may be published in periodicals or in special collections of awards. The interests of the parties shall be taken into account and in particular information containing identification of the parties, enterprises commodities and prices shall not be published’

and in the Polish arbitration rules[8]:

‘The President of the Court of Arbitration may order the award to be published in juridical and commercial periodicals, but without designation of the parties’.

 However, the duty of secrecy is expressly specified for the arbitrator by the Polish Court of Arbitration[9]:,

 ‘He shall be bound to observe secrecy’.“

(emphasis added)

In a similar vein, sections 2-818 and 2-819 of Volume 1 of the lilac-hued (and somewhat “long in the tooth”) fourth edition of Bernstein’s Handbook of Arbitration and Dispute Resolution Practice[10] read as follows (under the heading “Confidentiality of the Award”):

“2-818    An arbitration award is confidential. As the cases make clear, it may be disclosed to a third party if it is reasonably necessary for the establishment or protection of an arbitrating party’s legal rights in relation to that third party.[11] It is important to note that this test does not apply to an application for disclosure of the award by a party who was not a party to the original arbitration proceedings. In this situation, the two tests .to be applied are, first, one of relevance, arid secondly, whether disclosure is necessary for a .fair disposal of the action, so as to out­weigh the duty of confidentiality.[12]

In addition, a party to the arbitration may of course disclose the award to the court for the purpose of invoking the court’s supervisory jurisdiction, or en­forcing the award.[13]  Equally, there may be disclosure under compulsion of law, with the leave of the court, or by consent with the other party to the arbitration.

(…)

2-819     The English courts have not yet had to decide a case where it is argued that the public interest requires disclosure, as was the case in Esso Australia. In international arbitration, the confidentiality of arbitration awards may be being slowly eroded due to the public law aspect of many proceedings. The reporting of ICSID, NCAA and Nafta awards and the decisions of the Iran-US Claims Tribunal illustrate cases where it has been recognised that the interest in the arbitration lies in the public, rather than the private, sphere.[14]  Accordingly, it seems likely that as both domestically and internationally, arbitration becomes recognised increasingly as a matter of public law, the public interest exception will be further developed. In so doing it is necessary to draw a proper balance between the protection of the public interest in the transparency and accountabil­ity of public administration, and the legitimate interest of commercial concerns to protect commercial confidence and the privacy of their commercial dealings.

Transparency

At section 3.6 of Rubino-Sammartano, the author seeks to distinguish between arbitral and court precedents, as follows (under the heading “(a) Arbitral precedents”):

 “Awards are generally not published unless they are attacked, or their recognition or enforcement is sought. An exception to this rule is made for the ICC awards published in Clunet (Journal du Droit International) and the decisions of the Iran-US Claims Tribunal. Individual awards are also occasionally presented to law journals and published; they are regularly published by the Yearbook of Commercial Arbitration. Among the other reports one must men­tion, besides Clunet, the Journal of International Arbitration (Geneva), the Revue de l’Arbitrage (Paris), the Rassegna dell’ Arbitrato (Rome), Arbitration International (London), Arbitration Journal (London), the Japan Arbitration Journal, the AAA’s Arbitration Journal, the Collection of Information Ma­terials (USSR), the News from ICSID, the Journal of Commercial Arbitration (Korea) and The Arbitrator (Australia).

Amongst the bulletins which summarise information are the ICA Indian Arbitration Quarterly, the American Arbitration Association Quarterly and the Mediterranean and Middle East Quarterly Report (Cyprus).

Arbitral precedents have no binding nature, as the Arbitral Tribunal (Cremades, Chairman, Pereira and Redfern) stated in Liberian Easterfi Timber[15]:

‘although the Arbitral Tribunal is not bound by the precedents of another ICSID arbitration tribunal’,

but they are carefully examined by the arbitrators, who state:

it is not without interest to note their construction…’

and who, after having quoted several precedents, state that they constitute:

a useful guide to the Arbitral Tribunal for the assessment of the damages’.

One could say that arbitral precedents have a persuasive value, if this is construed as a simple possibility for persuading the arbitrator, instead of an indirectly compulsory directive.

Arbitral precedents are referred to frequently by arbitrators as witnessed in the important oil arbitrations and in express reference to them in several ICC awards[16].  In the award rendered in 1986 in ICC proceedings No. 43811[17] the arbitrators openly refer to arbitral precedents stating:

‘whereas it has been recognised by arbitral precedents…’

Even Derains in his comments on this award[18] states:

The reasons given by the arbitrators in this matter are fundamen­tally based on arbitral precedents, summaries of which have already been published’.

The awards made in 1977 in ICC proceedings Nos. 2745 and 2762 go even further[19]:

It would be paradoxical to hold that an arbitrator sitting in an ICC arbitration would not be bound by a previous award rendered between the same parties and on the same matters by another arbitrator also sitting in an ICC arbitration’.

A further comment by Derains[20] that the publication of arbitral awards contributes to the creation of unity in arbitral precedents, also seems well- founded.

New York Bar survey

In February 2014, the New York City Bar published a Report by its Committee on International Commercial Disputes, entitled Publication of International Arbitration Awards and Decisions, surveying ten major international institutions and identifying (on pages 1 to 3 inclusive thereof) and summarised the following “issues posed by publication” of such awards and decisions:

“A. Confidentiality

International arbitration has traditionally been private though not necessarily confidential. Publication of unredacted decisions certainly lessens that. Even when decisions are just summarised, or are published in heavily redacted form, to eliminate party and arbitrator names and specific facts, that may not hide enough to maintain as much privacy as the parties desire. Parties who are against publication stress the importance of party autonomy in arbitration and note that they bear the costs of every element of the process.  Parties who feel strongly about confidentiality may therefore want to consider drafting arbitration clauses with strong confidentiality provisions and selecting an administering institution that does not publish anything.

B. Opening the Club/Leveling the Playing Field

 International arbitration has been criticized for excessive clubbiness, both as to arbitrators and advocates.  Publication of awards and decisions can exacerbate or alleviate that widely perceived characteristic.  Specifically:

    1. There is a (perceived or actual) tendency of advocates and parties to return to a small group of the ‘usual suspects’ when choosing arbitrators. To the extent that the names of arbitrators are disclosed in published decisions, that tendency could increase if publication bore out the perception that a small group of arbitrators dominate the field, decrease if disclosure shows a great diversity of active, widely used arbitrators, or simply alter the choices to the extent that the parties perceive variations in expertise or biases among specific arbitrators.
    2. Greater access to the content of awards and the arbitrators rendering them confers advantages in the process, and that access can be very uneven. Lawyers or firms with large international arbitration practices develop files and institutional knowledge about the arbitrators, institutions, and procedural customs that may not be available to those at smaller films or firms less immersed in international arbitration. The less information that is publicly available about arbitrators and their decisions, the greater is the advantage of a relatively small group of firms and lawyers. Increased publication of arbitral decisions may tend to level the playing field and open the practice of international arbitration to more lawyers. The extent of levelling may, however, depend on the cost of access to publications and the degree to which published decisions are redacted. Smaller practices may not be able to afford the often high subscription rates of the publications of arbitration institutions, which would tend to counter­balance the greater openness that publication would otherwise bring. Also, publication of only limited numbers of redacted awards may make little difference in this imbalance.

 C. Shift to a Precedent-Driven System

Arbitral awards and decisions have had no formal precedential value, either as to procedural decisions or interpretations of law, but increased publication may alter that as a matter of practice even if not as a formal matter, at least to the extent the decisions involve procedural matters or recurring, general substantive issues, and do not merely turn on idiosyncratic contractual language or factual issues.  The extent to which practitioners and arbitrators are citing and using prior decisions as precedent and whether that will accelerate with greater publication is a topic for further investigation.

 D. Changes in the Content and Style of Awards and Decisions

An arbitrator who knows that his or her decision is likely to be published may write it differently than one whose sole intent is to inform the parties. While some believe that the knowledge that their awards will be published will impose a desirable discipline on arbitrators to articulate coherent legal and factual bases for them findings, others are concerned that publication will undesirably impact the form, substance, and length of awards. Arbitrators writing for a broader public audience than just the parties before them may tend to write awards that are longer and that are driven by considerations beyond those necessary to resolve the particular dispute before them.

This may be more likely if the arbitrator’s name is disclosed, which has so far been the practice of a minority of institutions that publish decisions. The sense that publication may change how decisions are written (whether for better or worse) remains, however, even if the names of the arbitrators are not disclosed.

E. The Cost of Selection and Editing

Selecting and editing awards for publication incur significant costs, and this fact appears to have had an influence on institutions’ decisions. The editing process also carries certain risks – eg, whether the redactions are indeed sufficient to prevent identification of the parties.

F. Publication of Awards vs Challenges

The London Court of International Arbitration (‘LCIA’) has decided that it is more important and useful to the arbitration community, and less threatening to confidentiality, to publish the reasoning of decisions on challenges to arbitrators. The Stockholm Chamber of Commerce (‘Stockholm Chamber’) also publishes summaries of some decisions on challenges along with other more noteworthy awards or decisions.  Decisions on challenges are more specific to arbitration and more difficult to research as compared to arbitrators’ reasoning on substantive law, for which judicial decisions are available and more authoritative.

The publication of institutional decisions on challenges to arbitrators may, depending on the trends they evince, encourage, discourage, or simply sharpen the arguments of such challenges. Some believe that greater disclosure of the low rates of success in such challenges will discourage frivolous challenges.

 G. Impact on Challenges to Arbitrators

To the extent that arbitrators’ names are published, the publication of awards may lead to more challenges to arbitrators on the basis of partiality. While publication of awards may provide useful information about an arbitrator’s or potential arbitrator’s views on particular issues likely to arise in an arbitration, some have expressed concern that it may also lead to more challenges to arbitrators on “issue conflicts” grounds – ie, challenges to an arbitrator on the grounds that he or she is biased as to issues likely to arise in the arbitration by virtue of prior published views on those issues. Such challenges are increasingly seen in investment treaty arbitrations and might, with increased publication of awards with arbitrators’ names, also increase in private commercial arbitration.

 H. The Difference Between Commercial and Investor-State Arbitrations

The policy arguments for publication of awards in sovereign arbitration are quite different from the arguments for publication in the context of private commercial arbitration. Claims by investors against a sovereign state have far greater political and public interest implications, so arguments for greater transparency in that type of international arbitration may not necessarily apply or may be of lesser significance to commercial disputes.

 I. Potential for Publication Beyond Institutional Control

All institutions’ rules on party confidentiality have exceptions for court filings to enforce or vacate awards.  At least in the United States, court filings are public, unless a court permits a party to file the document under seal for reasons of particular confidentiality, which is relatively rare. Court files may therefore be a fertile ground for finding full, unredacted arbitral decisions, and the Committee is aware that some legal publishers have contemplated mining those files to publish the decisions. This may provide more detailed information on the arbitrations and arbitrators, and may also be a reason for a party to hesitate in seeking to confirm or vacate an award.

For better or worse, the criteria for determining disclosure differ between institutional publication and court filings. Institutional selection reflects institutional considerations such as perceived quality and broad applicability of the reasoning.  The selection for court filings is simply the decision of a party to seek judicial relief to vacate or confirm an award, which could reflect the perceived quality of the award or just party strategy[21].”

Further researches

In a similar vein, the author of this article has carried out a simple comparative survey of many major international arbitral institutions, the results of which are set out in tabular form in the appendix hereto. This appendix examines the extent to which the various sets of international rules do (or do not) encourage the publication of redacted awards.

Further reporting encouraged

One particular field can serve by way of an example of when and where such reporting is both eminently desirable and necessary, namely in the interpretation of standard form contracts, such as the FIDIC “rainbow” suite of contracts.

Taking, by way of straightforward example, the enforceability (or otherwise) of FIDIC dispute adjudication board decisions (analogous to those of UK adjudicators under the HGCRA (as amended)) searches of BAILII and similar electronic search engines, throw up the three Persero decisions[22] in the Singapore courts, together with the two further (Swiss and English) Illustrations set out under paragraph 17 below.

One particular issue which arises (particularly under the FIDIC contracts, which use a multi-tiered dispute resolution process) is what the parties should do where a DAB has not been constituted. This question is particularly pertinent in circumstances where one of the parties attempts to delay and disrupt the constitution of an ad hoc DAB, which has to be put in place in order to resolve a specific dispute (as opposed to a standing DAB appointed at the outset of a project). Absent a DAB, how can any dispute be referred to it? Can such a dispute be referred directly to arbitration (or litigation) instead?

The standard FIDIC terms do not themselves provide a clear answer to these questions. However, it has been suggested by some commentators that an answer could be found in sub-clause 20.8. Although entitled “Expiry of Dispute Board’s Appointment” (which could be interpreted as applying solely where a DAB is already implemented), the clause states that the provisions relating to the DAB do not apply and a dispute may be referred directly to arbitration in circumstances where “there is no [DAB] in place, whether by reason of the expiry of the [DAB’s] appointment or otherwise” (emphasis added). The phrase “or otherwise” may, perhaps, offer a possible answer to the question, although it is by no means a clear-cut one.

One effect of this uncertain situation is that a party on the receiving end of a notice of arbitration will often challenge the arbitral tribunal’s jurisdiction, if only as a tactical point to be taken in settlement discussions, or to buy more time in which to prepare their defence in the arbitration.

Two decisions in South Africa in 2013 and four decisions in 2014 from the Swiss Supreme Court and the London and Leeds Technology and Construction Courts (as well as Persero in Singapore) have provided some guidance about the precise manner in which this clause ought properly to be interpreted.

ILLUSTRATIONS

Facts:  In a case regarding a contract under the standard FIDIC Conditions of Contract and the effect of sub-clause 20.4 and 20.6 thereof, it was held: by Plessis AJ, that: “The effect of these provisions is that the [DAB] decision shall be binding unless and until it has been revised as provided. There can be no doubt that the binding effect of the decision endures, at least, until it has been so revised….” “… The notice of dissatisfaction does not in any way detract from the obligation of the parties to give prompt effect to the decision until such time, if at all it is revised in arbitration. The notice of dissatisfaction does for these reasons, not suspend the obligation to give effect to the decision. The party must give prompt effect to the decision once it is given”:  Tubular Holding (Pty) Limited v DBT Technologies (Pty) Limited[23].

Facts: In a further case, Wepener J referred to the unreported decision in Esor Africa (Pty) Limited v Bombela Civils JV (Pty) Limited (SGHC case no. 12/7442), which concerned a DAB decision given under sub clause 20.4 of the FIDIC Conditions of Contract.  Held: that, “whilst the DAB decision is not final, the obligation to make payment or otherwise perform under it is …” and further that “… The DAB process ensures that the quid pro quo for continued performance of the contractor’s obligations even if dissatisfied with the DAB decision which it is required to give effect to is the employer’s obligation to made payment in terms of the DAB decision and that there will be a final reconciliation should either party be dissatisfied with the DAB decision…” The court therefore held that the respondent was not entitled to withhold payment of the amount determined by the adjudicator: Stefanutti Stocks (Pty) Limited and S8 Property (Pty) Limited[24]. Held: that (at least for international arbitrators sitting in Switzerland) the DAB procedures under the FIDIC contract must be treated as mandatory.  An arbitration may not be initiated without going first to the DAB, if the contract provides for this.  However, in the particular circumstances of this case, where an ad hoc DAB had not been constituted 18 months after it was requested, R was ultimately found to be unable to continue to rely upon the mandatory nature of the DAB procedure so as to prevent the resolution of the dispute by arbitration.  The decision contains helpful analysis of the relevant FIDIC provisions, which could be applied equally in other jurisdictions.  As part of this analysis, the Swiss Supreme Court considered the wording of sub-clause 20.8, the words “or otherwise” being described as a “very vague expression”, although it stated:

interpreting it literally and extensively would short-cut the multi-tiered alternative dispute resolution system imagined by FIDIC when it came to a DAB ad hoc procedure because, by definition, a dispute always arises before the ad hoc DAB has been set up, in other words, at a time when ‘there is no DAB in place’, however such interpretation would clearly be contrary to the goal the drafters of the system had in mind”: Case 4A_124/2014 (Swiss Federal Tribunal)”.

Facts:  C commenced court proceedings in the Technology and Construction Court, arguing that it was effectively entitled to opt-out of the requirement in sub-clause 20.2 of the FIDIC Silver Book, when it did not wish to have a dispute resolved by the DAB, and to refer the dispute directly to court (which had been chosen by the parties as the final determination procedure, rather than arbitration). C again relied upon sub-clause 20.8 and, in particular, the “or otherwise” wording.  C’s position was that the parties could not be under a mandatory obligation to achieve the appointment of a DAB and that the phrase “or otherwise” was wide enough to include a state of affairs where a DAB was not in place because a Dispute Adjudication Agreement had not been concluded as between the parties and the DAB. Held: by Edwards-Stuart J in the TCC that the clause should be interpreted so that the words “or otherwise” should be viewed narrowly, with the effect that sub-clause 20.8 did not give either party:

a unilateral right to opt out of the [DAB] process save in a case where at the outset the parties have agreed to appoint a standing DAB and that, by the time when the dispute arose, that DAB had ceased to be in place, for whatever reason”.

The court proceedings commenced by C were therefore stayed to enable the parties to “resolve their dispute in accordance with the contractual machinery”, ie by the DAB.

Edwards-Stuart J further rejected the proposition that sub-clauses 20.4-20.7 of the FIDC dispute resolution procedure were unenforceable for lack of certainty.  A number of commentators have commented on a potential “gap” in these provisions, summarised by the judge as follows (at [24]):

[   ] what has been described as ‘the gap’ in those sub-clauses […] arises when the DAB has made a decision and one party has given a notice of dissatisfaction – with the result that the DAB’s decision, whilst binding is not final.  The problem then is that if the unsuccessful party refuses to comply with the decision of the DAB as it is required to do by sub-clause 20.4.4, the only remedy (it is said) available to the other party is to refer the dispute occasioned by the refusal to comply to yet another adjudication. This can have the effect, Ms Sinclair submitted, that the party in default can embark on a course of persistent non-compliance with DAB decisions and thereby deprive the other of any effective remedy”.

Edwards-Stuart J neatly side-stepped this issue, because the contract before him provided for court proceedings, rather than arbitration. He noted that, whilst the point “may be arguable in the context of the standard FIDIC Books which include an arbitration clause”, an English court was not subject to the same jurisdictional limitations as an arbitrator. It could, for example, simply order specific performance of the DAB’s decision, pending final determination of the court proceedings: Peterborough City Council v Enterprise Managed Services Limited (2014)[25].

Facts: This case concerned a dispute to arbitration under a FIDIC contract pursuant to which, obtaining an engineer’s decision a condition precedent to a reference of any dispute to arbitration. The engineer made it clear that it was no longer the engineer under the contract and would not be determining the dispute. Subsequently, MAN Enterprise Sal (D) referred the dispute to arbitration. Al Waddan Hotel (C) claimed that this ignored the condition precedent. Held: by His Honour Judge Raeside QC, that C was not entitled to benefit from its own wrong, ie its failure to appoint an engineer, who could make the necessary decision: All Waddan Hotel Limited v Man Enterprise Sal (Offshore) (2014)[26].

Facts: A contractor (C) obtained a DAB decision for the payment of $17 million against an employer (E). E gave a “notice of dissatisfaction” and C commenced an arbitration to enforce the DAB’s decision. The arbitral tribunal gave a final award, enforcing the DAB’s decision, and declined E’s request to consider the underlying merits of C’s claim. The tribunal ruled that the proper course for E was to seek such a review by a separate arbitration. This final award was struck down by the Singapore Court of Appeal as being without jurisdiction and in breach of the rules of natural justice. The arbitral tribunal was required to determine the full dispute between the parties and had been wrong to decline E’s request to consider the underlying merits of the claim.  The Court noted that a better approach for C would have been to have sought an interim, or partial, award, pending the making of a final award. C took account of the Court’s comments and commenced a further arbitration this time seeking an interim award to enforce the amount of the DAB’s decision. The interim award was granted and E then brought proceedings before a Singapore court to challenge its validity. E contended that the applicable arbitration rules prevented any provisional award being made which might be varied in the tribunal’s final award and also offended against a provision in the rules which prevented the tribunal from varying, amending, or revoking, an award.        Held: that E’s challenge should be rejected. The tribunal’s award (whilst expressed as being “interim”) was final and binding in relation to its subject- matter, namely E’s compliance (or otherwise) with DAB decision. If the DAB decision was reversed in the final award, that would not be an amendment, or revocation, of the interim award, as such, but merely an accounting exercise, given effect to by the final award. It is expected that this issue will be expressly resolved in the revised suite of FIDIC contracts (beginning with the Yellow Book). For the moment, however, though, this case provides welcome confirmation that DAB decisions will be capable of enforcement by some means, despite perceived drafting infelicities): PT Perusakaan Gas Negara (Persero) TBK v CRW Joint Operation (2014)[27].

The ICC has most helpfully also published issue 1 for 2015 of the Dispute Resolution Bulletin, containing 16 ICC interim, partial and final awards and procedural orders in redacted form, thereby assisting legal practitioners to gauge precisely how arbitral tribunals are likely to construe clause 20 and similar provisions.

ILLUSTRATIONS

Facts:  A contractor (C) sought to recover unpaid monies due under a contract for maritime clearance work undertaken for the employer (E), which contract incorporated the 1999 FIDIC Conditions of Contract for Construction (the Red Book) and provided for a permanent dispute adjudication board (DAB). E raised a number of objections, including an allegation that the claims were not admissible, because they had not been submitted to adjudication prior to arbitration (as required by the dispute resolution provisions in the Red Book).  Held, by the arbitral tribunal, in an interim award, that the adjudication procedure was mandatory, that the formal requirements for submitting a dispute to the DAB had not been met and that there were no exceptional circumstances justifying any departure from such requirements. The tribunal ordered that the arbitration should be suspended whilst the parties proceeded with adjudication, but observed that (given the likelihood that at least one of the parties would probably be dissatisfied with the DAB’s decision) they might wish to waive the necessity to adjudicate and to proceed directly to arbitration.  Unusually, in this case, the Engineer under the contract also acted as the DAB: ICC Case 14431 (2008)[28].

Facts: C terminated a Red Book contract for alleged breaches by E. The parties failed to agree on the establishment of the DAB within the time limits provided in the Red Book. An ad hoc DAB was established, upon R’s initiative, rendering two decisions on the issues in dispute. C argued that these decisions were invalid and referred the dispute to arbitration. E challenged the arbitral tribunal’s jurisdiction and requested a partial award to enforce the DAB’s decision. Held, by the arbitral tribunal, that it had jurisdiction over disputes which were sufficiently closely connected to the matters that had been decided by the DAB and thus could be brought directly to arbitration; that the DAB decisions were valid and binding and that C’s request for an interim measure to suspend the execution of the DAB’s decisions should be rejected:  ICC Case 15956 (2010)[29].

Facts:  The parties entered into a contract for the consideration of a power plant. A dispute arose over the validity of the termination by E of the contract in the arbitration commenced by C to obtain compensation for expenses which it had incurred and payments made to a sub-contractor. E contested the arbitral tribunal’s jurisdiction over claims which had not first been submitted to amicable dispute resolution and an ad hoc DAB, in compliance with the contract. Although closely based upon the FIDIC Conditions of Contract for EPC turnkey projects, the contract contained contradictory provisions relating to dispute resolution, one providing for amicable settlement and arbitration and the other adjudication, amicable settlement and arbitration. Held, characterising the issue as one of admissibility rather than jurisdiction and basing its decision upon a good faith interpretation of the parties’ intentions the arbitral tribunal found that the two-step procedure (comprising amicable settlement and arbitration), which was a special condition, ought properly to prevail over the three-step procedure (comprising adjudication, amicable settlement and arbitration), which was part of the general contractual conditions. Moreover E’s insistence that C should have submitted its claims to the DAB was inconsistent with E’s own submission of counterclaims directly to arbitration without first referring these to the DAB.  Given that attempts had been made to settle the dispute amicably, the two-step procedure had been complied with and C’s claims were therefore admissible: ICC Case 16083 (2010)[30].

Facts: Under a Red Book contract a permanent three-member DAB was established. After many referrals to the DAB and notices of dissatisfaction from both parties, E suggested that the parties should agree upon an addendum to the contract, in order to allow disputes to be submitted directly to arbitration, thereby bypassing the DAB. C rejected this suggestion, claiming that the DAB decisions were binding and had to be executed. Held, by the arbitral tribunal, that although the nature of DAB decisions was binding, since in this case the DAB decisions were subject to notices of dissatisfaction (NoDs), C’s claim for a partial award ordering payment of the sums decided by the DAB could not be accepted: ICC Case 16119 (2010)[31].

Facts: C raised concerns with the Engineer regarding E’s ability to make payments during the performance of a Red Book contract and soon gave notification of termination of the contract on the same grounds. E also sought to terminate the contract, alleging contractual breaches by C. The case was submitted to arbitration, with E contending that C’s claim was inadmissible, since the multi-tier dispute resolution mechanism provided under the contract had not been followed. The arbitral tribunal first found that C’s referral of the claim to the Engineer was not invalidated by their failure to substantiate the claim with supporting information and documentation. Held, by the arbitral tribunal, that, as the referral to the DAB had been impossible by reason of E’s refusal to co-operate regarding their appointment, C was entitled to resort directly to arbitration. The dissenting arbitrator argued, however, that this was not a justifiable reason for avoiding adjudication: ICC Case 16155 (2010)[32].

Facts: C referred a dispute to arbitration, E arguing that the arbitral tribunal had no jurisdiction, since the claims had not been previously submitted to a DAB, in accordance with the dispute resolution provisions. The parties’ contract incorporated the 1999 FIDIC Conditions of Contract for Plant and Design-Build (Yellow Book). The parties disagreed about whether the contract provided for an ad hoc, or a standing, DAB. Held, by the arbitral tribunal, that the contract did not depart from the Yellow Book’s provisions requiring an ad hoc DAB and confirmed the validity of the adjudicator’s appointment and that it was not contingent upon the conclusion of a dispute adjudication agreement: thus C’s objection that there had been insufficient consultation prior to the adjudicator’s appointment was dismissed; that, since the DAB had been validly established, it was required to decide upon the clams prior to arbitration and, given that this condition precedent had not been respected, the arbitral tribunal declined jurisdiction:  ICC Case 16262 (2010)[33].

Facts: C referred its claim to arbitration after an adjudicator’s decision that it was not entitled to all the additional costs claimed. E challenged the arbitral tribunal’s jurisdiction on the grounds that C had failed to comply with the agreed dispute resolution procedure to refer the dispute to arbitration within 28 days of the adjudicator’s decision and that as a consequence, the adjudication had become final and binding and could no longer be submitted to arbitration. Held, by the arbitral tribunal, that the 28-day time-limit was triggered, irrespective of the existence of an identifiable dispute, and that a formal referral to arbitration was necessary within such time limit; since there had been no such formal referral, the adjudicator’s decision had become final and binding, and as a consequence, the arbitral tribunal had no jurisdiction to revisit the decision: ICC Case 16435 (2013)[34].

Facts: The parties incorporated the Yellow Book into their contract. C objected to E’s notice of termination for delay in the performance of the contract and established at DAB, which issued two decisions. E issued NoDs against both decisions in the arbitration. C requested an order, enforcing the DAB’s decisions, and E objected on the grounds that C’s claim was time-barred and counterclaimed. Held, by the arbitral tribunal, that E’s counterclaims were time-barred, but C’s claims were not. However, the DAB’s decisions could not be enforced, because it was an ad hoc DAB, whereas the parties’ mutual intention was to have a permanent one and, thus, its decisions could not be binding: ICC Case 16570 (2012)[35].

Facts: Under a Yellow Book contract C submitted a claim to the DAB for an extension of time (EoT), when the Engineer did not respond. The DAB issued two decisions, with E giving a NoD for the second one, whilst C also gave a NoD for matters left undecided in such decision. C initiated arbitration to recover losses and E accused C of breach of contract and counterclaimed for delay damages. Held, by the arbitral tribunal, that the counterclaim was inadmissible, since E had not submitted its claim to the Engineer, or to the DAB, in accordance with the mandatory multi -tier dispute resolution process; that, C’s claim for EoT was time-barred, because it was made outside the 28-day period under sub-clause 20.1: ICC Case 16765 (2013)[36].

Facts:  Under a Red Book contract, C sought, by arbitration, enforcement of a decision (No 4) issued by the DAB, which ordered payment of amounts awarded to it in earlier decision of the DAB. E objected to the arbitral tribunal’s jurisdiction over this decision. Held, by the arbitral tribunal, that decision No 4 was a separate decision from the earlier decisions and concerned a breach of the obligation to comply with the DAB’s decisions under sub-clause 20.4, and as a consequence, C was entitled to damages: ICC Case 16948 (2011)[37].

Facts:  C’s construction of a pipeline contract was terminated by E for failure to complete it within the deadline, leading to C’s expulsion from the site. C referred the matter to the dispute resolution board (DRB), which held that, although E was not entitled to terminate the contract for breach, it was entitled to do so for convenience. E gave a NoD and challenged the jurisdiction of the ICC arbitral tribunal in the ensuing arbitration, on the grounds that the contact did not provide for referral to ICC. C argued that the parties intended that the ICC should have jurisdiction over disputes if no other institution were designated. Held, by the arbitral tribunal, that under applicable principles of contract interpretation, the parties’ intention was to submit disputes to ICC arbitration: ICC Case 17146 (2013)[38].

Facts: Under a Red Book contract, C and R1 entered into a dispute adjudication agreement (DAA) with R2, sole member of the DAB. The DAB issued an initial decision, awarding a sum of money to R1. When C failed to pay, R1 sought a second decision from the DAB, claiming that C was in breach of contract and should pay immediately also initiating arbitration proceedings, C also initiated arbitration requesting the arbitration tribunal to find that the DAB had no jurisdiction to issue a second decision, since it was an ad hoc DAB, whose mandate expired when the first decision was issued.  Held, by the arbitral tribunal, that the DAA could be terminated only with the consent of both parties and, since that consent was lacking, the DAB had the power to render its second decision. However, R1’s initiation of an arbitration in relation to the first DAB’s first decision, following a NoD, put an end to the DAB’s jurisdiction over the dispute:  ICC Case 18096 (2012)[39].

Facts: The parties submitted various claims to a DAB under a Yellow Book contract. E issued a NoD against the DAB’s decision and C and a company to which it had assigned part of its claim sought arbitration in order to enforce the DAB’s decision. E argued that the arbitral tribunal lack of power to enforce a DAB’s decision, against which a NoD had been issued. C challenged the validity of the NoD. Held, by the arbitral tribunal, that the NoD was validly given and that, since C’s request was limited to enforcement of the DAB’s decision, it would not issue a final award ordering specific performance of a DAB decision which had been contested before it:  ICC Case 18320 (2013)[40].

Facts: E terminated C’s contract due to delays in performance and changes in the joint venture, both parties having signed a Yellow Book contract. C requested the arbitral tribunal to declare that the contract had been unlawfully terminated and to order E to pay the moneys allegedly due. E asked for the proceedings to be bifurcated and for the arbitral tribunal to issue a partial award, rejecting jurisdiction over the dispute for non-compliance with the multi-tier dispute resolution clause. Held, by the arbitral tribunal, that a dispute could be brought directly to arbitration where no DAB was in place and that there was no obligation first to submit the dispute to the Engineer: ICC Case 18505 (2013)[41].

Facts:  C referred a claim to the Engineer, alleging E’s failure to provide within the applicable deadline certain design documents. The parties had signed a Yellow Book contract. E objected to the Engineer’s determination and referred the dispute to the DAB. Both parties issued NoDs against the DAB’s decision.  C initiated arbitration, seeking delay damaged in reliance upon the Engineers determination and claiming that E’s NoD had been given late and that, as a consequence, that part of the DAB decision to which it related had become final and binding and could not therefore be submitted to arbitration.  E argued that the DAB decision was not binding upon the parties. Held, by the arbitral tribunal, that the scope of its jurisdiction was determined by the dispute as originally submitted to the DAB and it could therefore examine all the issues covered by that decision:  ICC Case 19346 (2014)[42].

Facts: The parties signed a Red Book contract, appointing a sole member of a standing DAB. E referred to the Engineer and then the DAB certain disputes over payments, with C objecting to the DAB’s decision and initiating arbitration directly. E thought that C first needed to refer the dispute to the Engineer, or the DAB. Held, by the arbitral tribunal, that C was correct in referring the dispute directly to arbitration, since the DAB must be considered non-existent, given that its sole member lacked the required independence and impartially and that, in these circumstances, there was no obligation to seek an amicable settlement, nor had the dispute first to be referred to the Engineer:  ICC Case 19581 (2014)[43].

The ICC is to be warmly commended upon this initiative and it would surely not be too much to expect other bodies such as the Chartered Institute of Arbitrators (CIArb) and Glasgow Caledonian University (which publishes annual adjudication updates), to name but two, to take measures also to follow the ICC’s helpful suit.

This theme is reflected in a recent article[44] by Elina Zlatanska, who wrote as follows (on page 36 thereof):

“… the arbitral institutions need to amend their rules to include express provisions as to the publication of awards with reasons and also provide model clauses dealing with confidentiality before and after the award is rendered[45]. Institutions that have some publishing experience should publish guidelines for the publication of awards that others can follow. The efforts of the Milan Chamber of Commerce to that effect are commendable and serve as a useful example[46].

Last but not least, it would also be desirable for the international arbitral community to reach a consensus on the value of the duty of confidentiality and whether it presents a genuine obstacle to systematic publication of awards[47]. It is advisable that uniform standards for the application of the duty of confidentiality be developed. This can be done by way of guidelines. The most appropriate venue appears to be CIArb[48].

International commercial arbitration is a dynamic and constantly evolving process. The protection of confidentiality is without a doubt essential for the smooth functioning of arbitration proceedings. However, confidentiality, whilst considered to be one of the cornerstones of arbitration, is not reliable[49]… Balancing the parties’ private interests with the publication of reasoned awards is not an easy task. But if we want to promote international commercial arbitration as an efficient and reliable method for settling business disputes, information needs to be made available to everyone who has an interest in it, or as Fouchard once put it:

“If the international community of merchants aspire to give itself an autonomous system of law, this law has to be made known to all those who have an interest in it: the arbitrators should not resemble the ancient pontiflex of antique Rome, who jealously kept the knowledge of law for themselves and with it the religious and political power[50].

The same theme is further developed in another recent article by Nicholas Towers, who wrote[51] as follows:

“… a possible draft… amendment [to the Arbitration Act 1996] is as follows:

Confidentiality of the award

Unless otherwise agreed by the parties –

(1) ny award may be published 30 days after the award becomes available to the parties and no earlier, and any such publication shall be in a redacted format as may be prescribed, and shall preserve the anonymity of the parties and their representatives and identify only the members of the tribunal.

(2) Notwithstanding (1), if any party, at any time before the expiry of 30 days after the award becomes available to the parties, makes a request in writing to the tribunal asking that the award not be published, the award shall not be published unless otherwise provided for by law.

The hundreds of arbitrations in England each year could provide an important source of arbitral jurisprudence; the LCIA alone reported that it administered 290 disputes in 2013[52], but the procedural legal and practical knowledge contained in those awards is currently largely unavailable[53]. The London Maritime Arbitrators Association (LMAA) Arbitration Terms (2012) cl.26 encourages tribunals to release meritorious awards within that narrow field for publication, but this approach is rare.

 What is proposed in this article is a relatively small change but one which could provide substantial practical benefits for English arbitration. In effect, the reform maintains the confidentiality of awards because the parties are not identified, but allows the generation of an accessible body of arbitration knowledge originating in England. This will improve the conduct of proceedings and the quality of awards, as well as increasing competition and choice within the industry and assist legislative developments – all highly positive outcomes. The suggested reform represents a pragmatic compromise between maximising the utility of awards and allowing a slightly higher level of confidentiality where required by certain users. A portion of awards would necessarily be sacrificed in order to avoid diminishing England’s role as a leading arbitral seat but the remainder will go on to contribute to an invaluable set of resources for participants in arbitration around the world.”

Having began this article with a decision which cited Humpty Dumpty in a House of Lords’ dissenting speech, the author cannot resist reverting to Through the Looking Glass[54], hoping that this does not turn out to be his epigraph:

                        “The little fishes of the sea,

They sent an answer back to me.

The little fishes’ answer was

‘We cannot do it, Sir, because ……….”!

 

Andrew Burr

3 March 2017

www.arbdb.com

[1]              Delivered in the Great Hall of Lincoln’s Inn on 6 October 2015.
[2]              [1942] AC 206 at pages 244 – 5.
[3]              By Lord Thomas of Cwmgiedd, the Lord Chief Justice.
[4]              Most Appropriate For International Arbitration!
[5]              (1990, Deventer, Boston, Kluwer Law and Taxation Publishing).
[6]              Honduras v Nicaragua, awarded by the King of Spain, 23 November 1960, ICJ Reports 1960,  at 192.
[7]              Paragraph 42, Rules of the Arbitration Court of the USSR Chambers of Commerce and Industry.
[8]              Paragraph 33, Rules of the Court of Arbitration at the Polish Chamber of Foreign Trade in Warsaw.
[9]              Paragraph 16, Rules of the Court of Arbitration at the Polish Chamber of Foreign Trade in Warsaw, cit.
[10]             Edited by John Tackaberry QC and the late, great, Arthur Marriott QC (2003, London, Sweet and Maxwell, in conjunction with The Chartered Institute of Arbitrators).
[11]             Hassneh at 247.
[12]             Dolling-Baker v Merrett and Another [1990] 1 WLR 1205.
[13]             Hassneh at 249.
[14]             And see the decision of the UNCC to post recommendations of its commissioners on its website: the process is quasi arbitral and potentially concerns sensitive matters since the claimants were in many cases carrying out work in Iraq, see also appendix.5.
[15]             Liberian Eastern Timber Corporation (LETCO) v. Government of the Republic of Liberia, award 31 March 1986, Clunet 1988, 166 et seq.
[16]             The decision in ICC proceedings No 3344 of 1981, Clunet, 1982, 986
[17]             See, for example, the award rendered in ICC proceedings No 4381, 1986 Clunet, 1986,1106.
[18]             In Derains-Jarvin, Chronique des sentences arbitrales, Clunet, 1986, 1107.
[19]             Y Derains, Chronique des sentences arbitrales, Clunet, 1978, 992.
[20]             Derains, Chronique des sentences arbitrales, Clunet, 1976.
[21]             Professor Catherine Rogers has begun an interesting attempt to counteract the bias inherent in publication of decisions determined by institutional selection, or court filings, and to increase publicly available knowledge about arbitrators. Her plan is to encourage parties to disclose decisions that will be available and searchable on a website with minimal editing to protect especially sensitive information and trade secrets.
[22]             See Christopher Seppälä, “An Excellent Decision From Singapore Which Should Enhance the Enforceability of Dispute Adjudication Boards – The Second Persero Case Before the Court of Appeal” (2015) 31 Const LJ 367.
[23]              SGHC case no. 06757/2013
[24]              SGHC case no 20088/2013
[25]            [2014] EWHC 3193 (TCC) [2014] 2 All ER (Comm) 423; [2014] BLR 735.
[26]                  [2014] EWHC 4796 (TCC).
[27]             [2014] SGHC 146 [2015] BLR 119, [2015] 155 Con LR 169.
[28]             Place of arbitration:  Zurich Switzerland. Origin of parties: America and Europe. Applicable substantive law: Law of E’s country in Eastern Europe
[29]             Place of arbitration: A city in East Europe. Origin of parties: Europe.  Applicable substantive law:  Law of E’s country in Eastern Europe.
[30]             Place of arbitration: Paris, France. Origin of parties: Middle East and Sub-Saharan Africa. Applicable substantive law:  Law of E’s country in Sub-Saharan Africa.
[31]             Place of arbitration:  Capital city of an Eastern European country. Origin of Parties: Europe. Applicable substantive law:  Law of E’s country in Eastern Europe.
[32]             Place of arbitration: Paris, France. Origin of Parties: Africa, Asia Applicable substantive law:  Law of E’s country in Sub-Saharan Africa.
[33]             Place of arbitration: London, United Kingdom. Origin of Parties: Europe. Applicable substantive law: Law of E’s country in Eastern Europe.
[34]             Place of arbitration: Port-Louis, Mauritius.  Origin of Parties: Sub-Saharan Africa Applicable substantive law: Law of E’s country in Sub-Saharan Africa.
[35]             Place of arbitration: capital city of an East European country. Origin of Parties: Europe Applicable substantive law:  Law of E’s country in East Europe.
[36]              Place of arbitration: capital city of an Eastern European country. Origin of Parties: Europe Applicable substantive law:  Law of E’s country in Eastern Europe.
[37]             Place of arbitration: capital city of an Eastern European country. Origin of Parties: Europe Applicable substantive law:  Law of E’s country in Eastern Europe.
[38]             Place of arbitration:  Paris, France.  Origin of Parties:  Europe Applicable substantive law: Law of E’s country in Eastern Europe.
[39]             Place of arbitration:  capital city of an Eastern European country. Origin of Parties: Europe Applicable substantive law:  Law of E’s country in Eastern Europe.
[40]             Place of arbitration:  capital city of an Eastern European country. Origin of Parties: Europe Applicable substantive law:  Law of E’s country in Eastern Europe.
[41]             Place of arbitration:  capital city of an Eastern European country. Origin of Parties: Europe Applicable substantive law:  Law of E’s country in Eastern Europe.
[42]             Place of arbitration:  capital city of an Eastern European country. Origin of Parties: Europe Applicable substantive law:  Law of E’s country in Eastern Europe.
[43]             Place of arbitration:  capital city of an Eastern European country. Origin of Parties: Europe Applicable substantive law:  Law of E’s country in Eastern Europe.
[44]             E Zlatanska, “To Publish or Not To Publish, Arbitral Awards: That is the Question” (2015) 81 Arbitration 25.
[45]             Hwang and Chung, “Defining the Indefinable” (2009) Journal of International Arbitration 642, 644.
[46]             See, eg Milan Chamber of Commerce, Guidelines for Anonymous Publication of Arbitral Awards (Milan: Milan Chamber of Commerce and Università Carlo Catteneo, n.d.), http://www.camera-arbitrale.it/Documents/guidelines_anonym-aw-pdf [Accessed 9 December 2014].
[47]              Kyriaki Noussia, Confidentiality in International Arbitration:  A Comparative Analysis of the Position under English, US, German and French Law (Heidelberg: Springer 2010), p.181
[48]             A full list of CIArb Guildelines, Protocols and Rules is available at http://www.ciarb.org/resources [Accessed December 9, 2014].
[49]             Paulsson and Rawding, “The Trouble with Confidentiality” (1994) ICC Bulletin 48.
[50]             Klaus Peter Burger, The Creeping Codification of Lex Mercatoria, citing Philippe Fouchard, L’arbitrage commercial international (Alphen aan den Rijn: Kluwer Law International, 2010), p.85.
[51]             N Towers, “Expanding Horizons in Commercial Arbitration: The Case for the Default Publication of Awards” (2015) 81 Arbitration 131.
[52]              LCIA Registrar’s Report 2013, available online at http://www.lcia.org/LCIA/reports.aspx [Accessed February 27 2015].
[53]             LCIA Rules Art.30 makes arbitration awards confidential.
[54]             (1872) chapter 6.

 

Dispute Resolution – Do You Know The Facts?

Disputes are costing businesses in England and Wales an estimated £11.6 billion each year, with the average amount of resolving the dispute reaching nearly £17,000 in time and money. The largest cause of disputes? For 72% of small businesses, legal struggles are put down to late or non-payment.

The data from the Federation of Small Businesses also found that half a million businesses had disputes which were unresolved, with 19% taking their case to court. However, with only 43% of businesses dealing with a disputer informally or semi-formally, it’s clear that more organisations could benefit from more information on the subject.

As a business owner, you manage and oversee all areas of the business; interacting with a variety of employees, business partners, agencies, contractors and clients. Therefore, it’s to be expected that at times conflicts and issues – however unwarranted – will arise. However, managing these disputes effectively will help to maintain business relationships and brand image, and minimise any damages which may occur.

If a dispute gets out of hand, then litigation may be the only option left. Yet, not all disputes need to get to that stage. At present, only one in ten resolve their issue using alternative resolution methods such as mediation or arbitration – but, using such alternatives can avoid costly legal expenses.

Mediation resolves misunderstandings and involves a third-party mediator who aids the parties in reaching a settlement. It’s more than likely that a mediator does not have authority to make a binding decision, and is there to oversee the matter instead with an objective view.

Mediation is private and confidential, meaning that disputes are kept away from the public spotlight, and is often the first step. The cost of a mediator is often shared between those involved.

If still unresolved, the next possibility is arbitration.

Arbitration involves submitting a dispute to an impartial person who will then determine a binding decision. The arbitration process does not follow any of the normal legalities when supplying evidence.

An arbitrator may ask for documentation related to the case, and once reviewed will submit a decision.

When compared with mediation, arbitration is a formalised process of dealing with a dispute and reaches a binding decision. Mediation allows either party to withdraw at any time, whereas with arbitration those involved are committed to resolving the dispute.

If the dispute still remains, then businesses may be involved in litigation.

Types of dispute which your business may find itself involved in include employment, contract, fiduciary and commercial.

Below we have listed the most common types of dispute and how they can be resolved.

Employment Dispute

Disputes with employees can arise from a range of issues such as; unfair treatment, unclear job roles, poor communication and working environment and discrimination claims.

Often, employee disputes can be avoided by ensuring that an employment contract is watertight and covers every eventuality. All employees are entitled to a written contract within the first two months of their employment with an organisation. However, it’s worth remembering that verbal contracts should also be upheld – although they are hard to prove in a court of law. To ensure that your business is covered keep all contractual agreements in writing to prevent a dispute arising. This includes covering details which you may deem obvious to state.

As an employer, you should confront disputes head-on, rather than let issues fester. However, this can be tricky if a dispute arises which is outside of the remit that you usually deal with – for example, if you aren’t familiar with the inner workings of a particular department with which the dispute is contained, it can prove difficult to solve.

To effectively manage employee disputes, you should aim to take action as soon as you have evidence of the issue, understand employee boundaries and enable employees to know when a line has been crossed, respect employee differences and confront tension.

To aid management of disputes and grievances, you should set out a policy which details expectations of employees and how such situations will be handled. This can help to make the company stance clear and set out a path to be followed if required.

Director and Shareholder Disputes

When a company is started, little is often thought to what happens if a dispute arises. After all, it’s likely to be the last thing that a business owner or shareholder has on their mind when they start a business. However, disagreements and disputes can occur when relationships between parties break down.

Disputes can derive from a variety of issues such as, disagreements over strategy, level of dividends, salaries paid to shareholders, service contracts and remuneration, conflicts of interest and disproportionate contributions of money or time from shareholders. This list is by no means complete, and these issues can have a devastating effect on director and shareholder relations, and the business in question.

To avoid shareholder disputes, it’s advised that you draw up an agreement which covers likely causes of disputes, financing of the organisation, dividends, directors fees and salaries, responsibilities for key business areas, company objectives and authority required to take certain actions. The agreement should also aim to predict future eventualities as best as you are able to – this will help minimise any future conflicts which may arise in the future. A shareholder agreement should also detail that a majority or all shareholders are required to give approval before the business is bound to a certain development or policy.

To guarantee board members and directors are effective in their role, an open communication policy can help to ensure issues are discussed openly. Before a board meeting an agenda should detail the topics which will feature in the meeting and give directors the chance to reach a consensus prior to the discussion.

Directors are legally required to declare any conflicts of interest which they may have and not use their position to make private properties at the company’s expense.  This is due to the legal responsibilities that director’s hold, which include loyalty, good faith, and duty of care, diligence and skill to aid the success of the company. If these duties and responsibilities are not upheld then they could be disqualified as a director, fined, face criminal prosecution, or made responsible for the company’s debt.

Directors should have the courage to speak up if they feel that a board member is acting improperly. For example, if a simple mistake was made or process overlooked this should be bought to attention and rectified. However, if you feel that a board member is acting deliberately improperly, then you should ensure that there is evidence of your objection in writing, meeting minutes or take legal advice.

If you are found to be taking a blind eye this is not enough to protect you. As a director, you are responsible for keeping yourself informed about what is going on in the business and participate in management meetings.

Commercial Disputes

A commercial dispute often occurs when payment has defaulted on delivery of goods, issues concerning payment or finalisation of a project, and any issues regarding contract obligations.

If you receive notification that your business is part of a commercial dispute, then you should look at the matter immediately. Most formal notifications will include a date which you need to respond or take action by.

To handle a commercial dispute, you should review the terms of your agreement and how clear it was, before discussing how either (or both) sides failed to live up to that expectation. If either side has suffered a loss this should be detailed, alongside any other evidence which you may hold, such as contracts, correspondence, witness statements etc. Any negotiations or attempts to resolve the issue should also be documented.

If the claim is financially driven, then you should take into account the party’s ability to pay by running a credit check. If the case does go to court, then you will want to consider how the costs of proceeding to trial will weigh up against the cost of remuneration.

Going to court can also set a precedent for other suppliers, clients or business partners who may feel the same way. Therefore, avoiding such a public setting, and settling out of court, can help to prevent the case from being made public. Remember to include a confidentiality clause in your settlement.

Where you are required to have an ongoing business relationship, then an amicable settlement should be reached at the earliest stage to avoid any further damages to the partnership. It’s best practice to have legal advisors present and ensure that they are aware of what you are hoping to achieve. Negotiations will often focus on where the breach occurred and how damages can be resolved.

Effective dispute resolution can help to minimise the costs your business may incur, and avoid damaging professional relationships and your brand image. If you are unable to resolve a dispute and the case proceeds to litigation, then you should bear in mind that a willingness to negotiate can often put you in better light.

More litigants in person a LASPO legacy

As virtually everyone in the legal profession will recall, warnings were sounded at every stage of the introduction of Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012. LASPO would, many lawyers argued, deny access to justice for many individuals who might have wished to pursue civil litigation of some sort.

A month ahead of implementation the following year, the Law Society summarised the changes in these terms: “On Monday 1 April 2013, the Legal Services Commission will be replaced by the Legal Aid Agency, and the cuts imposed by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 will take effect. LASPO implements substantial cuts to civil legal aid. The details of what remains in scope can be found in the LASPO Schedule 1.”

The Law Society’s measured summary contrasted with the sense of outrage widely felt across the profession. For so many of us, access to justice is a basic tenet of the legal system and in effect to exclude people because they do not have the financial resources to pursue a case unaided seems in conflict with that, although that does not mean we can all work pro bono!

My own area of family law was among those affected by LASPO’s massive scaling back of legal aid. This was clearly bad news for many future clients and of course had implications for my firm’s human and financial resources, as it was usual for us to be handling several cases within the affected areas of family law. We very soon had to adapt ourselves to the new arrangements.

Family law legal aid guidelines

The newly created Legal Aid Agency was quick to provide guidelines, which included: One of the key changes introduced by LASPO is that legal aid for most children and finance matters in private family law cases will only be available where a client has specific evidence in relation to domestic violence or child protection. The evidence that is required in order for an application for legal aid to be made in these matters is prescribed in the Civil Legal Aid (Procedure) Regulations 2012 as amended. Regulation 33 deals with evidence relating to domestic violence and Regulation 34 with evidence relating to child protection.

This all amounted to much more than raising the bar as regards qualification for legal aid; it was more like asking us to participate in the pole vault with only occasional access to a pole. Like colleagues in other areas of my firm and across the profession, I was driven to wonder what the draconian cutbacks were expected to achieve. It was, in essence, all about the money.

A paper later presented to a Commons Select Committee inquiry explained the rationale thus: “In 2010 the incoming Government developed plans to cut public spending significantly. The Ministry of Justice (MoJ) was required to find budget cuts of around £2 billion from an overall budget of £9.8 billion. Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 was intended substantially to reduce the civil legal aid budget by removing whole areas of law from scope and changing the financial eligibility criteria. The LASPO scheme was introduced alongside other policy changes including a reduction in the fees paid to providers.

“In the final Equality Impact Assessment accompanying the Bill the Ministry of Justice set out that its objectives for the proposed legislation were to: discourage unnecessary and adversarial litigation at public expense; target legal aid to those who need it most; make significant savings in the cost of the scheme; and deliver better overall value for money for the taxpayer.”

Cases fell by the wayside

Transitional arrangements provided for legal aid to continue in pre-LASPO cases that probably would not have qualified post-LASPO, but for the past three years or so we have been learning to live with the new legal aid regime. Regrettably, many sound cases across many areas of civil law must have fallen by the wayside due to the denial of legal aid since April 2013.

In my family law work, like many others no doubt, with the reduction in availability of legal aid we are seeing more litigants in person. This is an understandable reaction in situations where litigants do not have or are not willing to put up the funds needed to pursue a case through the courts. Their perception is that the DIY approach will save them money without detriment to the outcome. In a few cases they may be right.

As any legal professional knows, there is a raft of procedural issues involved in preparing and presenting a case to the court. A litigant in person invariably does not know what to do to prepare a case and there is every likelihood that they will fail to comply with court timetables and they may attend court unprepared and so jeopardise the effectiveness of the hearing.

The courts clearly have to treat litigants in person in a fair and reasonable way, so will often spend time in hearings explaining things to them. I totally accept that someone unable to finance legal representation should be permitted to represent themselves and to be assisted by the court as appropriate. After all, it is not fair if a father cannot see his child just because he cannot afford legal costs and cannot get help with funding. LASPO has left him with no choice.

Counterparty cost impact

Whilst supporting the right to self-representation, I have to note that this approach is not just potentially disadvantageous for the litigant in person but also for the opposing side.

Having a litigant in person on the other side can increase costs for a paying party and cause huge delays. Inept preparation, missing of court deadlines and poor presentation in court can all add to the time and costs of the case for the represented party.

Often the solicitor acting for a paying party will do things to keep matters on track even if there is no obligation on them. They have to lodge bundles with the court. Usually the onus is on the applicant but if the applicant is a litigant in person it falls to the respondent to do, involving more cost, and they also have to provide the litigant in person with a full copy. The solicitor may incur further costs repeatedly chasing when the litigant in person overshoots court timetables.

In my personal experience it is also likely that a litigant in person, in the absence of sound legal advice, is less likely to take a pragmatic approach and to compromise or agree. So, settlement is far less likely to be achieved at a relatively early stage of the proceedings. Prolonged, contentious cases are of course the most expensive for everyone involved; they can also be the most stressful and upsetting for the parties and for other family members.

All of this prompts the question of whether LASPO, beyond slashing expenditure on legal aid, was intended to lead to greater resort to self-representation or whether this has been an accidental consequence. If the former, I tend to think that the aim of reducing the number of cases reaching court by means of accessing alternative dispute resolution options also loomed large in the legislators’ minds.

What drove LASPO aid cuts

To determine the thought processes behind LASPO Schedule 1, it is helpful to return to the Select Committee inquiry submission. Among the factors said to have guided the Ministry of Justice’s decisions on changes to scope of legal aid, two stand out as particularly relevant here, as one relates to ‘the litigant’s ability to present their own case’ and the other to ‘the availability of other routes to resolution’.

To quote the submission: “The litigant’s ability to present their own case: considerations included the type of forum in which the proceedings are held, whether they are inquisitorial or adversarial, whether litigants bringing proceedings were likely to be from a predominantly physically or emotionally vulnerable group.

“The availability of other routes to resolution: in determining the priority for certain types of case, we considered whether people might be able to access other sources of advice to help resolve their problems, avoiding the need for court proceedings.”

From this I have to conclude that the expected consequences of withdrawal of legal aid, in addition to the inevitable result that some justifiable actions would never get off the ground, did indeed include a rise in the number of litigant in person cases and a rise in the role of mediation and alternative dispute resolution methods.

Mediation v. Self-representation

There is no doubt in my mind that, to the extent that the 2013 withdrawal of legal aid for many family law cases leads one or other party to seek a less costly alternative to professional legal representation in court, the better solution is likely to be mediation rather than self-representation.

I have already touched upon the multiple disadvantages of self-representation and colleagues across all areas of the profession need little introduction to the benefits of mediation in many cases. I can only speak for family law disputes, but avoiding the mounting costs of going to court when a similar outcome could be achieved in less formal, less adversarial surroundings is almost always preferable.

That is not to say that mediation is guaranteed to be an easy route to an amicable settlement. It does need to be effective, and to be effective both parties need to be committed to the process. With that and some goodwill on both sides, a resolution that both can accept as fairly arrived at (and thus unlikely to differ greatly from what they might expect at the end of a long court battle) is within grasp.

Could you be liable for costs of a litigation you were never a party to?

The English Court has very wide ranging powers when it comes to the question of costs of proceedings. Although, in English litigation, the usual rule is that the losing party pays a proportion of the winning party’s legal costs, in certain circumstances, the Courts may order a person who was not a party to the proceedings to pay the costs of the unsuccessful party.

Since this power to make a costs order against a non-party was first recognised by the House of Lords in 1986, the Courts have repeatedly emphasised the exceptional nature of this remedy and shown great caution when granting such orders. However, in recent years the Courts have shown greater willingness to exercise their discretion when considering whether in all the circumstances of any particular case it is just to make the order.

Although, the Court’s decision on whether to make such an order in each case will ultimately depend on the particular circumstances of the case, the general principles and guidelines applicable in such cases have been laid down in the case law and can  briefly be summarised as follows:

•    Although, costs orders against non-parties are exceptional and should only be ordered where it just to do so in all the circumstances of the case, in general, where the non-party funds and substantially controls a piece of litigation by an insolvent or impecunious party solely or substantially for his own benefit (whether financial or otherwise), he is likely to be held liable for the costs if the proceedings fail;

•    The Court’s discretion will not be exercised against “pure funders”, i.e. “those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course”. This principle is governed mainly by policy reasons aimed at assisting access to justice and will apply for example in cases of crowd funding where funders have no collateral interest in the outcome of the claim and their contribution is animated by a wish to ensure that genuine dispute is not lost by default;

•    If the non-party however not simply funds the litigation, but substantially also controls or stands to benefit in some way (whether on behalf of the Claimant, Defendant or Appellant), justice will ordinarily require that that party pays the costs, if it is unsuccessful.

•    It would be an extraordinary order for the payment of costs to be made against a non-party where, the applicant had a cause of action against the non-party and could have joined him as a party to the original proceedings, but has not done so. Even if the applicant is unable to provide a good reason for not joining the non-party in such circumstances, he should inform the non-party of his intention potentially to apply for a costs order against him at the earliest possible opportunity. This is an important point, which  recently was held to be particularly relevant by the Commercial Court when refusing to make a  costs order against a non-party.

•    There is no need for the applicant to establish impropriety in the conduct of the litigation on the part of the non-party for an order to be made. Although, impropriety in pursuit of speculative litigation may assist the Court in exercising its discretion and granting the order, it is not a pre-requisite. Nonetheless, the conduct of all the parties is generally a factor to be taken into account by the Court on the question of costs.

The above is by no means meant to be a comprehensive checklist of factors, which the Court may take into account before deciding whether to exercise its discretion. Indeed, the Courts themselves have previously emphasised that the reported cases are not to be treated as such and that the Court’s decision will always depend on consideration of the actual circumstances of each case.

Nevertheless, non-party costs orders should always be carefully considered in relation to, among others, the following types of third parties in English litigation:

•    Professional funders who provide funding or other support in the litigation, which ultimately fails, for some kind of monetary gain will usually be liable for the winning parties’ costs, but only to the extent of the funding provided i.e. if funder provided £1 million pounds, it would usually be required to contribute the same amount to the other side’s costs. However, if the funding arrangement is found to be champertous because for example the funders exercised control over litigation or was to recover disproportionate amounts, the funder may be ordered to pay all of the costs.

•    Company directors and shareholders may be ordered to pay the costs of the unsuccessful company litigant in circumstances where they were not only in control of the proceedings, but also helped to fund and promote the proceedings by an insolvent company solely or substantially for their own financial benefit. In such cases, the applicant will need to show that the director and/or shareholder is the “real party in very important and critical respects” conducting the litigation by an impecunious company and standing to substantially benefit from it.

•    Solicitors and other professional advisers and representatives may also find themselves subject to a non-party costs order in circumstances where the professional adviser or a solicitor’s conduct indicates that he is effectively the  “real party” running the litigation with a  view to potentially attaining a financial or other benefit over and above for example the usual benefit a solicitor would expect to receive under a “no win no fee” arrangement with an impoverished client unable to pay the costs, if unsuccessful.

•    Insurers, whose defence of the proceedings fails, they having previously decided to defend and subsequently take control and fund proceedings exclusively to protect their own interests,  will usually be ordered to pay the costs.

In summary, careful consideration needs to be given to any situation in which there is a suggestion that a third party is involved in a litigation by either funding or/and otherwise controlling its course with a view to potentially benefiting from its outcome, as one may ultimately be faced with a non-party costs order in such circumstances.

Quantum awards in international arbitration – how can arbitrators and experts get it right?”

Forensic accountants sometimes describe their skill and raison d’être as being to simplify complex accounting concepts for dispute resolution lawyers.  Yet, at the recent ICCA commercial and investment arbitration conference, some of the world’s leading arbitrators said that they really found quantum experts’ reports very difficult to understand.

Furthermore, it has been stated that the process of scrutinising draft arbitration awards at the ICC picks up errors in the calculation of damages in up to 40% of draft awards.

As quantum experts have become a normal part of clients’ teams in international arbitration cases, what can be done to improve the situation as well as get awards right?

The responsibility of quantum experts

As quantum experts who regularly act in international arbitration, our view is that experts should have the responsibility of making their reports understandable and as simple as possible for both the lawyers on both sides and the arbitrators.  How can we complain that an arbitration tribunal has made a mistake in its award simply because the tribunal could not understand the reports?  For example, can a tribunal really be expected to understand 800 pages of spreadsheets in pdf format with no explanation that states the purpose of each page?  It must be the responsibility of the expert to explain and justify his own model rather than relying on the opposing expert to understand and explain it.

As quantum awards have followed particular trends, such as increasingly being based on Discounted Cash Flow (DCF) and a Discount rate, based on the Capital Asset Pricing Model formula, so arbitrators have learnt the terminology that quantum experts use and have often tried to adjust the models themselves.  However, it is still the quantum expert’s responsibility to explain in simple terms why they have adopted this or that methodology for calculating the quantum in a dispute, and to explain all the inputs and calculations in their model.

The responsibility of arbitrators

In their turn, given that they are making an award that may mean the payment of hundreds of millions of dollars from one company to another or from a country and its taxpayers to a company, arbitrators have a responsibility of ensuring that the quantum section of their award is properly calculated and is economically robust.

We respect the fact that arbitrators do not tend to be accountants, and so they can be excused for finding the legal aspects of an award more interesting than the quantum element, and they can also be excused if they do not articulate the quantum section of their award in the same way that a forensic accountant might use.  However, the parties surely have a right to expect that the award should be properly calculated and based on a logical and coherent argument, which includes the calculation of any damages awarded. Given the current dissatisfaction in some quarters with the Investor State Dispute Settlement System (“ISDS”), this could indeed provide an additional (and unnecessary) reason for dissatisfaction with ISDS in general.

Types of quantum errors in arbitration awards

Far be it from us to point to any awards which include errors, but in our experience, various types of error may arise – for example:

(a) arithmetical errors that are apparent on the face of the award itself;

(b) computational errors that arise where the arbitrators have calculated their own award by taking the quantum experts’ calculations and making their own changes; or

(c) conceptual errors that arise where the arbitrators have recalculated the award themselves, but have misunderstood or overlooked some fundamental concept in the quantum experts’ reports.

Clearly there can be disagreements between experts, or between one expert and the tribunal, on either the calculations or the economic theory, and the losing expert may complain that these are errors – but, if one expert has argued credibly for one methodology or valuation technique and the tribunal finds in his favour and against the other side, this is not something we refer to here as an error.

Fortunately, we are not aware of any examples of type (a) errors, and this is the sort of error that should be picked up by review procedures such as the ICC’s scrutiny process; it is also the sort of error that is referred to as “manifest error” in expert determinations, and is extremely rare.  However, it is the type (b) and (c) errors we want to focus on below, and to discuss possible ways in which tribunals could avoid them.

Computational errors

In the English High Court, it is common for judgments to be submitted to the parties’ counsel immediately prior to publication, to enable them to correct any factual inaccuracies – such a mechanism could be used for the parties to review an arbitration award and correct for any computational error.  Alternatively, we acted in one case where the judge gave the parties and their quantum experts a half hour recess to agree on the quantum number between them – as by this stage both quantum experts had each other’s models on their laptops we were able to come to an agreed number.

A principal argument put forward for not letting the parties or their quantum experts to check the award before it was finalised is that the tribunal has to be seen as the final arbiter of the case – and any submission of a “draft” award to the parties risks being taken by the party as an opportunity or a necessity for them to produce further submissions to argue their case after evidence has closed.  However, if the tribunal is absolutely clear that the parties are only invited to comment on the arithmetical accuracy and logic of the draft award, that should be less of a problem.  This process would have been very useful in one particular award that we have seen where the tribunal simply copied the wrong sequence of ten cells in a spreadsheet into its final award calculation. Had the parties seen the draft award in advance, both parties’ experts ought to have identified this and reached an agreement for the tribunal as to which were the correct cells to copy.

In our experience, it is becoming increasingly common for the tribunal to request the experts’ models in electronic form;  this is done to enable the experts  to save time and costs by testing each other’s models and thus being able to point out any errors before the hearing, and also so that the tribunal itself can take away the model for its deliberations, understand it and make appropriate modifications to it in order to generate a quantum number  that is in line with the award on the merits.

In theory, a younger generation of arbitrators is likely to have more experience of using Excel spreadsheets so they can manipulate the models themselves, but in practice, the models that we quantum experts use in our DCF calculations are still rarely simple enough for non-accountants to edit.  A tribunal recently took us up on our offer to agree on a model with the opposing expert for the tribunal to use in coming to its award – but, even though less than ten accounting items remained in dispute, it was not easy to design a foolproof model for the tribunal to use.  In this case, it was already simpler because the tribunal had directed us to prepare a joint statement, and that in itself had considerably narrowed the number of items remaining in dispute.

Conceptual errors

With respect to Russia’s challenge to the PCA award on the Yukos case, Russia’s expert seems to have been prepared to accept the tribunal finding in favour of the claimants on quantum if that finding had been based on sound economic argument – but he pointed out that what he found troubling was where the tribunal adopted its own non-standard method, which he considered to be based on flawed economic theory that would not have been accepted by either side’s quantum expert.

This type of “error” is more difficult to deal with, as it is not simply arithmetical, but arises from a tribunal either straying outside its expertise, or deciding that it has a novel insight into economic theory that may not be supported by any body of economists or forensic accountants– even though if an expert was to adopt such a non-standard theory, his report could justifiably be attacked for being outside of generally accepted accounting/economic/valuation parameters.  Probably, the answer to this type of “error” is that tribunals simply need to be extremely careful when they arrive at quantum awards that are outside the parameters of the calculations put forward by the two opposing experts.  It may not be unreasonable for a tribunal to award quantum on a basis that was not pleaded – but it is taking risks when it chooses a basis that was not tested at the hearing.

Possibly one radical solution that would assist tribunals to avoid these conceptual errors would be more use of tribunal-appointed quantum experts or a form of tribunal quantum secretary, who would be able to check the tribunal’s calculations and advise on the accuracy and the logic of the tribunal’s deliberations in advance – or even the appointment of a forensic accountant as the third member of the tribunal, along the lines adopted by the UNCC Panels a decade ago.  This, of course, raises other hot topics such as the role of a tribunal secretary – but is worthy of consideration in a situation where the quantum at stake is hundreds of times greater than the cost of a tribunal appointed expert or secretary.

The ICC’s vetting procedures

And one final thought –if the ICC’s scrutiny procedures are really picking up quantum errors in up to 40% of awards before they are issued, this scrutiny procedure is to be applauded – but maybe the other arbitral institutions should consider adopting a similar procedure, or even employing a forensic accountant to do the scrutinising in-house.

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Can Parents Contractually Select the Forum for A Custody Dispute?

Where a custody dispute will be litigated can be a critical concern when voluntarily entering into an agreement regarding custody of children. Child custody issues can be further complicated when dealing with laws across state or country lines.

UCCJEA

“The National Conference of Commissioners on Uniform State Laws promulgated the UCCJEA [Uniform Child Custody Jurisdiction and Enforcement Act] in 1997 ‘to deal with the problems of competing jurisdictions entering conflicting interstate child custody orders, forum shopping, and the drawn out and complex child custody legal proceedings often encountered where multiple states are involved.’” Friedman v. Eighth Judicial District Court, 264 P.3d 1161, 1165 (Nev. 2011) (quoting In re Custody of A.C., 200 P.3d 689, 691 (Wash. 2009)). In the U.S., the UCCJEA (“the Act”) has been adopted by 49 states, the District of Columbia, Guam, and the U.S. Virgin Islands, but not by Massachusetts or Puerto Rico.

Under the Act, once a U.S. state has issued an initial child custody order, it will retain exclusive and continuing jurisdiction over future custody disputes so long as one parent continues to live there.[1] No other state has the authority to act and the original court’s authority does not end until one of two things happens: (1) the original court finds that the child and both parents have moved out of the state, and, it no longer has subject matter jurisdiction, or (2) the original court determines that it is an inconvenient forum and a court of another state or country is a more appropriate forum   This issue can be raised by either party, the original court, or the court of another state.  However, the decision to decline or relinquish jurisdiction must be made by the original court.[2]

Pursuant to the Act, eight factors apply when considering an inconvenient forum motion.  One factor is whether any agreement of the parties exists as to which state should assume jurisdiction. Other factors are: whether domestic violence issues exist; the length of time the child has resided outside the state, distance between possible courts, the parties’ relative financial circumstances, the nature and location of the evidence required to resolve the pending litigation, the ability of each state’s court to decide the issues expeditiously and the procedures necessary to present the evidence, and the court’s familiarity with the pending litigation’s facts and issues.  UCJEEA §207(b).

If the original court decides it is an inconvenient forum, it will stay the proceedings so long as another state promptly commences a custody proceeding.

Hogan v. McAndrew

Is a marital settlement agreement’s negotiated forum-selection clause enough to select jurisdiction?

A forum-selection clause was considered by the Rhode Island Supreme Court in the matter of Hogan v. McAndrew, 2016 WL 556297 (Feb. 12, 2016)  In Hogan, Father and Mother were dual citizens of the United States and the Republic of Ireland. The parties divorced in 2008. In accordance with their property settlement agreement, they share joint custody of three children, and Mother has physical placement. The parties agreed that Mother could return to Ireland with the children.  They stipulated that any future custody disputes would “remain under the jurisdiction of the [Parental Kidnapping Prevention Act, 28 U.S.C. § 1738A], [the Uniform Child Custody Jurisdiction and Enforcement Act (UCCJEA), G.L. 1956 chapter 14.1 of title 15,] and the Rhode Island Family Court.” (Hogan at *p. 2)

The children stayed with Mother in Ireland and visited Father in Rhode Island each summer. Father continued to reside in Rhode Island and, in 2014, filed motions in the Rhode Island Family Court, including an ex parte emergency motion to modify custody and placement. The Court granted the ex parte order. Mother moved to vacate the order and sought to dismiss the action asserting Rhode Island lacked subject matter jurisdiction as the children had resided in Ireland continuously for more than five years.

The Rhode Island Family Court heard the parties on the issue of jurisdiction.  Excepting yearly visits with their father, the children resided in Ireland continuously with Mother from January 2009 to July 2014 while Father resided in Rhode Island.  Father spent multiple weeks with the children each year, with most of this time spent in Ireland.

Father testified that the parties’ agreement that Rhode Island maintain jurisdiction was “vital” to his decision to assent to the children’s relocation to Ireland.  He further testified that “without it” he would “never have agreed to let them go.

After hearing, the Court issued a bench decision declaring that although Rhode Island retained exclusive, continuing jurisdiction pursuant to the UCCJEA, it declined to exercise jurisdiction on the ground of forum non conveniens, noting that Ireland was a more appropriate forum for the dispute to be heard.  The Court noted that a forum- selection clause is one of eight factors and reasoned that its inclusion in the property settlement agreement did not absolutely bind the Court, which must consider all of the factors set forth in the statute.

Father appealed and argued that the hearing justice abused her discretion by failing to afford proper weight to (1) the mutually agreed upon forum-selection clause set forth in the property settlement agreement and in the final judgment of divorce, and, (2) additional factors enumerated under the UCCJEA.

Rhode Island’s highest court vacated the lower court’s decision, holding that the hearing justice abused her discretion by declining jurisdiction on the ground of forum non conveniens.  The Rhode Island Supreme Court explained that before the Family Court, vested with exclusive, continuing jurisdiction over the child-custody dispute, declines jurisdiction on the grounds of inconvenient forum, it must engage in a two-part inquiry.  The Family Court justice must conclude both that the court “is an inconvenient forum under the circumstances and that a court of another state [or a foreign tribunal] is a more appropriate forum.” R.I. Gen. Laws §15-14.1-19(a); See UCCJEA §207.  Before the Family Court can decide that Rhode Island is an inconvenient forum, it must address whether it would be “appropriate for a court of another state to exercise jurisdiction.”  This determination is made by considering all relevant factors, including the eight factors enumerated in the UCCJEA.  Then, if the court concludes based on the evidence that a more appropriate forum exists, the court proceeds to the second step of the analysis and considers whether it would be an inconvenient forum under the circumstances.

The Rhode Island Supreme Court previously addressed the role of forum-selection clauses under the UCCJEA in the case of Sidell v. Sidell, 18 A.3d 499, 504-08 (R.I. 2011).  In Sidell, the defendant father and former resident of Rhode Island filed post-divorce motions regarding child-custody and support orders issued by the Rhode Island Family Court.  At the time he filed his motions neither the parents nor the child resided in Rhode Island.  Defendant father argued that the Rhode Island Family Court was vested with jurisdiction because the parties had stipulated in their marital settlement agreement that Rhode Island would retain exclusive jurisdiction over the matter.  However since none of the parties resided in Rhode Island, the Court determined that Rhode Island courts lacked exclusive continuing jurisdiction under R.I. Gen. Laws § 15-14.1-14(a)(2).  Sidell at 508.The Sidell Court concluded a forum-selection clause does not confer a court with subject matter jurisdiction when such jurisdiction is otherwise absent. Id.

However, in Hogan, the Rhode Island Supreme Court noted there are situations where a court is vested with subject matter jurisdiction and “an enforceable forum-selection clause…settles the proper venue for the cause and prevents ‘a party that has agreed to be bound… [from…assert[ing] forum non conveniens as a ground for dismissing a suit brought in the chosen forum.’” Id at 507 (quoting American Biophysics Corp. v. Dubois Marine Specialties, 411 F.Supp. 2d 61, 62 (D.R.I. 2006)).

In vacating the Family Court’s decision in Hogan, the Supreme Court, noted that the trial justice overlooked Father’s testimony that the forum-selection clause had been a predominant factor in his agreement to allow his children to move to Ireland with their mother and that the parties had entered into the agreement in anticipation of the relocation.  The Supreme Court also noted that the trial justice failed to address the high value that is conferred on judgments by consent.  Further, based on the dearth of information available, the Supreme Court concluded that the hearing justice improperly determined that the seventh factor – “the ability of the court of each state to decide the issue expeditiously and the procedures necessary to present the evidence” weighed equally in favour of Ireland and Rhode Island. R.I. Gen. Laws §15-14.1-19(b)(7); UCCJEEA §207(b).

The Rhode Island Supreme Court remanded the matter back to the trial court, with the unstated implication that the trial court will retain jurisdiction.

OTHER CASES –FORUM-SELECTION CLAUSE

In Friedman v. Eighth Judicial Dist. Court of State, ex. Rel, 127 Nev. 842, 844 (2011), the Nevada Supreme Court declined to exercise jurisdiction over an interstate custody dispute in favour of California.  In Friedman, the parties had stipulated in their divorce decree that Nevada would have exclusive jurisdiction over future child custody disputes.  When the dispute arose, both parties and their children had moved to California.  The Court concluded the parties’ agreement to confer jurisdiction on a court that otherwise would not have jurisdiction was ineffective. Id. at 850.

In Horgan v. Romans, 366 Ill.App.3d 180 (2006), the Appellate Court of Illinois, First District, Fourth Division, declined jurisdiction despite the parties’ forum-selection agreement and reasoned to allow such an agreement to trump the other factors to be balanced under  the UCCJEA would contradict the statutory language of section 207 of the Act. Id at 185.

In S.K.C. v. J.L.C., 94 A.3d 401, 418 (Pa. 2014), a Pennsylvania Superior Court held that a forum-selection clause may not be considered when determining whether a court retains exclusive, continuing subject matter jurisdiction. Id.

CONCLUSION

A forum-selection clause and the circumstances surrounding its inclusion in a marital settlement agreement are among the factors to be considered when determining which of two competing forums is more appropriate and whether one is inconvenient relative to a child custody determination.  Although some courts have afforded what appears to be greater weight to such agreements, forum-selection agreements alone are not dispositive and must be weighed against  other factors and circumstances when the dispute arises.

 

[1] Section 105(a) of the UCCJEA provides that a foreign country will be treated as if it is a state of the United States for the purposes of applying Articles I (cooperation principles) and II (jurisdiction provisions) of the UCCJEA.

[2] Exceptions in emergency situations apply and provide for temporary custody orders.

 

Resolving Real Estate Disputes in Indonesia Q&A

  1. Have there been any recent legislative changes or interesting developments in your jurisdiction on real estate?

Regarding legal developments and issues in Indonesia’s real estate sector, two developments are particularly interesting and merit mention here.

First, President Joko Widodo recently issued Presidential Instruction No. 3 of 2016 regarding Simplification of Licensing in Housing Construction (April 14, 2016) (“Presidential Instruction 3/2016”). This presidential instruction calls for ministers and heads of regional governments to simplify the policies, requirements, and process to obtain the licenses required for the construction of housing. The issuance of Presidential Instruction 3/2016 follows the announcement of the government’s “one million housing” program, which, as the name suggests, is aimed at building a million houses for lower-income families. It will take time to evaluate the effect of Presidential Instruction 3/2016, but in the months immediately following its issuance, developers reported the same difficulties and challenges in obtaining the necessary licenses, in particular obtaining licenses from regional government authorities (which, due to regional autonomy, have broad authority and discretion in the issuance of licenses for activities within their regions, including for real estate development).

Second, another development worth mentioning in the real estate sector relates to the controversy over reclamation work in and near Jakarta Bay. This reclamation work is essentially aimed at creating a new land area in densely crowded Jakarta for real estate developments, be it housing or commercial development. However, the reclamation work has raised a multitude of issues and concerns, including legal issues related to environmental law, administrative law, and anti-corruption law. These issues, along with various political intrigues, including a clash between the central government and the Jakarta administration over the authority to issue the permits and licenses for reclamation work, and protests by environmental activists and residents and fishermen near the reclamation site, have resulted in the reclamation work progressing very slowly (it is currently on hold), placing the developers in an uncertain position.

The above snapshot of recent developments in Indonesia underlines a few of the prevalent issues in the country’s real estate sector, i.e., a complex and lengthy licensing process at the regional level and a lack of legal certainty.

  1. How would you describe arbitration facilities and processes in the real estate sector in your jurisdiction?

Before addressing this question, two things must be noted: first, “real estate” is a very broad subject that touches many aspects of Indonesian law, e.g., administrative law, environmental law, construction law, civil law, agrarian/land law, etc. Second, there is no arbitration facility or process specifically designed to accommodate real estate matters under Indonesian law. Having established this, disputes related to real estate are treated in a similar manner as any other dispute in Indonesia.

Concerning dispute settlement through arbitration, Indonesia has enacted Law No. 30 of 1999 regarding Arbitration and Alternative Dispute Resolution (August 12, 1999) (“Arbitration & ADR Law”). Under the Arbitration & ADR Law, parties may resolve a dispute through arbitration only after they have agreed to arbitration as the dispute settlement mechanism. For agreements, including agreements related to real estate (e.g., construction agreements or lease agreements over building or office space), the parties will usually insert an arbitration clause if they prefer arbitration to settle any dispute arising from such agreements.

The most widely recognized national arbitration body in Indonesia is the Indonesian National Arbitration Board (Badan Arbitrase Nasional Indonesia or “BANI”). When a foreign counterpart is involved, the parties often choose an international arbitration body such as the Singapore International Arbitration Centre (“SIAC”) or the International Chamber of Commerce (“ICC”) to settle their dispute.

The rules of the arbitration depend on the parties’ agreement. As an illustration, if the parties choose BANI to resolve their dispute, the process is (i) submission of an application for a notice of arbitration, (ii) response to the notice of arbitration, (iii) appointment of arbitrator(s), (iv) payment of the arbitration fees, (v) examination of the case, (vi) proceedings, and (vii) award.

SIAC, ICC, and other arbitration bodies have different proceeding rules and the parties to an agreement are free to determine which rules they wish to use in the event of a dispute.  Indonesia recognizes the enforcement of foreign arbitral awards, as Indonesia is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which has been ratified according to Presidential Decree No. 34 of 1981 (August 5, 1981). Foreign arbitral awards must be registered at the Central Jakarta District Court for the purpose of execution.

  1. What are the most frequent disputes in your jurisdiction regarding real estate matters?

Land disputes are the most common disputes related to real estate matters. There are many reasons for this. Real estate developers often face difficulties in the land procurement process for real estate developments. Land disputes vary and include competing claims of ownership over a portion of land, disputes with disgruntled local communities that oppose a development, falsification of or incorrect information on a land certificate, and even issues of criminal liability.

In Indonesia, there are portions of land that are already certificated and those that are not yet certificated. The procurement of uncertificated land, commonly known as adat (customary) land, is more prone to dispute. Due to the lack of a clear certificate from the National Land Office (Badan Pertanahan Nasional or “BPN”), the authorized government agency in charge of administering land in Indonesia, tracing the actual owner of adat land can be difficult and more than one party may claim ownership of the land. It is not uncommon, for example, for one party to claim ownership of land by inheritance and another party to claim ownership of the same land because he or she has occupied the land for a long time. Demarcation of the boundaries of adat land is another source of dispute.

Adat land, when acquired by a party, including a developer, is certificated in accordance with the prevailing regulation. But even when a land certificate is obtained from the BPN, the risk of dispute still exists. Other parties could challenge and seek the annulment of the land certificate if they deem its issuance unlawful, e.g. if another land certificate was previously issued to another party for the land, the previous land owner committed fraud by selling the same land to more than one party, incorrect information was used by the BPN for the land certificate, etc. Under the prevailing regulation, a land certificate cannot be challenged after five years from the issuance of the land certificate in the name of a landowner who obtained the land validly.

Such land disputes are often settled either by arbitration, as discussed in point 2 above, or court proceedings. For court proceedings, the type of land dispute determines to which court the matter is submitted for settlement, depending on the specific authorities of Indonesian courts. For example, a challenge to the lawfulness of a land certificate issued by BPN will be submitted to the administrative court, which has the authority to annul unlawful certificates and licenses. Equally, it is common for land disputes to be brought for civil court proceedings by tort.

The above are only several examples of the type of land disputes that frequently affect real estate development in Indonesia and are far from a comprehensive list. There are also, for example, construction work disputes involving developers/contractors. Parties to a construction contract may choose foreign court proceedings for dispute settlement.  However, Indonesia does not recognize the enforcement of foreign court judgments as the country is not a party to a convention for such enforcement.

  1. Can you outline the benefits and drawbacks of typical court proceedings regarding real estate disputes?

To clarify, there are three types of legal proceedings in Indonesia relevant to the real estate sector, namely civil court proceedings, administrative court proceedings, and criminal court proceedings. Civil court proceedings deal with issues related to either a breach of contract or tort. Administrative court proceedings deal with claims by parties concerning the issuance of a decree, permit, license, or other forms of approval by the government. Criminal court proceedings deal with the determination of criminal acts.

Aside from the above, land inheritance disputes may also involve proceedings in (i) the religious court for inheritance under Islamic law and (ii) civil court for inheritance under non-Islamic law.

The benefit of court proceedings is that court fees and expenses related to handling a dispute are low. Another benefit, particularly for civil court proceedings, is that the procedural mechanisms require the parties to enter a mediation process before the proceeding advances to its merits. This provides the opportunity for a dispute to be settled amicably between the parties without a court judgment.

This does not fall under the category of benefit, but administrative court and criminal court proceedings are necessary because the issues these courts have jurisdiction over (administrative and criminal law) cannot be resolved by any other means, such as arbitration or alternative dispute resolution.

As to drawbacks, court proceedings in Indonesia tend to be lengthy. It can take up to two years to reach a final and binding decision, bearing in mind that the decision of a lower court can be appealed to a high court, and a cassation can be filed for with the Supreme Court.  For real estate developers, exposure of their involvement in court proceedings can cause damage to their reputation and good name.

  1. Can you outline the advantages and disadvantages of alternative dispute resolution for real estate matters?

Under the Arbitration & ADR Law, alternative dispute resolution (“ADR”) is defined as a dispute resolution mechanism agreed to by the parties that does not involve court proceedings, as a result of consultation, negotiation, mediation, conciliation, or expert assessment. Unfortunately, the Arbitration & ADR Law does not define each of these ADR methods. The Arbitration & ADR Law tends to leave the mechanisms for ADR up to the parties involved, but it does stipulate that the result of any settlement through ADR must be made in a written agreement and be registered with the relevant district court within 30 days after the execution of such agreement.

The advantage of ADR is that it allows a dispute to be settled without having to use the courts. The drawbacks of court proceedings as explained in point 4 above can be avoided if ADR is applied. Dispute settlement through ADR also respects the confidentiality of the parties related to the dispute.

The disadvantage of ADR is that the rules of ADR are not well established in Indonesia. As an indication of this, only one out of 82 articles in the Arbitration & ADR Law, namely Article 6, regulates the mechanisms of ADR.

However, as indicated in point 4 above, when a party submits a claim through a civil court it must first enter mediation in an attempt to reach a dispute settlement. This form of mediation is precisely regulated in Supreme Court Regulation No. 1 of 2016 regarding Mediation Procedure in Court (February 3, 2016).

  1. What are the main ADR methods used to settle large real estate disputes in your jurisdiction?

It is rare for large real estate disputes to be resolved by ADR, simply because ADR methods are not well established in Indonesia (as discussed in point 5 above). Negotiation is of course first sought to prevent any dispute from occurring. But when negotiation fails, real estate disputes, especially land-related disputes, are often brought directly to court proceedings.

Out-of-court mediation (mediation outside the required mediation process in a civil court proceeding) may be the best alternative dispute resolution mechanism to prevent a dispute going to court. In a recent development, the Indonesian Minister of Agrarian Affairs, who is also the head of the BPN, has publicly promoted the use of mediation to settle land disputes. The BPN has recently put in place internal regulations and guidelines for the mediation of land disputes. These regulations and guidelines are silent as to whether there will be any fees involved for mediation of land disputes.

International Arbitration in London Post Brexit: Business as Usual

Unless and until the United Kingdom (UK) formally leaves the European Union (EU), the Brexit vote – which has political and historical significance, but is not legally binding on government[1]– will have little impact on London’s status as a centre for international arbitration.

The withdrawal process itself is contemplated by Article 50 of the Treaty on the Functioning of the European Union (TFEU).  Untested to date, it is a once-and-for-all decision and a process that falls to be decided pursuant to the UK’s “own constitutional requirements”.[2]

Constitutional law experts have advised that, in order for the EU referendum result to be given effect, an act of the UK Parliament is required to allow Article 50 to be triggered and the UK formally to leave the EU.[3] This entails that a Bill should be presented for debate before Parliament, and approved in the same form by both the House of Commons and the House of Lords.

This view rests on the basis that triggering Article 50 TFEU without an act of Parliament (for example, as has been mooted in the press, by a declaration of the Prime Minister) would contravene the terms of the European Communities Act 1972, the statute providing for the UK’s membership of the EU and for the EU Treaties to have effect in domestic law, and thereby be open to challenge by way of judicial review.

Consequently, any formal departure of the UK from the EU is not realistically contemplated for the immediate future.

The immediate future is marked by a falling sterling, an unsettled economy and uncertain financial markets.  These woes may indirectly benefit international arbitration: London becomes a cheaper, and thus more attractive, venue for hearings, and we may see an increase in arbitral disputes as parties seek to invoke Brexit to trigger “material adverse change” and similar clauses in their contractual agreements.  As the Brexit dust settles, the Arbitration Act 1996 remains unaffected, the UK is a party to the New York Convention 1958 in its own right, English law retains its desirability as the governing law of choice in commercial agreements, and London’s sophisticated infrastructure for handling international disputes and its legal talent and know-how stay firmly in place.

Looking into the future at the hypothesis of a formal UK withdrawal from the EU, one stares at a legal landscape harking back several decades.  Without the Rome I Regulation on the law applicable to contractual obligations (593/2008), choice of law issues will revert to common law rules.  The non-application of the Brussels Regulation (recast) (1215/2012) will not affect arbitration, which remains outside its scope.  However it will mean no reciprocal enforcement of judgments in the EU legal space and no deference to the court first seised, therefore possibly encouraging the strategic use of the “jurisdiction race”, a proliferation of arbitration-related court proceedings – and the potential resurrection of the anti-suit injunction.  The disappearance of the EU Insolvency regime will not assist with the considerable challenges presented to international arbitration by a party subject to pending insolvency proceedings.[4]

Withdrawal from the EU may also toll the end of the UK in its current incarnation.  Scotland and Northern Ireland have voted massively in favour of remaining in the EU and they may not wish to remain part of the UK in the event of withdrawal.[5]

The prospect of a dismembered Britain (no longer the UK) out of the EU is arguably more threatening to international arbitration in London than is the Brexit vote itself.  It is an open question whether Britain in its new incarnation could readily take up the place of the UK as a party to the New York Convention, which counts over 150 state parties and is widely recognised as the most important selling point of international arbitration.

Recent public pronouncements from Lord Thomas, the Lord Chief Justice of England and Wales, may also cause one to wonder whether the UK Supreme Court, the country’s highest judicial authority, prefers to see commercial arbitration heading back to an era pre-dating the Arbitration Act 1996.

In a Lecture held by the Trustees of the British and Irish Legal Information Institute (BAILII) on 9 March 2016, entitled “Developing commercial law through the courts: rebalancing the relationship between the courts and arbitration”,[6] Lord Thomas forcefully advocated in favour of more robust court intervention in arbitration.  The Arbitration Act 1996 is premised on the tenets that “the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest” (s. 1(b)) and  “in matters governed by this Part the court should not intervene except as provided by this Part” (s.1(c)).

Lord Thomas stressed that, in taking place behind closed doors, arbitration “reduces the potential for the courts to develop and explain the law. This consequence provides fertile ground for transforming the common law from a living instrument into, as Lord Toulson put it in a different context, “an ossuary”.”[7]

He concluded, “My view is clear. In retrospect the UK went too far in 1979 and again in 1996 in favouring the perceived advantages for arbitration as a means of dispute resolution in London over the development of the common law; the time is right to look again at the balance. There is also a need to examine whether other markets would be prepared to follow the financial markets, to waive arbitration in cases where there were significant points of general interest and to appreciate that not only would their own dispute, in the right case involving legal issues, be better determined in a court but, more importantly, the wider interests of their industry and of the common law in general would be much better served by more issues being resolved in court and the law thus developed and clarified.”

Reactions to Lord Thomas’ speech have roundly condemned his views as “wholly retrograde” and out of step with commercial reality.  Commentators, including former judges, have pointed out that international disputing parties should not “be obliged to finance the development of English commercial law”.[8]

Views such as those expressed by Lord Thomas count amongst the very reasons why arbitration is preferred to the courts in cross-border commercial agreements.

Looking at the likely long lead-in time to a UK exit that is not a foregone conclusion, and in light of “the not inconsiderable, and measurable, economic benefit that befalls arbitration-friendly jurisdictions”,[9] estimated in 2009 at some €4 billion for the EU by the European Commission,[10] it makes sense to take advantage of that time to consolidate London’s position as a worldwide arbitration hub and reassure users that it is business as usual.  Taking a long hard look at the criticisms voiced by users – time, costs, diversity deficit, the perceived reluctance of tribunals to engage in proactive procedural handling[11] – and addressing them in a practical and commercial manner would make for a good starting point.

London has its own arbitration image.  It has withstood the test of time and will withstand a post Brexit landscape.  London’s features are distinctive and different from the hallmarks of Paris, Geneva or Stockholm.  They include the adaptability and commercial-mindedness of the common law, an enlightened judiciary, a critical mass of legal and forensic expertise, and world-class facilities.  London remains open for business, with or without the EU.

 

[1] The European Union Referendum Act 2015 is silent on the issue.

[2] “1.       Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.

  1. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
  1. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.”

[3] See notably N Barber, T Hickman, J King, “Pulling the Article 50 ‘Trigger’: Parliament’s Indispensable Role”, U.K. Const. L. Blog (27 June 2016) at https://ukconstitutionallaw.org/2016/06/27/nick-barber-tom-hickman-and-jeff-king-pulling-the-article-50-trigger-parliaments-indispensable-role/

[4] The conflicting decisions of the English and Swiss courts on whether an arbitration should be stayed pending the outcome of insolvency proceedings affecting one party in the case between Elektrim SA and Vivendi (Syska v Vivendi SA [2008] EWHC 2155 (Comm) and on appeal [2009] EWCA Civ 677; Swiss Supreme Court, Decision 4A_428/2008 of 31 March 2009) illustrate the important challenges facing international arbitration in this context.

[5] “Where was the EU referendum won and lost? Northern Ireland, Scotland and London only areas not to vote for Brexit”, The Telegraph, 27 June 2016 at http://www.telegraph.co.uk/news/2016/06/24/what-can-we-learn-from-the-eu-referendum-results/

[6] http://www.bailii.org/bailii/lecture/04.pdf

[7] “The effect of the diminishing number of appeals compounds the problem that arises from the diversion of more claims from the courts to arbitration. It reduces the potential for the courts to develop and explain the law. This consequence provides fertile ground for transforming the common law from a living instrument into, as Lord Toulson put it in a different context, “an ossuary”.  Here lies the irony. As I have explained reform was effected to promote the use of London as a centre for dispute resolution largely based on contracts based on the common law as developed in the Commercial Courts of London. However, the consequence has been the undermining of the means through which much of the common law’s strength – its “excellence” was developed – a danger not merely to those engaged in dispute resolution in London, but more importantly to the development of the common law as the framework to underpin the international markets, trade and commerce.

Quite apart from this major issue, there are other issues which arise from the resolution of disputes firmly behind closed doors – retarding public understanding of the law, and public debate over its application. A series of decisions in the courts may expose issues that call for Parliamentary scrutiny and legislative revision. A series of similar decisions in arbitral proceedings will not do so, and those issues may then carry on being taken account of in future arbitrations. As has been put: Arbitration confidentiality perpetuates public ignorance of continuing hazards, systemic problems, or public needs . . .28 Such lack of openness equally denudes the ability of individuals, and lawyers apart from the few who are instructed in arbitrations, to access the law, to understand how it has been interpreted and applied. It reduces the degree of certainty in the law that comes through the provision of authoritative decisions of the court. As such it reduces individuals’ ability to fully understand their rights and obligations, and to properly plan their affairs accordingly.”

[8] England: Former Supreme Court Justice calls Lord Thomas’ arbitration proposals ‘wholly retrograde’: http://www.scottishlegal.com/2016/04/28/england-former-supreme-court-justice-calls-lord-thomas-arbitration-proposals-wholly-retrograde/

[9] S Nappert, Escaping From Freedom? The Dilemma of an Improved ISDS Mechanism, The 2015 Inaugural EFILA Annual Lecture, 26 November 2016, at http://efila.org/wp-content/uploads/2015/11/Annual_lecture_Sophie_Nappert_full_text.pdf

[10] Commission Staff Working Paper, Impact Assessment, Accompanying document to the Proposal for a Regulation of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, COM (2010) 748, SEC (2010) 1548, 14 December 2010, at page 35.

[11] 2015 International Arbitration Survey: Improvements and Innovations in international Arbitration (QMUL – White & Case): “”Cost” is seen as arbitration’s worst feature, followed by “lack of effective sanctions during the arbitral process”, “lack of insight into arbitrators’ efficiency” and “lack of speed”. The majority of respondents do not favour an appeal mechanism on the merits in either commercial or investment treaty arbitration.  A growing concern in international arbitration is a perceived reluctance by tribunals to act decisively in certain situations for fear of the award being challenged on the basis of a party not having had the chance to present its case fully (“due process paranoia”)”. See http://www.arbitration.qmul.ac.uk/research/2015/.

 

Mediation – Practical Guidelines, Part 2: The mediator – role and limits as the moderator of the process of reaching an agreement

While part 1 of these guidelines addressed the basic principles of the mediation procedure in general and, above all, the logistical issues of “who, where, how,” part 2 deals mainly with preparing for the conflict before the mediation hearing and the specifics of conducting the hearing as such.

I. Moderating the process of reaching an agreement

Every mediator will have his or her own style and basic concept regarding the sequence and structure of a mediation hearing, which he or she is then required to adjust to the respective individual case.

  1. Written narrative summary by the parties to the conflict

The mediator cannot reasonably be expected to work his or her way through what may be mountains of files on a lengthy conflict, nor is it certain that he or she would in fact discern the true core of the conflict even so. Both parties must therefore be asked to summarize the facts of the matter and the status of the dispute from their standpoints, in a manner appropriate to the complexity of the case. To this end, the mediator should, after consulting with the parties to the conflict, set out clear rules for the maximum scope and submission deadline and potentially establish an organizational structure that applies to all sides with regard to the subjects to be addressed. Within a further time limit after that, each party will then have the opportunity, after taking note of the opposing side’s submissions, to submit supplementary written remarks on the statements made therein within a certain time window and maximum scope.

These clear and easily understood summaries – which are termed “narratives” hereinafter – form the basis for the mediator to familiarize himself or herself with the substance of the conflict and plan the mediation process.

  1. Opening phase of the mediation hearing

At the start of the mediation hearing, the mediator should provide an introduction to mediation in general, the planned process of the talks, and the procedural rules that must be observed.

After that, one option is to allow the parties to the conflict to present their respective standpoints orally within a certain speaking time. Instead of that, and often preferably, the mediator, who is now quite familiar with the matter from reading the written remarks, can outline his or her understanding of the status of the dispute and the issues that are especially relevant to the conflict and ask the parties to the conflict to add to or correct these remarks. This method has one major advantage in that it precludes potentially heated debate between the parties right at the start of the talks, instead offering an avenue of introduction to the subject matter of the conflict through the mediator’s presentation and with the mediator’s distance from the case.

  1. Looping and paraphrasing

One factor that is absolutely crucial to the success of the mediator’s work is ensuring that all parties to the conflict have a firm sense at all times that the mediator is paying attention to and considering their submissions and actually understanding them as intended by the presenting party. The technique of “looping” or paraphrasing is an excellent way to do this. What this means is that the mediator repeats or paraphrases the parties’ submissions on an ongoing basis to ensure that he or she does in fact understand both parties’ submissions and arguments accurately. Having the mediator summarize the written narratives is another side of this same technique, which is why it is an excellent way to start the discussions and negotiations. In this way, the parties’ representatives can build the necessary fundamental trust in the mediator’s impartiality and understanding of the facts of the matter.

  1. Interests/needs versus positions

The positions and demands or denials expressed by the parties to the conflict are obvious and clearly apparent. They are generally quite easy to ascertain and name. In terms of looking for possible solutions that involve an amicable agreement later on, however, it is highly important to “see through” these positions and discern the actual interest or need on which the party to the conflict bases the position. Although a position is generally expressed in the form of a monetary amount, in the vast majority of cases even a monetary position is backed by an identifiable interest or concern that does not have to do primarily with money. Finding out these underlying interests or needs on the part of all of the parties to the conflict (not just the claimant) is very often the key to identifying the best possible alternative solution in the further course of the negotiations.

  1. Evaluating and weighing the parties’ interests/needs

In many cases, the matter concerns not just one need on the part of one of the parties to the conflict, but rather several, which generally vary in their importance to that party. But the other parties to the conflict also have needs and interests of their own, and they also vary in relevance. For mediation purposes, it is important for the true interests/needs of everyone involved in the conflict to be identified through open discussion and then evaluated or categorized jointly by the interested parties in terms of their importance and significance to the parties to the conflict. In many cases, the interests of those involved in the conflict have more aspects than is initially apparent. This can open up possible avenues of reaching an agreement, as accommodating a need that has been acknowledged as being especially important to one party may generate greater value for that party than conceding the point “costs” the opposing side – so a kind of added value with regard to one aspect or another can be generated through these kinds of elements of mutual agreement, making it easier to reach an overall solution.

The process of designating and attaching values to the interests and needs of other interested parties (and not just one’s own) openly and through shared discussion creates a negotiation atmosphere of consideration toward the other interested parties. It is much more difficult to reach an amicable agreement without this kind of cooperative negotiation atmosphere.

  1. Separating the factual level from the relationship level

It is not uncommon for conflicts (such as those between shareholders or partners in a business) to be based not primarily on factual issues, but rather to have their true roots on the relationship level. If the mediator is not successful in identifying and understanding these root causes – which are often not clear from the exchange of written narratives – it will be very difficult to resolve the conflict. Where the conflict exists on a relationship level, achieving a certain level of satisfaction, or at least airing of concerns, on the part of the affected parties is even generally the primary goal. Since relationship conflicts are very difficult to categorize, it is nigh impossible to generalize about how to handle them, except to say that the most promising path is generally to gently and carefully identify and name the deeper-seated areas of personal dissonance. It may be necessary to hold a large number of individual discussions, or even to call in an appropriate expert. In many cases, even simply allowing the affected parties to voice their concerns with the mediator’s guidance can lead to a greater understanding of the opposing side’s views and feelings. In addition, naming and identifying the deeper-seated root causes of a conflict often points to ways that the parties could consciously avoid or handle the problematic relationship in the future, for example by agreeing to change the processes by which information is shared or matters are coordinated, making changes in responsibilities, involving external persons of trust, and so on.

  1. Determining and evaluating the alternatives in case an amicable resolution is not reached

Before beginning to look for approaches to achieve an amicable resolution, it is advisable to openly discuss all of the conceivable scenarios in which an amicable resolution is not reached as a group and evaluate their effects on the interested parties. It is certainly a good idea – and a matter of course before reaching an amicable settlement – to identify, assess, and weigh the prospects and risks associated with continuing the conflict.

Although this sounds like it goes without saying, there are nonetheless many parties who do not go through a clearly structured process of weighing these factors. Holding open discussions to assess the various alternatives for reaching or not reaching an amicable resolution means that in factual terms, part of the process of weighing the various factors takes place in the presence of the opposing party, and most of all, in the presence of the mediator. That means the mediator can more readily influence the evaluation of the alternatives and the process of weighing the options than if these consultations were to take place among the parties’ representatives themselves, confined to their own delegations, without the mediator taking part. In particular, the mediator can ensure that all interested parties have a clear sense of the scenarios in which an amicable resolution is not reached as they make their decisions.

During the discussion that follows within a negotiation delegation, there are often different assessments and perspectives, and different personalities also affect the process of forming an opinion. Holding an open discussion as a group beforehand may shift the dynamics within the delegation and enhance the members’ willingness to compromise, because the scenarios for what will happen if an agreement is not reached are probably clearer to them at that point than they usually are.

  1. Identifying possible solutions

The task in the next stage of the process is to identify as many conceivable approaches that can be taken to achieve an amicable resolution as possible. Aside from the obvious options, there are almost always less obvious ones, which are more likely to be found in joint brainstorming sessions. For all kinds of brainstorming, the main point is to elicit as many thoughts and ideas as possible, refraining for the time being from making any value judgments or ruling anything out. The mediator’s role is to ask the parties to the conflict to think about possible solutions from the other side’s perspective as well, regardless of their own situations. During this process, the interested parties should be urged to be as creative as possible so that no theoretically conceivable solutions are overlooked. In this regard, the mediator should act as a catalyst for the parties’ creativity. The mere fact that they are considering, at least in part, ways of arriving at an amicable agreement while taking the interests and needs of the other side into account fosters greater understanding for the opposing side’s concerns, whether they are purely financial in nature or involve communication challenges, financial problems, or something else. The important thing is to set down all of the possible solutions so that they can be referred to anytime later on.

  1. Assessing the possible solutions

After all of the conceivable approaches to achieving a resolution have been found, designated and set down, the next step is to identify the solution models that are realistic and merit discussion. In this situation, it is beneficial for all interested parties to have been involved in preparing the full overview of all possible approaches, so all sides are aware that resolving the conflict – if it is in fact possible to do so – will require them to select, adapt, and combine the various elements from this list.

The list of possible solutions will very likely include approaches in which the added value discussed above is created by giving something to one party that is more important to that party than conceding it costs the other. Special attention should be paid to seeking out these kinds of elements and including them in an overall concept. If at all possible, a good overall solution should address all of the matters involved in the conflict and, beyond that, all other connecting factors between the parties, since a full package solution makes it much easier to balance out points of contention with concessions or promises made elsewhere, thereby crafting an overall solution that is suitable for consensus and advantageous for all of the parties involved. This means that all levels and topics, whether factual or personal in nature, should be included in the package in order to arrive at a solution that appeals to all sides and establish a relationship that is as free of tension as possible for the future.

As part of this process of identifying a solution, it is occasionally a good idea to refer once again to the alternatives that have been identified in the event that no agreement is reached in order to maintain the parties’ interest in achieving an amicable resolution and ensure that they do not give up their efforts prematurely. Mediation negotiations often seem to have failed conclusively, but can then be started back up again successfully, for example if the parties take a break so they can resume the discussion with renewed energy and after reconsidering the alternatives that will apply if an agreement is not reached. In these kinds of situations, it is crucial for the mediator to retain firm control of the course of the hearing at all times, intervening in situations of escalating conflict or where a breakdown seems imminent and taking procedural measures to affect how the negotiations proceed. This is one reason that mediation involving a strong, experienced mediator has significantly better prospects of success than normal bilateral settlement negotiations.

II. A generator of limitless agreement?

That brings us to the question of what limits the mediator needs to observe. The goal of this section is to shed some light on the borderline issues that typically come up. In general, of course, any mediator who works close to the limits of his or her actual role makes himself or herself more vulnerable to attack, so one side or the other might assert that the mediator’s neutrality has been lost – with the result that the mediator should recuse himself or herself immediately. However, the mediator can guard against this risk to a certain extent by coordinating any activities that could leave him or her open to attack with all of the parties to the conflict in advance and engaging in these activities only if all parties have agreed. For the typical activities in question (such as individual discussions with one of the parties to the conflict), this can already be set out in general terms in the mediation agreement (agreement between the parties to implement mediation) or the mediator agreement (agreement between the parties and the mediator on various points, particularly describing the engagement, compensation, liability and possibly also the nature and limits of implementation).

  1. Clarification of facts by the mediator?

Can and should a mediator make himself or herself available to clarify disputed facts (e.g. by examining witnesses), and is the mediator even allowed to do this? This kind of activity clearly does not fall within the scope of the mediator’s role. If the parties wish it, however, it is not prohibited; the parties’ autonomy in determining the course of the mediation allows it. After all, the parties have the option of withdrawing from the mediation process entirely at any time, and events that form part of the mediation process cannot be used in court proceedings concerning the dispute (Article 7 of Directive 2008/52/EC). However, it must be clear to the mediator in such a case that he or she is playing with fire. There are two reasons for this. First, examining witnesses, for example, would pose an elevated risk that one of the parties could allege that the specific nature of the questioning constitutes the mediator’s taking sides; and second, it is questionable whether clarifying factual issues (or supposedly clarifying them, at any rate, as they often remain disputed even afterward) would truly improve the prospects of reaching an amicable agreement or would actually tend to worsen them instead. After all, uncertainty on certain issues – regardless of the nature thereof, and wherever possible, regarding as many open issues as possible – can be viewed as building blocks for an amicable resolution. It is therefore recommended that mediators not be available to clarify the facts of the matter as a basic principle. At most, the mediator should only state that he or she is willing to do this if there is pressure to do so from all of the parties to the conflict, and only if it is extremely unlikely that an agreement would be reached otherwise.

  1. Assessment of factual, legal, evidentiary questions?

In principle, the mediator should refrain from expressing any opinions of his or her own on these kinds of questions that are relevant to the conflict, but instead should view the mediator’s role as lying solely in pointing out which questions should be viewed as open and without a certain final answer. Uncertainty in questions of all kinds, especially those concerning the facts of the matter, witness statements, matters of credibility, expert opinions, legal questions, and issues of solvency is a particular reason why it is possible to achieve solutions through agreement and compromise, and why these solutions should in fact logically be achieved in most cases. The mediator must resist any temptation to assume the role of deciding the matter or permitting others to place him or her in such a role; in principle, this applies even if all parties turn to the mediator with this in mind. Before acceding to such a request, the mediator would have to be firmly convinced that the mediation is unlikely to succeed otherwise.

  1. Individual discussions?

Individual discussions should be an option, and for the sake of clarity, specific rules on this point should be set down in the mediation agreement or the agreement with the mediator. If one party suspects that a mediator would act unfairly during an individual discussion, that party would be best advised to reject the mediator immediately.

Without violating his or her obligations in any way, a mediator can address the risks that arise for one party in a conflict better and with greater emphasis if the mediator is meeting one on one with that party. This kind of treatment could be viewed – possibly even correctly – as a violation of the obligation of neutrality if it occurred in a discussion attended by all parties. If the parties accept their mediator, they will assume that he or she applies the same standards on both sides. Naturally, the mediator must live up to these expectations and cannot allow himself or herself to be made into a tool for one side.

  1. Suggestions for reaching an agreement?

These kinds of suggestions should exist – but only as a last resort. There is no doubt whatsoever that one of a mediator’s main tasks is to be creative in seeking out potential approaches to take in order to reach an agreement and introduce any approaches not identified or designated by the parties themselves into the discussion on a hypothetical basis. However, the mediator should fundamentally interpret his or her role as being merely that of a catalyst for the parties to reach an agreement between them, and not, like an arbitrator, making a suggestion that he or she perceives to be fair as an intermediary. As a precaution, it is a good idea to insert a provision in the mediation agreement and/or the agreement with the mediator stating that the mediator is entitled to make suggestions regarding possible agreement between the parties at his or her own discretion, but the mediator should not exercise this right except if all parties specifically wish it and if the mediator believes that in all likelihood, the parties would not reach an agreement otherwise.

III. Outlook

It appears that there is so far no widespread practice in Europe of using mediation to settle conflicts in economic matters. In the interests of the overloaded justice system and with an eye to settling conflicts faster and at lower cost and conserving resources in general, and in the fundamental interest of dealing with one another in a spirit of cooperation, this should be changed for the good of all.

 

 

Mediation – Practical Guidelines, Part 1: Basic principles and preparing for the mediation hearing

Mediation is a subject of much discussion, spurred by the legislative initiative at the EU level (Directive 08/52/EC) and the transposition thereof by national laws. There are now also a number of different ways to obtain training as a mediator.

But has mediation also made significant gains in terms of its importance in practice, outside the fields of law where it is traditionally employed (such as family law)? There is reason for doubt.

Why has mediation evidently not yet achieved the prominence in practice that it should be accorded in the interests of all concerned?

Successful mediation is not based on complex academic theory. Instead, it requires three things above all:

  • logistical preparations for the mediation that are appropriate to the case, including appropriate preparation of the subject matter of the conflict;
  • the specific craft of the mediator in conducting the discussion and leading the procedure; and, most important of all,
  • an experienced figure who has the qualities required of a mediator: integrity, natural authority, engagement, determination, and creativity.

I.  Methodology: strictness versus variety

Article 3 of Directive 08/52/EC places the term “mediation” in quotation marks and defines it as any kind of voluntary attempt to resolve a dispute, “however named or referred to.” It is already apparent from this that there cannot be a strict methodology for mediation, but rather that the manner in which the attempt to reach a resolution is made is subject to the autonomy of the interested parties. Still, certain mediation principles have taken hold in doctrine and practice (especially the “Harvard concept”), so in simplified terms, the mediation process can be broken down into the following rough phases:

  • Preparing for the mediation, including setting down rules of procedure, logistics, etc.
  • “Opening” the mediation hearing, with an introduction to the basic principles and features of the mediation procedure, the facts of the matter, and the status of the dispute; under some circumstances, an informal meeting may be held ahead of time.
  • Jointly working out all subjects in dispute from a factual and legal standpoint and otherwise.
  • Jointly working out and identifying the actual underlying interests and needs of the parties to the conflict and their relative importance and significance to the respective parties.
  • Jointly working out, in creative form, all theoretically conceivable approaches that might be taken to achieve a resolution, initially without evaluating or assessing them at the same time.
  • Jointly working out all theoretically conceivable scenarios in which an amicable resolution is not reached, initially without evaluating or assessing them.
  • Evaluating and comparing all of the identified scenarios in which an amicable resolution is not reached on the one hand and all possible approaches for reaching an amicable resolution on the other.
  • Working toward realistic models of achieving an amicable resolution.

This methodological approach is just one of many, and it affords as much leeway as desired for specific emphases appropriate to the individual case. In principle, mediation can be used to address any kind of difference of opinion; only non-waivable law (i.e. questions of status) sets boundaries for whether a conflict can undergo mediation.

This paper cannot possibly address all of the challenges that can arise during mediation, nor is it intended to do so. Instead, it will focus on a few important aspects.

II. The “who, where, how” of a mediation hearing

Mediation’s eventual success or failure is determined to a large extent early on, during the planning and conceptualization of the mediation procedure.

Who is the most important point for the mediation procedure—that is, determining the size and composition of the parties’ representation. What are the crucial criteria when it comes to the question of who should participate as the parties’ representatives?

  • Under no circumstances should there be too many people involved. The most reasonable number is between one and five per side. The delegations should be at least roughly the same size.
  • There must be sufficient knowledge of the matter represented on all sides in the delegation, or this knowledge must be available to the delegation on short notice.
  • There must be persons with adequate decision-making authority at the table. The level of the hierarchy above the one where the case is being handled and, if at all possible, decision makers from outside the legal department should also be represented. The main decision makers should be able to view each other as equals in terms of the corporate hierarchy, so they can talk to each other as equals as well.

Only if these conditions are met does the mediation have optimum prospects of success. A certain amount of distance from the matter itself and not having had too much prior involvement greatly enhance the parties’ objectivity in assessing their own prospects and risks. On the other hand, it is also necessary to ensure that the representatives are familiar with all matters and aspects that are favorable to their party and can bring them into the proceedings so that they do not agree to a solution that unreasonably disadvantages their party for lack of awareness of these points.

It should be pointed out that decision makers from outside legal departments often display a more pragmatic, more realistic view, basing their assessment on whether a potential approach to achieve a solution seems appropriate and reasonable on the whole rather than following a particular—and chiefly legal—analysis.

Each party should have as many representatives in the mediation procedure as necessary, but as few as possible, as the development of a relationship of mutual trust between those who are conducting the negotiations for the opposing sides (and, of course, between the parties’ representatives and the mediator) is critically important to the success of mediation. Without a certain level of mutual trust, it is much more difficult to talk about ways to bring the parties’ positions together or bring up possible scenarios to resolve the matter. This means that the mediator must keep these circumstances—along with interpersonal compatibility—in mind early on in the process, during the considerations regarding the determination of the parties’ representatives. It is easier to foster and build trust between a modest number of representatives of the parties than if there is a large delegation on each side. And it is not uncommon—in fact, it is quite typical—for final talks between just two or three persons to be necessary in order to overcome the last obstacles to achieving an agreement.

The mediator also needs to take great care with the aspects of where and how early on, reviewing where, in what physical setting, and on what schedule the mediation is to take place. Depending on the nature and subject matter of the dispute, a wide range of different concepts may be appropriate and promising in this regard. These outward circumstances must be appropriate to the complexity of the matter, the economic or other importance of the case, and the persons involved. Only if the critical persons on all sides view these conditions as being appropriate and comfortable is it possible to create a discussion atmosphere that permits and even fosters the building of trust between the relevant decision makers in a relatively short time—and without that, the prospects of successful mediation are poor.

Not every conflict justifies spending several days in negotiations in an exclusive, isolated location—but for complex, highly important conflicts, this kind of setting often gives rise to the best prospects of success. In other cases, the prospects of success may be greatest if it is possible to bring the final decision makers on both sides together in person, even if only for three hours at an airport hotel.

No two cases are alike. And yet, one common thread is that the participants should already perceive even the general framework of the mediation as representing more than just the logistical details of a business meeting. Deciding that one is willing to engage in a cooperative mediation procedure marks the first step toward achieving an amicable agreement; this is exactly where the mediator needs to meet the parties to the conflict and then bring them along by creating the framework for constructive talks in a spirit of mutual trust.

It is definitely possible, especially in large organizations and in the case of large-scale procedures, that not all of the parties’ representatives will feel that pursuing mediation is the right approach. They may interpret a push to achieve an amicable resolution as criticism of their management of the conflict so far, or, in the case of large-scale matters, they may even see an agreement as jeopardizing the main thing they have been working on (possibly for years), their “raison d’être,” or even their economic livelihood. This makes it all the more important for the mediator to strive to keep up the momentum formed by the decision to attempt mediation and try to bring all delegation members fully on board for the procedure.

In principle, therefore, mediation starts with a positive initial situation. Immediately launching directly into the process of working on the issues without allowing the persons involved to get a feel for one another beforehand should be avoided. If at all possible, the parties’ representatives should get to know one another first, without direct reference to the conflict. In this way, initial personal impressions are formed during discussion of general topics, not later on, during the discussion of the conflict, which is naturally contentious. Ideally, even the very first round of discussion of the facts of the matter will be less contentious on both sides if this is done, with a greater sense of partnership. Throughout the mediation hearing, one of the mediator’s key tasks is to remind all of the parties’ representatives to communicate in line with the cooperative principle behind mediation while putting a stop to any emerging signs of aggressive communication behavior in order to avoid jeopardizing the mutual trust that has been built—or to be able to establish that trust in the first place.

Setting down the details of who, where, and how in a mediation agreement may be a good idea, but it is not critically important. Rather it is important that a shared understanding on these points does exist or, even better, for them to be left up to the mediator.

Part 2 of these guidelines will address preparing for the conflict before the mediation hearing and the specifics of conducting the hearing as such.