Managing Time and Costs More Effectively: Some Observations on the Potential Tension between Party Autonomy and Due Process under the Model Law

Transcription

1 Managing Time and Costs More Effectively: Some Observations on the Potential Tension between Party Autonomy and Due Process under the Model Law Kim M Rooney ARTICLES 1. Introduction Commercially driven parties who find themselves in a commercial or investment arbitration bearing in mind that most parties, whether private or State or State owned, are commercially driven want and need their arbitration to be conducted in the most efficient and cost effective way. The techniques being used by parties to manage arbitrations more efficiently and cost effectively include agreeing to fast track arbitration with an oral hearing of limited length, or agreeing to dispensing with an oral hearing altogether, limiting the scope of document production, opting for one arbitrator rather than three, and agreeing to use alternative dispute resolution techniques such as mediation, adjudication or expert determination in conjunction with arbitration. Where the parties agree to a procedure during arbitral proceedings that in the view of the Tribunal arguably compromises the fairness of conduct of the proceedings there is potential for a tension to arise between the principle of party autonomy on the one hand, and the Arbitral Tribunal s duty to act fairly and to ensure the due process of the arbitral proceedings on the other. This article briefly discusses the relevance of Articles 2(d) and 2(e) of Article 2 of the UNCITRAL Model Law on International Commercial Arbitration 1985 as amended in 2006 (the Model Law ), in the section entitled Definitions and rules of interpretation, to potential reconciliation of such a tension. Articles 2 (d) and (e) relevantly provide that: For the purposes of this Law:. (d) where a provision of this Law, except article 28, 1) leaves the parties free to determine a certain issue, such freedom includes the right of the parties to authorize a third party, including an institution, to make that determination; (e) where a provision of this Law refers to the fact that the parties have agreed or that they may agree or in any other way refers to an agreement of the parties, such agreement includes any arbitration rules referred to in that agreement. The topic of this article was sparked by an issue raised at an international arbitration conference in 2015 in a session on managing time and cost efficiently in arbitration. I was asked as a panel member, in the context of Article 19(1) of the Model Law which expressly provides for the freedom of the parties to agree on the procedure to be followed by the Tribunal when conducting arbitral proceedings [s]ubject to the provisions of this Law, whether a Tribunal s obligation to conduct an arbitration fairly could be overridden, applying the principle of party autonomy where the parties unanimously wished to adopt a procedure that the Tribunal thought was unfair. A spirited and lively discussion ensued with various views being expressed by panel members and by other conference participants to whether the application of party autonomy (where the parties have agreed to a certain procedure) would override the Tribunal s view of what was needed to ensure a fair hearing in a particular arbitral proceeding 1) Article 28 of the Model Law is entitled "Rules applicable to substance of dispute" see discussion further below in the article. Korean Arbitration Review 39

2 where these were in conflict. This is a controversial topic where a wide range of views are commonly expressed; the terms of the arbitration agreement, of the relevant Arbitration Statute, of the relevant facts as well as the skills and approach of the arbitral tribunal and of the Parties/their counsel in each case will all contribute to the outcome of a disputed issue. This article seeks only to provide some context for this topic by reference to some relevant provisions of the 1958 Convention of Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention ) and of the Model Law. The New York Convention has been ratified, acceded or succeeded to, by some 150 jurisdictions around the world, including some 25 in Asia. 2) Article I (3) of the New York Convention allows contracting parties to make 2 reservations, the first to require reciprocity 3) and the second commonly known as the commercial reservation, by which a Contracting Party may: declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration. on international arbitration, including in the Asian region, hence the focus on its provisions in this article. The Model Law applies to commercial international 5) arbitrations. 6) As to the meaning of the term commercial in the Model Law, it is stated in footnote 2 to the Model Law that: The term commercial should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. 7) In this article, after briefly discussing what is meant by party autonomy in arbitration, including referring to some relevant provisions in the New York Convention and then to provisions in the Model Law that expressly provide for party autonomy, I refer to the Model Law obligations imposed upon an Arbitral Tribunal to ensure a fair arbitral process, and to the potential scope for their reconciliation with the principle of party autonomy, where they otherwise appear to be a conflict, by reference to the Articles 2(d) and 2 (e) of the provisions of the Model Law. The Model Law has been applied wholly or largely in 69 States in a total of 99 jurisdictions (whether by reference to the 1985 or 2006 Model Law text), including some 15 Asian States and territories. 4) While the Model Law has not been adopted in mainland China (nor in the United Kingdom or the United States) it has been an important harmonizing influence 2) accessed on 5 August 2015 (Afghanistan, Australia, Azerbaijan, Bangladesh, Brunei, Cambodia, China, India, Indonesia, Japan, Lao PDR, Malaysia, Mongolia, Myanmar, Nepal, New Zealand, Pakistan, Philippines, Republic of Korea, Singapore, Sri Lanka, Tajikistan, Thailand, Uzbekistan and Vietnam. 3) Article 1(3) of the New York Convention relevantly states: any State may on the basis of reciprocity declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Contracting State 4) arbitration/1985model_arbitration_status.html, accessed on 5 August 2015: the States and territories listed are Australia (plus 7 of its states and territories), Azerbaijan, Bangladesh, Brunei, Cambodia, Hong Kong, Japan, Korea, India, Macau, Malaysia, New Zealand, Philippines, Singapore and Thailand. 2. The Concept of Party Autonomy Party autonomy has been described as a guiding principle of international arbitration by Redfern and Hunter in the following terms: Party autonomy is the guiding principle in determining the procedure to be followed in an international commercial arbitration. It is a principle that has been endorsed not only in national laws, but by 5) Article I (3) provides the definition of what constitutes an arbitration that is international. 6) Article 1(1) of the Model Law 7) Footnote 2 goes on to state that: Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road. 40 The Korean Commercial Arbitration Board

3 international arbitral institutions and organisations. The legislative history of the Model Law shows that the principle was adopted without opposition... 8) The New York Convention The concept of party autonomy is recognized in the New York Convention. Among other provisions, Article II (1) of the New York Convention while placing some limits on the ability of parties to agree to submit a dispute to arbitration (including to require a written arbitration agreement, to require the subject matter of any dispute to be arbitrable and to limiting parties to an arbitration pursuant to an arbitration agreement to the parties entering into it or to their successors) clearly requires a Contracting State (i.e. a State that is bound by the New York Convention) to recognize the effectiveness of the arbitration agreement. 9) The limited role of the Courts where the Parties have agreed upon an arbitration is provided for by Article II (3) of the New York Convention which provides that: The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. In matters governed by this Law, no court shall intervene except where so provided in this Law. See also Article 8 entitled Arbitration agreement and substantive claim before court. 10) The international nature of the Model Law is referred to in the 2006 revision of the Model Law by its Article 2 A entitled International origin and general principles. 11) As referred to in the Introduction to this article, provisions relevant to the nature of parties autonomy under the Model Law include Article 2(d) and Article 2(e) of the Model Law which are to be read with other provisions of the Model Law. Article 2(d) of the Model Law expressly recognizes that parties may exercise their freedom to determine an issue provided under the Model Law (save for the Rules applicable to the substance of the dispute which are dealt with by Article 28 of the Model Law) by authorizing a third party to make that determination. While Article 2(d) gives an institution as an example of such a third party, the term third party applying its natural meaning, would include an arbitrator or arbitral tribunal. Article 2(e) of the Model Law expressly provides that where a provision of the Model Law refers to the fact that the parties have agreed or that they may agree ARTICLES The Model Law The Model Law promotes party autonomy and finality in international arbitration, giving broad powers to the Arbitral Tribunal. It limits the intervention of the courts pursuant to Article 5 of the Model Law that provides that: 8) Redfern and Hunter, with Blackaby and Partasides, Law and Practice of International Commercial Arbitration, 4th Edition, 2004 at p ) Article II (1) relevantly states that: Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. 10) Article 8 of the Model Law provides that: (1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. (2)Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court. 11) (1)In the interpretation of this Law, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith. (2) Questions concerning matters governed by this Law which are not expressly settled in it are to be settled in conformity with the general principles on which this Law is based. The reason for the introdcution of this provision is explained at paragraph 4 at page 2 of Part 2 Explanatory Note by the UNCITRAL Secretariat on the 1985 Model Law on International Commercial Arbitration as amended in 2006 (the UNCITRAL Explanatory Note ): accessed on 5 August Korean Arbitration Review 41

4 or in any other way refers to an agreement of the parties then that agreement includes any arbitration rules referred to in that agreement. Accordingly, from the express language of the Model Law in Article 2(d) and Article 2(e) it appears that the Model Law concept of party autonomy includes the parties rights to (a) authorize a third party, such as an arbitrator or arbitral tribunal, to determine an issue that the parties themselves had the right to determine, and (b) agree to be bound by the terms of their agreed arbitration rules. Rights and Powers of the Parties under the Model Law Provided that the mandatory provisions of the Model Law are satisfied as set out therein, the Model Law gives the parties to an arbitration agreement wide power to agree upon matters relevant to an arbitration, including the matters listed below: (1) The scope of the matters to be submitted to arbitration ; 12) (2) The number and choice of arbitrators ; 13) (3) Whether interim measures and preliminary orders may be granted by an Arbitral Tribunal; 14) (4) The place of arbitration ; 15) (5) The procedural rules of the arbitration 16) (although as referred to above, the right of the parties to determine the applicable rules of procedure is stated to be Subject to the provisions of this Law ) 17) ; (6) The date of commencement of the arbitral 12) Chapter II of the Model Law, particularly Article 7 see para 19 of Part II at pages of the UNCITRAL Explanatory Note re the revisions to this Article by the 2006 revision of the Model Law and its relationship with Article II (2) of the New York Convention; see also Article 1 para 11 of Part 2 at page 26 of the UNCITRAL Explanatory Note which says that "Article 1... recognizes extensively the freedom of the parties to submit a dispute to the legal regime established pursuant to the Model Law." 13) Chapter III including Articles 10(1) and 11 of the Model Law. 14) Articles 17(1) and 17B of the Model Law. 15) Article 20 of the Model Law. 16) Article 19 of the Model Law. 17) Article 19(1) of the Model Law. proceedings 18) ; (7) The language of the arbitration 19) ; (8) The timetable for, and related matters regarding, the statements of claim and defence 20) ; (9) Whether to hold an oral hearing; 21) (10) The procedure if a party is in default 22) ; (11) Whether evidence may be given by experts 23) : (12) The law of the arbitration ; and 24) (13) Settlement of the dispute. 25) In the absence of the parties agreement as to a particular issue, by the Model Law provisions, the Arbitral Tribunal will generally (but not invariably) have the power to determine the relevant issue. 3. The Arbitral Tribunal The powers and role of members of the Arbitral Tribunal has been described (at least in the common law context) as being of a quasi-judicial nature. 26) The arbitrators have a duty to act independently and impartially 27) and under the Model Law are vested with extensive discretion, subject to the provision for limited review by Courts: see for example Articles 19 and 28 of the Model Law, which are reinforced by the provisions of the New York Convention, for example, by Article II.3. 18) Article 21 of the Model Law. 19) Article 22 of the Model Law. 20) Article 23 of the Model Law. 21) Article 24 of the Model Law. 22) Article 25 of the Model Law. 23) Article 26(2) of the Model Law. 24) Article 28 of the Model Law. 25) Article 30 of the Model Law. 26) See the discussion at pages of Claims against Arbitrators for Breach of Ethical Duties by M Hwang SC, K Chung and FL Cheng, Contemporary Issues in International Arbitration and Mediation, The Fordham Papers 2007 AW Rovine, Ed. claims_against_arbitrators_for_breach_of_ethical_duties.pdf 27) Article 12 of the Model Law. 42 The Korean Commercial Arbitration Board

5 4. Fairness and Due Process Professor Albert Van Den Berg has said of Articles IV VI of the New York Convention that: The overall scheme of Articles IV is the facilitation of the enforcement of the award. The scheme reflects a pro-enforcement bias as certain courts have said. This is also the manner in which Articles IV-VI are generally interpreted by the courts. 28) Article V of the New York Convention which exhaustively 29) sets out the grounds for refusal of recognition and refusal of an arbitral award. Article V(1) grounds focus on breaches of fairness and due process; Article V(2)(a) is concerned with arbitrability and Article V(2)(b) is concerned with the residual power of municipal court to refuse to recognize and enforce awards that they find to be contrary to public policy. Article 18 of the Model Law provides for Equal treatment of parties as follows: The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case. While Article 18 of the Model Law does not expressly state that it is mandatory it has been described by the UNCITRAL Secretariat as being one of the fundemental procedural rights of a party to an arbitration. 30) refer in this context to Article 24(3) of the Model Law which provides that all statements, documents and other information provided to the arbitral tribunal by one party shall be communicated to the other party, and that any expert report of evidentiary document on which the arbitral tribunal may rely in making its decision shall be communicated to the parties. 31) 5. Who Controls the Arbitral Process? Article 19(1) of the Model Law gives the parties to an arbitration an important, role in the conduct of the arbitration providing that: (1) Subject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings. (2) Failing such agreement, the arbitral tribunal may, subject to the provisions of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence. As referred to earlier Article 19 of the Model Law makes it clear that the parties power to agree the procedure is subject to the provisions of the Model Law. As also discussed earlier, these provisions include Article 2(d) and 2(e) of the Model Law, described above. ARTICLES Another example of a mandatory requirement for procedural fairness in the Model Law given by the UNCITRAL Secretariat is Article 24(2) of the Model Law. This provides that the parties shall be given sufficient notice in advance of any Arbitral Tribunal hearing or Arbitral Tribunal meeting of inspection. They also 28) "The New York Convention of 1958: An Overview" by Albert Jan van den Berg: media/0/ /new_york_convention_of_1958_ overview.pdf at page ) "The New York Convention of 1958: An Overview" by Albert Jan van den Berg: media/0/ /new_york_convention_of_1958_ overview.pdf at page ) See para 33 of Part II at page 32 of the UNCITRAL Explanatory Note. Also as discussed earlier, where the parties fail to agree upon a matter which the Model Law empowers them to determine then generally the Arbitral Tribunal (but in some instances an institution or the Court) may decide any issue requiring determination. Regarding the Rules applicable to substance of dispute, Article 28 of the Model Law provides that (1) The arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. Any 31) See para 33 at page 32 of the UNCITRAL Explanatory Note. Korean Arbitration Review 43

6 designation of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of laws rules. (2) Failing any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable. 6. Conclusion The fair and efficient management of time and costs of an arbitration may involve a balancing of the competing claims of the parties asserting their autonomy and the power and obligations of the Tribunal to fairly manage an arbitration to ensure fairness and equal treatment as required under Article 18 of the Model Law. As discussed in the Introduction, the outcome in each case where a potential tension arises between the principles of party autonomy and of the Arbitral Tribunal s duties and powers to ensure fairness and due process will be determined by the terms of the arbitration agreement, the terms of the applicable Arbitration statute, and the relevant facts to which the principles are applied, influenced by the skills and approach of the arbitral tribunal and the parties involved, and also by the Tribunal s judgment as to the risk of a challenge in the supervisory court to any decision overriding the parties preferred approach that it is minded to make. While Articles (2)(d) and (e) of the Model Law, read with other provisions of the Model Law, may not exhaustively reconcile the principle of party autonomy with the Tribunal s obligation to ensure fairness and due process where these are potentially in conflict, conceptually they support the principle of party autonomy, including the parties freedom to vest certain rights of the parties in the Tribunal. Kim Rooney (Gilt Chambers) Kim Rooney is an international arbitrator and barrister. Before moving to qualify as a Hong Kong barrister in late 2009 she was a partner of White & Case LLP and had headed its Asian international dispute resolution practice. She is also admitted to practice as a solicitor in England and Wales and as a barrister and solicitor in West Australia. Kim is regularly appointed as an arbitrator in international arbitrations involving banking and finance, commercial, communications, construction and infrastructure, distribution, energy, power and resources, investment, shareholders, IT and technology licensing and trade disputes, and is on the panel of various arbitral institutions. Since the 1990 s, as counsel, Kim has represented clients in a wide range of international banking and finance, commercial, communications, construction, distribution, energy, infrastructure, IT and investment disputes in Asia, Europe and Latin America under the laws of civil and common law jurisdictions and investment treaties. Kim is the Chair of the Hong Kong Law Reform Commission s Sub-Committee on Third Party Funding for Arbitration. She is a member of the Hong Kong Government s Committee on Provision of Space in the Legal Hub and of its Advisory Committee on Promotion of Arbitration, of the Hong Kong Bar Association s Council (and Chair of its Special Committee on International Practice), of the ICC Arbitration Commission and of the editorial board of the IBA s Dispute Resolution International. She is Immediate Past Chair of the ICC Hong Kong Arbitration & ADR Committee. Kim is a senior expert in ADR in an EU-funded Project in the Indonesian public sector. Kim regularly writes and speaks about international dispute resolution. She is co-author of "ICCA S Guide to the Interpretation of the 1958 New York Convention: A Handbook For Judges. 44 The Korean Commercial Arbitration Board