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Dealing with the fall-out of coronavirus business interruption: Ricky Diwan QC 's guide to how international arbitration can be used for effective dispute resolution as we face the prospective deluge of court litigation
As the global pandemic subsides and businesses reopen it can be anticipated that the English courts will face a deluge of commercial cases. The full implications of such a deluge are difficult to predict. However, one likely possibility is that the timescale for the resolution of court disputes will substantially lengthen at a time when maximising certainty and minimising delay is likely to be a key business objective.
In anticipation of this, a number of eminent retired judges have encouraged the use of mediation and conciliation at an early stage of legal proceedings in order to avoid litigation and to enable businesses to get on with their enterprises while avoiding the uncertainty regarding their rights that may have been engendered by the unprecedented pandemic. See, for example, the speech of Lord Neuberger on 27 April 2020 when introducing the breathing space project set up by the British Institute of International and Comparative Law (www.biicl.org/breathing-space).
An obvious alternative to mediation is international arbitration. While international arbitration is frequently touted as providing a flexible alternative to court litigation, it is worth revisiting certain features of that flexibility that are sometimes forgotten or not focused upon with sufficient precision. These features, some of which are summarised below, may serve as a valuable tool for providing tailored solutions to business disputes to meet the specific needs of the present economic environment and to resolve disputes rapidly thus maximising certainty.
Consent to international arbitration is typically to be found in the contractual arrangement giving rise to the business dispute in question – and thus catering for prospective disputes at the time the contract is entered into – but there is no impediment to the parties agreeing an ad hoc arbitration arrangement to a dispute that has already arisen (see s 6 of the Arbitration Act 1996 (AA 1996) which specifically contemplates and provides for this). Such an ad hoc arrangement can be created in order to substitute existing dispute resolution arrangements or for the purposes of putting in place dispute resolution arrangements that never previously existed. Thus, the fact there is no dispute resolution mechanism in place at present or an unsuitable one should not preclude business parties choosing to agree a neutral forum for the resolution of business disputes that have arisen during the pandemic.
The key issue arising will be to define the ‘dispute’ that has arisen. A simple and broad way of doing so might be by general reference to the factual event that has given rise to the dispute eg ‘Any and all disputes, differences or claims arising out of and/or in connection with the cancellation of the Olympic Games.’ Alternatives are to be found in institutional rules such as clause 2 of the HKIAC Rules (2018), which suggests: ‘We, the undersigned, agree to refer to arbitration administered by the Hong Kong International Arbitration Centre (HKIAC) under the HKIAC Administered Arbitration Rules any dispute, controversy, difference or claim (including any dispute regarding non-contractual obligations) arising out of or relating to: (Brief description of contract under which disputes, controversies, differences or claims have arisen or may arise)…’
One-stop adjudication principles of interpretation (Fiona Trust & Holding Corp v Privalov [2007] UKHL 40) should then cater for claims, causes of action and developments that were not specifically contemplated or ventilated between the parties at the time of the ad hoc arrangement so long as they relate to the factual event (or contract) in question.
It is a trite but important point that international arbitration is not limited to dealing with contractual disputes but can address a wide array of non-contractual disputes including disputes sounding in tort, equity or otherwise (see s 6 AA 1996 and Fiona Trust v Privalov which is itself a good example of this). The limits on arbitration as a dispute resolution mechanism are simply those imposed by the doctrine of arbitrability, which is a narrow doctrine. English law identifies two issues that are to be considered in answering the question of whether something is non arbitrable: (1) whether the claim engages third party rights; (2) whether the public interest is involved such that it is unsuitable for determination by private contractual process. Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855. Typical examples include questions as to ownership rights in rem and certain issues arising in the criminal and family field. Thus, a very wide range of disputes are capable of being settled by way of arbitration.
It is not unusual for arbitration agreements to provide for cooling off negotiations, mediation and amicable resolution being a precondition to the institution of arbitration. Such provisions are enforceable provided they meet certain minimum requirements of certainty as to duration, which one might suppose is in the interests of business certainty in any event (see Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd [2014] EWHC 2104 (Comm)). Therefore, there is no impediment to the parties imposing a mediation provision as a precondition to arbitration, within a specified period of time.
Parties sometimes overlook the fact that they can tailor their arbitral procedure, in advance, to construct the process that they want and to obtain an award within a specified time frame. In the writer’s experience, imposing strict deadlines on aspects of the procedural process in advance and thereby making it a condition to the acceptance of appointment by a prospective arbitrator is capable of ensuring a highly efficient process. However, parties seldom tailor the process in advance, and instead the default mechanisms of the arbitral rules to which the parties have subscribed will apply. A few examples of what the parties could subscribe to may serve to illustrate the point:
It is also the case that an evidentiary hearing in arbitration is usually substantially shorter than the equivalent hearing in court. This is for a combination of reasons including longer sitting hours, flexibility on the rules of evidence and greater flexibility on the rules of procedure.
It would also be wrong to assume that international arbitration is not capable of catering for complex multiple party disputes arising out of a particular event or economic transaction, even if this engenders multiple contracts and some non-contracting parties. The issue is whether the various actors are willing to consent. Existing institutional arbitral rules of course provide for dealing with claims under multiple contracts between the same parties, consolidation of proceedings and joinder (eg Articles 27, 28, 29 and 30 of the HKIAC Arbitration Rules (2018)). However, the parties can go beyond these rules, by their advance consent and can also thereby avoid delays in the process for the purposes of dealing with joinder and/or consolidation. Examples of arbitration agreements providing for the resolution of multi-party disputes across different contracts is to be found in Appendix 2 to Hanotiau: Complex Arbitrations: Multiparty, Multicontract, Multi-Issue and Class Actions (2006).
Confidentiality of international arbitration is generally considered to be one the most important features of arbitration for users. Confidentiality, subject to limited exceptions, is implied as a matter of English law: Wilson v Emmott [2008] EWCA Civ 18. It is also enshrined in many institutional arbitration rules (eg Article 45 of the HKIAC Arbitration Rules (2018) and Article 30 of the LCIA Rules (2014)). However, there is an increasing drive to transparency by institutions which are moving towards providing for the subsequent publication of awards, subject to the right of parties to object (eg HKIAC Arbitration Rules (2018) at Article 45.5; ICC Notes to Parties (20 December 2018)).
In the current environment, parties in a particular industry may want to consider agreeing to remove the cloak of confidentiality if the issue they are addressing is an industry wide issue (such as a question of force majeure or frustration in the context of a particular form of contract). Whether players in a particular industry can organise themselves in such a way so as to progress a ‘test’ case and remove the cloak of confidentiality with respect to that case will ultimately boil down to their appetite for such an approach. However, and again, this is perfectly feasible. Businesses may want to pool resources to collectively fund such a test case, with the quid pro quo being the removal of confidentiality.
Finally, another trite but fundamental feature of international arbitration is the ease of recognition and enforcement of the resulting award under the New York Convention (1958), given the pro-enforcement bias under that Convention.
A mediated settlement may, in the future, enjoy an equivalent efficient mechanism of enforcement through the UN Convention on International Settlement Agreements Resulting from Mediation (2018) (‘the Singapore Convention’), but this remains to be ratified by most of its signatories and the UK is not presently a signatory.
In conclusion, there may now be greater appetite for business parties to constructively engage in discussions with a view to agreeing a highly streamlined arbitral process leading to speedy dispute resolution that maximises business certainty. International arbitration is uniquely placed to provide such solutions and it may be that consensus building of this nature could override more customary tactical litigation instincts.
Ricky Diwan KC is a barrister specialising as counsel and arbitrator in the fields of international commercial and investment arbitration, practising from Essex Court Chambers. He is a member of the HKIAC and SIAC panel of arbitrators and co-drafted the Mauritian International Arbitration Act.
As the global pandemic subsides and businesses reopen it can be anticipated that the English courts will face a deluge of commercial cases. The full implications of such a deluge are difficult to predict. However, one likely possibility is that the timescale for the resolution of court disputes will substantially lengthen at a time when maximising certainty and minimising delay is likely to be a key business objective.
In anticipation of this, a number of eminent retired judges have encouraged the use of mediation and conciliation at an early stage of legal proceedings in order to avoid litigation and to enable businesses to get on with their enterprises while avoiding the uncertainty regarding their rights that may have been engendered by the unprecedented pandemic. See, for example, the speech of Lord Neuberger on 27 April 2020 when introducing the breathing space project set up by the British Institute of International and Comparative Law (www.biicl.org/breathing-space).
An obvious alternative to mediation is international arbitration. While international arbitration is frequently touted as providing a flexible alternative to court litigation, it is worth revisiting certain features of that flexibility that are sometimes forgotten or not focused upon with sufficient precision. These features, some of which are summarised below, may serve as a valuable tool for providing tailored solutions to business disputes to meet the specific needs of the present economic environment and to resolve disputes rapidly thus maximising certainty.
Consent to international arbitration is typically to be found in the contractual arrangement giving rise to the business dispute in question – and thus catering for prospective disputes at the time the contract is entered into – but there is no impediment to the parties agreeing an ad hoc arbitration arrangement to a dispute that has already arisen (see s 6 of the Arbitration Act 1996 (AA 1996) which specifically contemplates and provides for this). Such an ad hoc arrangement can be created in order to substitute existing dispute resolution arrangements or for the purposes of putting in place dispute resolution arrangements that never previously existed. Thus, the fact there is no dispute resolution mechanism in place at present or an unsuitable one should not preclude business parties choosing to agree a neutral forum for the resolution of business disputes that have arisen during the pandemic.
The key issue arising will be to define the ‘dispute’ that has arisen. A simple and broad way of doing so might be by general reference to the factual event that has given rise to the dispute eg ‘Any and all disputes, differences or claims arising out of and/or in connection with the cancellation of the Olympic Games.’ Alternatives are to be found in institutional rules such as clause 2 of the HKIAC Rules (2018), which suggests: ‘We, the undersigned, agree to refer to arbitration administered by the Hong Kong International Arbitration Centre (HKIAC) under the HKIAC Administered Arbitration Rules any dispute, controversy, difference or claim (including any dispute regarding non-contractual obligations) arising out of or relating to: (Brief description of contract under which disputes, controversies, differences or claims have arisen or may arise)…’
One-stop adjudication principles of interpretation (Fiona Trust & Holding Corp v Privalov [2007] UKHL 40) should then cater for claims, causes of action and developments that were not specifically contemplated or ventilated between the parties at the time of the ad hoc arrangement so long as they relate to the factual event (or contract) in question.
It is a trite but important point that international arbitration is not limited to dealing with contractual disputes but can address a wide array of non-contractual disputes including disputes sounding in tort, equity or otherwise (see s 6 AA 1996 and Fiona Trust v Privalov which is itself a good example of this). The limits on arbitration as a dispute resolution mechanism are simply those imposed by the doctrine of arbitrability, which is a narrow doctrine. English law identifies two issues that are to be considered in answering the question of whether something is non arbitrable: (1) whether the claim engages third party rights; (2) whether the public interest is involved such that it is unsuitable for determination by private contractual process. Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855. Typical examples include questions as to ownership rights in rem and certain issues arising in the criminal and family field. Thus, a very wide range of disputes are capable of being settled by way of arbitration.
It is not unusual for arbitration agreements to provide for cooling off negotiations, mediation and amicable resolution being a precondition to the institution of arbitration. Such provisions are enforceable provided they meet certain minimum requirements of certainty as to duration, which one might suppose is in the interests of business certainty in any event (see Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd [2014] EWHC 2104 (Comm)). Therefore, there is no impediment to the parties imposing a mediation provision as a precondition to arbitration, within a specified period of time.
Parties sometimes overlook the fact that they can tailor their arbitral procedure, in advance, to construct the process that they want and to obtain an award within a specified time frame. In the writer’s experience, imposing strict deadlines on aspects of the procedural process in advance and thereby making it a condition to the acceptance of appointment by a prospective arbitrator is capable of ensuring a highly efficient process. However, parties seldom tailor the process in advance, and instead the default mechanisms of the arbitral rules to which the parties have subscribed will apply. A few examples of what the parties could subscribe to may serve to illustrate the point:
It is also the case that an evidentiary hearing in arbitration is usually substantially shorter than the equivalent hearing in court. This is for a combination of reasons including longer sitting hours, flexibility on the rules of evidence and greater flexibility on the rules of procedure.
It would also be wrong to assume that international arbitration is not capable of catering for complex multiple party disputes arising out of a particular event or economic transaction, even if this engenders multiple contracts and some non-contracting parties. The issue is whether the various actors are willing to consent. Existing institutional arbitral rules of course provide for dealing with claims under multiple contracts between the same parties, consolidation of proceedings and joinder (eg Articles 27, 28, 29 and 30 of the HKIAC Arbitration Rules (2018)). However, the parties can go beyond these rules, by their advance consent and can also thereby avoid delays in the process for the purposes of dealing with joinder and/or consolidation. Examples of arbitration agreements providing for the resolution of multi-party disputes across different contracts is to be found in Appendix 2 to Hanotiau: Complex Arbitrations: Multiparty, Multicontract, Multi-Issue and Class Actions (2006).
Confidentiality of international arbitration is generally considered to be one the most important features of arbitration for users. Confidentiality, subject to limited exceptions, is implied as a matter of English law: Wilson v Emmott [2008] EWCA Civ 18. It is also enshrined in many institutional arbitration rules (eg Article 45 of the HKIAC Arbitration Rules (2018) and Article 30 of the LCIA Rules (2014)). However, there is an increasing drive to transparency by institutions which are moving towards providing for the subsequent publication of awards, subject to the right of parties to object (eg HKIAC Arbitration Rules (2018) at Article 45.5; ICC Notes to Parties (20 December 2018)).
In the current environment, parties in a particular industry may want to consider agreeing to remove the cloak of confidentiality if the issue they are addressing is an industry wide issue (such as a question of force majeure or frustration in the context of a particular form of contract). Whether players in a particular industry can organise themselves in such a way so as to progress a ‘test’ case and remove the cloak of confidentiality with respect to that case will ultimately boil down to their appetite for such an approach. However, and again, this is perfectly feasible. Businesses may want to pool resources to collectively fund such a test case, with the quid pro quo being the removal of confidentiality.
Finally, another trite but fundamental feature of international arbitration is the ease of recognition and enforcement of the resulting award under the New York Convention (1958), given the pro-enforcement bias under that Convention.
A mediated settlement may, in the future, enjoy an equivalent efficient mechanism of enforcement through the UN Convention on International Settlement Agreements Resulting from Mediation (2018) (‘the Singapore Convention’), but this remains to be ratified by most of its signatories and the UK is not presently a signatory.
In conclusion, there may now be greater appetite for business parties to constructively engage in discussions with a view to agreeing a highly streamlined arbitral process leading to speedy dispute resolution that maximises business certainty. International arbitration is uniquely placed to provide such solutions and it may be that consensus building of this nature could override more customary tactical litigation instincts.
Dealing with the fall-out of coronavirus business interruption: Ricky Diwan QC's guide to how international arbitration can be used for effective dispute resolution as we face the prospective deluge of court litigation
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