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Disruption of Arbitration (Challenges of Arbitrators)
John Savage
Singapore, December 3, 2012
2
Theme of Presentation
•
challenges: safeguarding integrity of tribunals and procedural fairness?
•
or opportunities to disrupt proceedings and resist enforcement?
3
Outline of Presentation
1. Context: realities of international arbitration
2. Disclosure
3. Legal standard for challenges
4. Procedure for challenges
5. Consequences of challenges
6. Using challenges to disrupt proceedings
7. Using challenges to annul or resist enforcement of award
8. How to mitigate these risks
9. When is a challenge worthwhile?
4
1. Context: Realities of Int’l Arbitration
•
nature of int’l arb today: transnational, harmonised, sui generis
beast, or offshoot of local litigation?
•
applicable norms/sources:
–
NY Convention
–
Model Law (and other arbitration statutes)
–
Uncitral Rules (and other arbitration rules)
–
IBA Guidelines
–
published court and institutional decisions on challenges
–
special case of ICSID
5
…Realities of Int’l Arbitration…
•
relationship between the different applicable norms?
•
institutional arb’n vs ad hoc
•
annulment and enforcement risk in the real world
•
how effective is int’l arbitration as a result?
6
…Realities of Int’l Arbitration…
“Regrettably, this subject [conflict of interest and bias] has
become of much greater contemporary importance [since
1989] … The continuing deterioration in the spirit of
arbitration entails that objections are now being made on the
grounds of supposed interest or bias which would never have
been put forward in the past. These are, we hope and believe,
largely rejected, and they serve the purpose only of wasting
time and money.”
(Mustill and Boyd 2001)
7
2. Disclosure
•
concept:
–
I
must
disclose
circumstances
which
may
give
rise
to
justifiable
doubts
as
to
my
independence
and
impartiality
but
which
I
don’t
think
actually
do
give
rise
to
justifiable
doubts (otherwise I would decline the appointment)
•
see Uncitral Rules, Art 11, Model Law, Art 12.1 etc
•
necessarily a different (higher) standard than for challenges
•
current practice today on disclosure (institutions, arbitrators
themselves)
8
3. Legal Standards for Challenges
•
what is a challenge?
•
typical standards for challenges:
–
arbitration
rules
(eg
Uncitral
Rules,
Art
12:
“[challenge]
if
circumstances exist that give rise to justifiable doubts as to
the arbitrator’s impartiality or independence”)
–
law
(eg
Model
Law,
Art
12:
“[challenge]
only
if
circumstances exist that give rise to justifiable doubts as to
his
impartiality
and
independence,
or
of
he
does
not
possess qualifications agreed to by the parties”)
9
…Legal standards for challenges…
•
typical standards (cont’d)
–
conventions
(eg
NY
Convention,
Arts
V.1.d
(arbitration
agreement),
V.2.b
(public
policy)
and
possibly
V.1.b
(opportunity to present case))
–
ICSID Convention, Arts 57 and 58
–
“soft law”, especially IBA Guidelines
10
…Legal standards for challenges…
•
independence and impartiality
–
independence:
absence
of
relationship
with
parties
(or
their counsel?) An objective matter
–
impartiality: absence of bias towards parties or their cases.
A subjective matter, goes to arbitrator’s state of mind
–
relationship between independence and impartiality?
–
justifiable
doubts:
would
a
“reasonable,
fair‐minded
and
informed person”
have justifiable doubts? (National Grid v
Argentina)
11
…Legal standards for challenges…
•
IBA Guidelines–
red
list
(waivable
or
nonwaivable):
leads
to
removal
if
nonwaivable or waivable but not waived
–
orange list: requires disclosure
–
green list: does not require disclosure
–
problems really arise around orange list
12
…Legal standards for challenges…
•
typical circumstances relied on for challenge–
repeat appointments
–
connection
with
a
party
(often
through
law
firm
or
directorship)
–
issue conflict
–
actual bias?
13
…Legal standards for challenges…
•
some examples in the public domain of recent challenges
–
Vivendi v Argentina II (annulment, Kaufmann‐Kohler)
–
Telekom Malaysia v Ghana (challenge, Gaillard)
–
Perenco v Ecuador (challenge, Brower)
–
Tecnimont v J&P Avax (annulment, Jarvin)
14
…Legal standards for challenges…
•
some examples of recent challenges from my practice
–
SGS v Pakistan (challenge, Thomas)
–
French claimant v Singaporean respondent (challenge,
Savage)
–
US claimant v SE Asian respondent (challenge,
respondent’s party‐appointed)
–
US claimant v Pakistani claimant (challenge, anti‐suit
injunction, Boo)
15
…Legal standards for challenges…
•
failure to possess qualifications agreed by the parties–
current tendency by parties to specify too many (generally
useless) qualifications
–
consequence:
small
pool
of
qualified
arbitrators
or
risk
of
challenge
16
…Legal standards for challenges…
•
what if arbitrator misconducts himself or is incapable?
–
can be de facto
challenge (eg, Uncitral Rules, Art 12.3)
–
or separate procedure for removal (eg, Model Law, Art 14)
17
…Legal standards for challenges…
•
note somewhat different approach (or is it just wording?) in ICSID arbitration
–
ICSID Convention, Art 14.1: persons on ICSID panel shall be
“of
high
moral
character
and
recognized
competence
in
the fields of law, commerce, industry or finance, who may
be relied upon to exercise independent judgment”
–
Art
57:
challenge
available
if
“any
fact
indicating
a
manifest lack
of the qualities required by [Art 14.1]”
18
4. Procedure for Challenges
•
Uncitral Rules, Art 13–
short
notice
(challenge
within
15
days
from
appointment
or learning of circumstances)
–
with reasons
–
parties may all agree, or arbitrator may withdraw (without
admission of validity of challenge)
–
if
not,
challenging
party
may
pursue
challenge
within
30
days
of
notice,
with
appointing
authority
deciding
(no
parties submissions specified, no deadline specified)
19
…Procedure for Challenges…
•
typically, no reasons are given in decisions
•
but note LCIA, PCA and ICSID now publish their decisions
•
why the different approaches to publication?
20
…Procedure for Challenges…
•
challenges in ad hoc
arbitration?
–
If
no
institution/no
agreement
on
challenge
procedure,
challenge
can
be
brought
to
arbitral
tribunal
(Model
Law,
Art 13.2) or directly to the court (English Arb’n Act, s 24.1)
21
…Procedure for Challenges…
•
ICSID
–
challenge decided by other tribunal members
–
or by Chairman of ICSID Admin Council if sole arbitrator or
majority
of
tribunal
challenged,
or
if
other
arbitrators
are
divided (ICSID Convention, Art 58)
22
5. Consequences of Challenges
•
consequences of pending challenge on continuing arbitration?
–
some rules provide for suspension of proceedings
–
others leave it to discretion of institution (SIAC Rule 12.2)
–
nothing
specific
in
Uncitral
Rules
or
Model
Law,
although
latter does say arbitration can continue pending challenge
or appeal to a court–
opportunity for delay and disruption of proceedings
23
…Consequences of Challenges…
•
consequences of unsuccessful challenge–
tribunal continues in place
–
possible
appeal
to
the
courts
(of
the
seat)
of
decision
by
institution/appointing authority on challenge? Model Law,
Art
13.3,
English
Arb’n
Act,
s.
24.2.
But
not
in
France
or
Switzerland
–
appeal is a further opportunity for delay and disruption
–
impact
of
unsuccessful
challenge
on
tribunal
and
on
challenged member?
24
…Consequences of Challenges…
•
consequences of successful challenge:–
replacement
of
challenged
arbitrator,
by
same
method
as
for
his
appointment
(see,
eg,
Uncitral
Rules,
Art
14.1,
Model Law, Art 15)
–
but
note
Uncitral
Rules,
Art
14.2:
if
appointing
authority
determines
“in
view
of
the
exceptional
circumstances
of
the
case”
that
it
should
deprive
party
of
right
to
appoint
substitute arbitrator, it can appoint the substitute itself, or
allow tribunal to continue in truncated form
–
proceedings continue, but may need to be repeated
25
…Consequences of Challenges…
•
should proceedings be repeated, and if so how much should be repeated?
–
Uncitral
Rules,
Art
15:
“the
proceedings
shall
resume
at
the
stage
where
the
arbitrator
who
was
replaced
ceased
to perform his or her functions, unless the arbitral tribunal
decides otherwise.”
–
nothing in the Model Law, but some statutes also provide
for tribunal’s discretion
–
when would tribunal decide otherwise?
–
repeating
proceedings
an
opportunity
for
delay
and
disruption of proceedings
26
…Consequences of Challenges…
•
truncated tribunal–
what is it?
–
truncated tribunal now expressly permitted under Uncitral
Rules, Art 14.2. Also LCIA Rules, Art 12
–
how
will
these
provisions
fare
on
annulment
and
enforcement?
–
classic case of truncated tribunal: Himpurna v Indonesia
27
…Consequences of Challenges…
•
appeal of successful challenge decision before annulment and enforcement stage?
28
…Consequences of Challenges…
•
unsuccessful challenge = ground for annulment (setting aside)
–
eg
Model
Law,
Art
34.2.a.iv
(composition
of
tribunal
not
consistent
with
agreement
of
parties),
b.ii
(public
policy),
or possibly a.ii (party unable to present case)
–
ICSID
Convention:
Art
52.1.a
(tribunal
not
properly
constituted)
29
…Consequences of Challenges…
•
unsuccessful challenge = ground for resisting enforcement
–
same
or
similar
as
grounds
for
setting
aside.
Eg,
Model
Law,
Art
36.1.a.iv
(composition
of
tribunal
not
consistent
with
agreement
of
parties),
b.ii
(public
policy),
or
possibly
a.ii (party unable to present case)
–
same grounds in NY Convention
30
6. Using Challenges to Disrupt Proceedings
•
why would a party (usually the respondent) want to delay or disrupt arbitration?
–
keep the claimant from his remedies for longer by delaying
issuance of unfavourable award
–
allow more time to prepare case
–
allow more time to seek remedies in competing forum
–
divest assets, destroy evidence
–
increase expense for claimant
–
and thereby force settlement, withdrawal of claims, or less
unfavourable award
31
…Using Challenges to Disrupt Proceedings…
•
how challenges can achieve delay and disruption
–
suspension of arbitration pending outcome of challenge
–
suspension of arbitration pending outcome of appeal
–
repeating proceedings
–
preventing issuance of (unfavourable) award
32
…Using Challenges to Disrupt Proceedings…
•
how effective are challenges in delaying arbitrations?
–
may depend on whether court is involved
–
and
then
may
depend
on
where
seat
is
located,
and
the
courage
of
the
arbitrators
in
deciding
to
continue
the
arbitration (eg, in the face of an anti‐suit injunction)
33
…Using Challenges to Disrupt Proceedings…
•
downsides to challenges intended to disrupt
–
intention
to
disrupt
is
usually
evident
and
not
welcomed
by majority of tribunal at least
–
tribunal
may
accelerate
subsequent
stages
of
arbitration
to make up time
–
challenging party’s overall credibility may be harmed
34
…Using Challenges to Disrupt Proceedings
•
but a challenge (of sorts) can also be used to prevent disruption by an arbitrator (eg Uncitral Rules, Art
12.3, where an arbitrator fails to act)
35
7. Using Challenges to Annul or Resist Enforcement of an Award
•
several grounds available to annul (set aside) or resist enforcement of an award
–
Art 34 Model Law (for annulment)
–
Art
36
Model
Law/Art
V
NY
Convention
(for
resisting
enforcement)
36
…Using Challenges on Annulment or Enforcement…
•
must have raised challenge during the arbitration (assuming facts relied on were known then)
•
but interlocutory challenge decision may preclude annulment
•
assuming not precluded, how successful will the challenging party be at this stage?
–
new facts
–
in a strong court
–
in a weak court
37
8. How to Mitigate Risk of Challenge‐ Related Disruption
•
modern rules expedite challenges before respectable authorities
•
exclude interlocutory appeals (can you? should you ‐ ‐
double‐edged sword?)
•
presumption in favour of not suspending arbitration pending challenge or appeal
•
clarification of standards?
•
raise threshold (eg, reasonable lawyer not reasonable man?)
38
…How to Mitigate Risk of Challenge‐Related Disruption…
and most importantly, in your contracts…
•
choose a sensible seat
•
choose institutional arbitration and a sensible institution
39
9. When is a Challenge Worthwhile?
•
assuming you’re not out to delay, is a challenge really worth it (especially when you’re the claimant)?
•
you choose one arbitrator, you often have a voice in choice of chairman, and you may not really care
about the bias of the opponent’s party‐appointed…
•
but the position may change during the arbitration, even regarding your own party‐appointed…
40
John Savage
Partner, King & Spalding (Singapore)
www.kslaw.com