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Availability of Arbitrators - How to Avoid the Problems of Delayed Proceedings
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September 7, 2009
(This paper first appeared in the July 2009 edition of Decisions, Decisions, Howrey’s dispute resolution and international arbitration newsletter.)
By Melanie Willems
Howrey LLP
When the London Court of Arbitration (now the LCIA) opened its doors to business in November 1892, it announced the following to the world, throwing down the gauntlet to the courts of the King’s Bench:
This Chamber is to have all the virtues which the law lacks. It is to be expeditious where the law is slow, cheap where the law is costly, simple where the law is technical, a peace-maker instead of a stirrer up of strife.
In line with the LCIA’s commendable motto, arbitration users long have seen flexibility, speed and, as a consequence, cost efficiency as advantages of arbitration over litigation. But there also are arbitration users who have experienced proceedings that were slow, expensive and led to an unsatisfactory award (by this, we mean an award that can be objectively criticised – for instance, because it fails to engage with the arguments or provide a persuasive analysis of law or evidence). So, arbitration is not a panacea, but a well-run arbitration can give you better value for money than litigation.
When arbitrations do go wrong, a “post-mortem” may point to a lack of availability of the tribunal as the cause of death or at least a contributing factor. A hands-off tribunal that only reads procedural exchanges between the parties in passing may allow a dispute about disclosure of documents to spiral out of control. Similarly, splitting up the main evidentiary hearing to accommodate conflicting engagements will increase costs. We know of anecdotal evidence of a panel of three arbitrators that was unable to offer an uninterrupted period of two weeks for a hearing over a two-year period. Yes, two years. Instead, the case was heard on the odd day here and the odd weekend there. This no doubt would lead to a monumental waste of costs because witnesses would have to attend several times and the tribunal would need to be reminded of submissions and evidence heard some time earlier. Just imagine beginning your submissions at each mini-hearing with a recap headed “Previously in this arbitration….”
In this article, we look at how availability of the tribunal can be approached by the parties and what can be done to tackle the issue. We also consider some interesting court decisions on the duties of both arbitral tribunals and supervisory or administrative institutions such as the ICC.
‘Yes, We Can!’ – But, Can You Really?
Take the following hypothetical example. An ICC arbitration clause prescribes a sole arbitrator, with the seat of the arbitration being in London. Both parties know Mr. X, QC, an experienced arbitration practitioner based in London chambers. Counsel for the parties contact Mr. X, QC’s clerk to make informal enquiries. They are told that Mr. X, QC is not conflicted, has “availability” (the magic word) and would be delighted to accept the appointment. Mr. X, QC is then agreed as sole arbitrator. A month later, at a procedural hearing, Mr. X, QC gets his diary out and announces that he has a four-day slot for a substantive hearing in 18 months’ time. Cue long faces on both sides of the table.
There may be an element of exaggeration in this example, as sole arbitrators tend to be much more flexible in offering the parties dates for hearings simply because they do not have to co-ordinate with two other busy professionals. But, based on our experience and discussions with colleagues, availability of the ‘usual suspects’ remains an issue. The best arbitrators (independent, experienced in arbitration and the key industries, and respected) are busy. Some of them are perhaps too busy. Despite their existing workload, new work is being solicited by them or by their clerks.
What Do the ICC Rules Say?
Arbitral tribunals likely are under a duty to act expeditiously. Take the ICC Rules: They even contain an overly optimistic statement that the award ought to be rendered six months after the Terms of Reference (in the ICC’s procedure, the Terms of Reference are a document collecting all the claims and counterclaims, which serves as an additional basis for the tribunal’s jurisdiction).
Article 24 of the ICC Rules provides as follows:
| 1. | The time limit within which the Arbitral Tribunal must render its final Award is six months. Such time limit shall start to run from the date of the last signature by the Arbitral Tribunal or of the parties of the Terms of Reference, or, in the case of application of Article 18(3), the date of the notification to the Arbitral Tribunal by the Secretariat of the approval of the Terms of Reference by the Court.
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| 2. | The Court may extend this time limit pursuant to a reasoned request from the Arbitral Tribunal or on its own initiative if it decides it is necessary to do so.
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Providing an award within six months after the Terms of Reference often is not realistic because complex disputes often will require that the parties spend more than six months on preparing their evidence. The Tribunal will need to hear the parties and the witnesses and then will have to take some time to consider and draft an award.
Yet, even in terms of “getting on with it” (as opposed to the much more difficult task of setting a maximum time limit for an entire arbitration), the ICC Rules do stress that the tribunal and the parties ought not to waste any time. Article 20 provides that:
| 1. | The Arbitral Tribunal shall proceed within as short a time as possible to establish the facts of the case by all appropriate means.
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Establishing the facts will, generally, require an evidentiary hearing, so the ICC Rules require that this take place “within as short a time as possible.”
But, if what is possible is to be judged in light of all other commitments the tribunal may have taken on, then the limits of these statements in the ICC Rules become apparent.
If a case requires a 10-day hearing and the earliest that all tribunal members are free for that period of time is later than the parties had hoped, then in one view opting for that time slot still is as short a time as possible – if one accepts that canceling prior engagements is impossible. At this stage, the parties could have little leverage over the tribunal and may be unable to find out precisely what prior engagements are being relied on as precluding an earlier hearing. Many of these prior engagements will be other arbitrations, which are confidential and (if one were to ask those other parties) are equally as important.
‘Thou Shalt Get on with It’
Besides the ICC Rules, what else obliges arbitrators to deal with cases speedily? The Arbitration Act 1996 has gone further than the UNCITRAL Model Law, incorporating an express reference to avoiding unnecessary delay or expense:
| 33 | General duty of the tribunal
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| (1) | The tribunal shall—…
| (b) | adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.
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| (2) | the tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it.”
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The duty in Section 33, reflected in Article 14.1 of the LCIA Rules, is likely to have been drafted with the actual procedure adopted by a tribunal in mind. Parliament was concerned to avoid arbitrations simply mimicking court litigation, with cumbersome, lengthy and expensive procedures, instead of exploring other, more efficient and more flexible methods. Controlling arbitrators whose order book is overflowing would not have been the prime concern.
Aside from the time for any hearing, delay may occur in the provision of the award following any hearing. Arbitrators do need time away from hearings to draft reasoned awards, which in complex and high-value cases can be lengthy so as to do justice to the evidence and counsel’s submissions. The more time passes, the more parties may become concerned that the arbitrators will end up writing an award when submissions and evidence have become stale in their minds due to the passage of time. If the parties are very unfortunate and their tribunal is simply not writing the award within a reasonable time (a rare occurrence in practice), could a complaint be made to the court supervising the arbitration proceedings (generally the courts of the place of the arbitration)?
In Ascot Commodities NV v. Olam International Ltd, [2001] EWHC 520 (Comm), Toulson J was skeptical whether a tribunal, whose award contained a serious irregularity and had been successfully challenged in court, simply could be asked to reconsider and produce a fresh decision. The judge expressed his concern that one year after the event, it would be quite difficult for anyone to seek to write an award (or a judgment) based on recollections and notes (and one would assume even verbatim transcripts). Toulson J finally ordered that the matter should be re-heard, with fresh evidence and submissions. To our knowledge, no award has ever been challenged in court on the basis that it simply was produced too long after the event and could not therefore be reliable. While concerns about the passage of time affecting a tribunal’s ability to draft a strong award are valid, it would take a robust judge to set aside an award simply because the tribunal took too long. However, this outcome could not be dismissed if the delay were very serious and the late award was less than impressive on its face. Even if a re-hearing were ordered, the arbitrators would in all likelihood not be held liable for wasted costs due to their immunity.
Who Is Responsible?
It can be assumed that under many different governing laws, arbitrators will be immune from suit and will not, therefore, be responsible to the parties for any breaches of their duties – and that includes delay.
The Paris Court of Appeal recently considered whether an arbitral institution (so the ICC or the LCIA, rather than the arbitrator) could be liable in damages for any failures by arbitrators appointed under its rules and in respect of proceedings over which it would exercise a supervisory function (again as set out in the relevant institutional rules).
The case arose out of arbitration proceedings between a French chemicals company, SNF SAS, and a Dutch counterparty, Cytec Industries BV. The parties had contracted for the supply by Cytec to SNF of a monomer that SNF used in its French production facilities. A dispute then arose as to whether this supply arrangement could be continued. A key issue was whether the contract was void under Article 81 of the EC Treaty because it had anticompetitive objectives or effects. After arbitration proceedings under the ICC Rules in Belgium, arbitrators handed down an award finding that there had been a breach of Article 81 but nonetheless awarded damages (seemingly under the contract). The difficulty with this was that Article 81 would render any anti-competitive agreement automatically void. Cytec obtained leave to enforce the award, which was in its favour, in France. At the same time, SNF sought to annul the award in the Belgian courts and eventually succeeded on the basis that the award was in breach of EC competition law. Both the decision of the French courts giving leave to enforce and that of the Belgian courts annulling the award were the subject of appeals.
While the saga continued, SNF, disenchanted with the performance of the arbitrators, brought a claim against the ICC before the French courts. It was argued that there had been a breach of the ICC Rules of Arbitration because of the length and cost of the proceedings and the fact that the resulting award was in danger of being found to violate EC competition law and contravening public policy considerations. The European Court of Justice has confirmed, in Eco Swiss China Time Ltd v Benetton International NV [Case C-126/97], that when it comes to EC competition law, national courts must set aside arbitral rewards if there is a violation of the EC Treaty, as this goes against public policy (one of the narrow grounds on which an award can be challenged or enforcement can be resisted). Some commentators have taken the view that an award that violates competition law amounts to a breach of Article 35 of the ICC Rules under which the arbitrators are obliged to make every effort to hand down an enforceable decision. 1/
At first instance, the Paris Civil Court dismissed the claim and refused to award damages against the ICC. The court found that Article 34 of the ICC Rules (to which SNF had of course agreed) was effective to preclude any such liability because it provided:
Neither the arbitrators, nor the Court and its members, nor the ICC and its employees, nor the ICC National Committees shall be liable to any person for any act or omission in connection with the arbitration.
On appeal, in addition to a point as to which ICC Rules were in force at the time of the contract and had been incorporated, SNF argued that this provision should not be given effect because it was contrary to the French Consumer Code as the equivalent of an “unfair contract term” (or an abusive provision). The allegations made by SNF included failure by the ICC to confirm that the award had been duly signed by all three members of the tribunal, routinely approving extensions of time to the provision of the award by the tribunal (well beyond the six-month time limit stated in the ICC Rules) and, the key issue, that there had been a failure to ensure that there was no breach of EC competition law. The ICC denied that it had breached any of its duties (which did not extend to a substantive review of the decision made by the tribunal in any event) and contested all the allegations.
The Paris Court of Appeal concluded on January 22, 2009, in Case No. 07-19492 that Article 34 of the ICC Rules was unenforceable under French law. The quid pro quo that the parties, who were paying the ICC’s fees for administering arbitrations, were entitled to expect from the ICC was the provision of a proper structure that allowed for the efficient conduct of the arbitration, carried out with the expected swiftness and resulting in an award that is enforceable. Article 34 could not, in law, take away that side of the bargain. However, the Paris Court of Appeal went on to find that the ICC had discharged all of its essential duties and was not in breach – so no damages were awarded. The case leaves open the prospect that the ICC might, when it has acted in breach, become liable to the parties. One will have to wait and see if similar challenges are also made in other jurisdictions. At least in England, no party has to our knowledge been so dissatisfied with an ICC arbitration or any other institutional arbitration that it sought to recover damages from the institution in court.
So What Can Be Done?
In line with the adage that prevention is better than the cure, the parties should look to their arbitration clause to ensure that it protects them against lack of availability or delay on the part of their tribunal. For example, a party or its legal advisers may know a number of good, reliable arbitrators who have an excellent track record of producing sound, timely awards. If so, draw up a shortlist of these arbitrators and include it in the contract, with a method of selecting from that agreed pool. Doing that, the parties still can rely on the ICC Rules for the remaining aspects of the arbitration procedure.
We also have seen arbitrators being increasingly willing to provide the parties with their calendar, sometimes for the coming two years, marking any periods that have already been set down for hearings. This enables the parties to take an informed decision as to what availability an arbitrator really has and whether he or she is suitable for appointment. The arbitration clause also could be used to fix the time limit for the provision of the award in such a way that only the parties, and not the ICC Court, can extend it. A combination of these practical steps, coupled with the fact that most arbitrators (even famous, busy arbitrators) are very diligent and produce awards in line with reasonable expectations as to timing and quality of the analysis, should help to protect most parties from experiences such as those that ultimately drove SNF to claim damages from the ICC.
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For more information about the issues covered in this report, please contact Melanie Willems in our London office at 44-20-7936-5354 or at WillemsM@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
ENDNOTES
| 1/ | Article 35 provides: “In all matters not expressly provided for in these Rules, the Court and the Arbitral Tribunal shall act in the spirit of these Rules and shall make every effort to make sure that the Award is enforceable at law.”
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©2009 Howrey LLP
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