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Focus: Arbitration Roundup

22 December 2015

In this issue: We look at how Australia keeps up to date with international best practice by amendments to ACICA arbitral rules and international arbitration laws; potential improvements and innovations identified in the 2015 Queen Mary University of London International Arbitration Survey; the investor-state dispute settlement mechanism under the Trans Pacific Partnership agreement; and in Hong Kong, increasing support for third party arbitration funding and the introduction of arbitrator 'report cards'. This issue has been edited by Partner Andrea Martignoni (view CV) and Senior Associate Catherine Li.

Recent changes to ACICA Arbitration Rules

In brief: The Australian Centre for International Commercial Arbitration has recently updated their arbitration rules. The changes are in response to recent developments in the region and bring the rules into line with the best practice of other international arbitration centres. Partner Andrea Martignoni and Lawyer Laura Bereicua consider these changes. 

 
 

How does it affect you?

  • These revisions will come into effect on 1 January 2016.
  • Among other things, the revisions assist to bring the Australian Centre for International Commercial Arbitration (ACICA) rules in line with international best practice and deal with matters which have been dealt with in various ways in the rules of the International Chamber of Commerce (ICC), Hong Kong International Arbitration Centre (HKIC), Singapore International Arbitration Centre (SIAC) and London Court of International Arbitration (LCIA).
  • These changes will improve the efficiency and flexibility of processes for parties choosing to have their disputes resolved through arbitration under the ACICA rules and provide clarity to ensure that arbitration agreements are upheld in the way intended by the parties.

Background to the ACICA rules

International arbitration in Australia has grown significantly in recent years. Australia is, now more so than ever, well placed to serve as a seat for international arbitration, with a now well-developed and tried and tested legislative framework that supports the fair and efficient resolution of disputes by means of arbitration and the enforceability of arbitral awards produced through arbitration.

Businesses engaged in international trade and commerce may specify certain institutional rules to be applied in the event that a dispute is referred to arbitration. ACICA is the leading international arbitral institution in Australia. ACICA aims to facilitate and promote fair and efficient resolution of disputes by arbitration where Australia is the seat for arbitration. ACICA periodically reviews and updates its rules to ensure that they reflect international best practice and continue to best serve the needs of its users.

What has changed?

ACICA has introduced significant changes in this latest update. In particular:

  • Consolidation: the new rules give ACICA the power to make a decision on whether arbitrations should be consolidated where a request is made by a party before the appointment of a tribunal.1 ACICA may consolidate arbitration proceedings where all claims in the arbitration are made under the same arbitration agreement, or where the claims are between the same parties on common questions of law or fact and the relief claimed arises out of the same transaction/s. If the claims are governed by different arbitration agreements, the agreements must be compatible for consolidation to occur.
  • Joinder: the new rules also allow for the parties, or a third party, to request that an additional party be joined to the arbitration.2 For the tribunal to allow a joinder, the tribunal must decide that the additional party is bound by the same arbitration agreement as the existing parties to the arbitration. It is important to note that the new consolidation and joinder provisions do not apply if the arbitration agreement was concluded before the date on which the 2015 version of the rules came into force, ie 14 September 2015.3
  • Governing law of the arbitration agreement: the new rules provide that the law of the seat is the governing law of the arbitration agreement unless the parties agree otherwise and the agreement is not prohibited by an applicable law.4 The 'seat' of the arbitration is the legal location of the arbitration, as distinct from the physical location. The seat will determine which law governs the arbitration procedure, the scope and interpretation of the arbitration agreement and the rights of the parties in enforcing the arbitration award. In many cases, the seat of the arbitration is different to the law of the contract itself (ie the 'substantive' governing law). This has led to uncertainty as to whether the law of the seat or the law of the contract governs the arbitration agreement. This can be important, especially where, for instance, an arbitration agreement may be invalid or unenforceable under the substantive law of the contract.5 These new rules resolve any ambiguity that might exist as to the seat. Provisions to address this issue have also been incorporated into the HKIAC Model Clause and the LCIA rules.6
  • Submissions on expedited proceedings: the new rules remove a deeming provision that previously provided that disputes worth less than $5 million would be arbitrated under the expedited rules. This rule proved problematic in situations where the value of the claim was not known at the start of the dispute and expedition may or may not have been appropriate. The new rules give the parties the opportunity to submit reasons for ACICA as to whether the expedited procedure should apply.7 The HKIAC and SIAC rules take a similar approach.
  • Timing of currency conversion: claims expressed in currencies other than in Australian dollars will be converted into Australian dollars at the rate of exchange applicable on the day when ACICA received the relevant claim, including any claim or set off defence.8 Previously, claims were converted on the day when ACICA received the Notice of Arbitration, which failed to take into account any variance in exchange rates between when the Notice of Arbitration and the relevant claim was received.

ACICA has also tidied the rules by attending to some important, albeit minor, 'housekeeping' matters. These changes are not expected to have any significant effect on arbitration practice. Examples include: 

  • Interpretation of the rules: a new rule has been inserted to give ACICA the power to interpret all provisions of the rules. A similar provision exists in the HKIAC rules.9
  • Deeming provision: The rules have been updated so that parties are deemed to have agreed to arbitrate under the version of the rules in force as at the date of commencement of the arbitration.10  
  • Notice requirements: There is no longer a requirement that notice be given by physical delivery. A notice may now be transmitted by electronic means if designated by a party or authorised by the tribunal. This will make it easier for parties to expedite the dispute resolution process in circumstances where disputing parties are separated by vast geographical areas.11
  • Service requirements: the parties, and not ACICA, are now responsible for effecting service of the Notice of Arbitration and the Answer to Notice of Arbitration.12 While this provision is more burdensome on parties, it is in line with the position under the HKIAC and SIAC rules.13
  • Experts: the new rules give the tribunal the power to appoint independent and impartial experts.14
  • Registration fee: the registration fee has been updated to include GST.15
Comment

The latest changes by ACICA are valuable reforms that will serve to better meet the needs of those engaged in international trade and commerce. While the changes are not completely uniform with the rules of other institutions and contain subtle differences in approach, the changes modernise the rules in a way that administers more effective arbitration proceedings where multiple parties, similar disputes or ambiguities may be involved.

Recent changes to International Arbitration Act 1974 (Cth)

In brief: On 13 October 2015, three significant amendments to the International Arbitration Act 1974 (Cth) came into force. They relate to the enforcement of foreign arbitral awards, the confidentiality of arbitral proceedings and the resistance of enforcement on the basis of incapacity. The amendments commenced by operation of the Civil Law and Justice (Omnibus Amendments) Act 2015 (Cth). Lawyer Evan Lacey reports.


Enforcement of awards made in non-Convention countries

In Australia, the previous position under the International Arbitration Act 1974 (Cth) (the IAA) was that arbitral awards made in states not party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) were not enforceable. Now, following the recent amendments, any arbitral award is, subject to the usual grounds for challenge, enforceable in Australia, regardless of the country in which it was made.

While 156 countries are party to the New York Convention, a number of Asia Pacific countries in which Australian business operate are not, including Papua New Guinea and East Timor. Awards made in these countries will now be enforceable in Australia.

A new 'opt-out' regime for confidentiality in proceedings

Confidentiality is widely recognised as a key advantage of arbitration. The previous position under the IAA required parties to specifically 'opt-in' to gain the benefit of the IAA's confidentiality provisions. This position has now been reversed so that the default position is that proceedings are confidential, unless the parties opt out. 

Resisting enforcement on the basis of incapacity

Under the current provisions of the IAA, a party can resist the enforcement of an arbitral award on the basis that it is under an incapacity at the time the arbitration agreement was made. The recent amendments to the IAA mean that the incapacity of either the award debtor or the award creditor may justify the refusal to enforce a foreign award.

Comment

These amendments ensure that the IAA remains consistent with current international best practice and that Australia remains an attractive seat for arbitrations in the region. 

2015 International Arbitration Survey

In brief: In October 2015, Queen Mary University of London released its latest comprehensive survey about the use of international arbitration. The survey sheds light on international arbitration trends and examines improvements and innovations in the arbitral process. Partner Andrea Martignoni, Senior Associate Catherine Li and Lawyer Kevin Ngo examine the key findings of this report.

 
 

How does it affect you?

  • The survey suggests that the regional seats of Hong Kong and Singapore will become even more popular.
  • International arbitration users may consider imposing a requirement that arbitral tribunals commit to a timetable for the delivery of a final award in order to control the time and cost of arbitration.
  • The use of emergency arbitrators to obtain urgent relief remains limited but is on the rise.
  • There may be a need for greater regulation of certain aspects of third party funding and, to a lesser extent, the conduct of tribunal secretaries and arbitrators.

Background

The survey was conducted through 763 questionnaires and 105 personal interviews.16 The survey group included senior in-house counsel, senior representatives of arbitral institutions, academics and arbitrators.

General attitudes

'Arbitration is the worst form of international dispute resolution, except for all those other forms that have been tried from time to time'. – An interviewee

The survey noted the continuing popularity of international arbitration with 90 per cent of respondents indicating that it was their preferred dispute resolution mechanism for resolving cross-border disputes. The enforceability of awards was viewed as the most valuable characteristic, and confidentiality and privacy were of particular importance to in-house counsel. The worst-perceived features of international arbitration were its cost (68 per cent of respondents) and the lack of effective sanctions during the arbitral process (46 per cent of respondents).

Arbitral seats and institutions

London (47 per cent) and Paris (38 per cent) were rated highest as the most preferred seats for international arbitration, with respondents indicating that reputation and recognition were the main drivers behind their selection of a seat. The International Chamber of Commerce (ICC) (68 per cent) and the London Court of International Arbitration (LCIA) (37 per cent) were also viewed rated highest as the most preferred arbitral institutions.

Figure 1: What are your or your organisation's three preferred seats (if any)?

Source: International Arbitration Survey at page 12

More interestingly, the survey found Singapore and Hong Kong to be the most improved arbitral seats. This was largely due to improved hearing facilities, availability of qualified arbitrators with a degree of familiarity of the seat and improved local arbitral institutions.

Correspondingly, the Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC) were rated as the most improved arbitral institutions, having improved in reputation, recognition, efficiency and administration. The results suggest that both of these regional seats may continue to attract a greater number of international arbitrations users.

Reducing time and cost

Even though respondents identified the length and cost of international arbitration as its most problematic features, they did not select a clear winner when presented with a list of potential innovations to control those issues. The best perceived innovation was a requirement that tribunals commit to a timetable for deliberations and the delivery of the final award, which may have the effect of motivating arbitrators and providing greater certainty to parties. In addition, most respondents (92 per cent) expressed a preference for institutional rules to include simple expedited procedures, although the vast majority believe that simplified procedures should only apply to disputes below $US1 million in value.

The survey also analysed the use of emergency arbitrators in the context of reducing time and cost and found that 66 per cent of respondents had no experience with emergency arbitrations. While more respondents indicated that they would prefer domestic courts for seeking urgent relief, 26 per cent of respondents were undecided. The reluctance to use emergency arbitrators appears to revolve around the enforceability of emergency arbitration decisions, which may vary across jurisdictions and may be time-consuming and unpredictable. Nevertheless, a surprisingly large majority of respondents (93 per cent) expressed a preference for arbitral institutions to include in their rules provisions relating to emergency arbitrations. Combined with the high proportion of respondents who were undecided about the use of emergency arbitrators, this result suggests potential growth in this area.

Figure 2: If you need to seek urgent relief before the constitution of the arbitral tribunal, which of the following options would generally be your preferred course (assuming that the same relief will be available in each case)?

Source: International Arbitration Survey at page 27.

This is consistent with statistics released by arbitral institutions such as SIAC and HKIAC which have indicated a rising use of emergency arbitrators in regional seats. Between 1 July 2010 and 1 October 2015, SIAC received 46 emergency arbitration applications, of which relief was granted in 27 applications (60 per cent).17 In 2014 alone, SIAC received and accepted 12 applications for the appointment of emergency arbitrators.18 While HKIAC only administered two emergency arbitration cases in 2014,19 this may be attributed to the fact that the emergency arbitration procedures in the HKIAC rules only took effect in November 2013. In Australia, a statutory provision allowing courts to enforce interim awards of arbitral tribunals (section 17H of the International Arbitration Act 1974 (Cth)) coupled with provisions in the ACICA rules to facilitate emergency arbitration are likely to result in increased use of emergency arbitrators.

Respondents also saw arbitration counsel as having a role in reducing time and cost, in particular suggesting that cooperation with opposing counsel could be improved to narrow issues and limit document production. In addition, in-house counsel wanted arbitration counsel to further encourage settlements, including by using mediation during an arbitration. On that note, the survey shows that mediation remains a much lesser used method for resolving cross-border disputes and the idea of having an arbitration run concurrently with a separate mediation for the same dispute was (unsurprisingly) not favoured by respondents.

Regulating third party funders, arbitrators and tribunal secretaries

While 70 per cent of respondents thought that there was a sufficient level of regulation in international arbitration, many indicated that certain actors, including third party funders (71 per cent), arbitrators (55 per cent) and tribunal secretaries (68 per cent) should be the subject of greater regulation. A majority of in-house counsel (68 per cent) also favoured greater regulation of party representative conduct.

The survey noted that the use of third party funding in international arbitrations appears to be a growing phenomenon. Around 39 per cent of respondents indicated that they had encountered third party funding in practice, with 12 per cent stating that they had used such funding. While third party funding was viewed in a neutral light by about half of the respondents, 71 per cent of respondents indicated that third party funding should be regulated, with recommended proposals ranging from the use of guidelines, codes of conduct to individual self-regulation.

Having said that, a number of interviewees stated that regulation should focus more on disclosure rather than the establishment of a prescriptive, substantive regime. This would allow tribunals to handle potential issues relating to third party funding on a case-by-case basis. A clear majority of respondents (71 per cent) believed that it was undesirable for the full terms of third party funding arrangements to be subject to mandatory disclosure, although they did believe that certain aspects of third party funding should be mandatorily disclosed. These included disclosure of the use of third party funding (76 per cent) and the identity of the funder (63 per cent) to increase transparency and assist with conflicts of interest checks.

Figure 3: Should it be mandatory for a claimant to make disclosure of each of the following?


Source: International Arbitration Survey at page 48.

Respondents had mixed preferences for the manner in which arbitrator conduct should be regulated. Suggestions included the use of instruments issued by arbitral institutions (23 per cent), a code of conduct by a professional body (22 per cent) and databases providing information about arbitrator performance (21 per cent). It is noteworthy that 63 per cent of respondents indicated that 'issue conflicts', where an arbitrator has previously taken a particular position on an issue to be decided in the case, did not require specific regulation in commercial arbitrations. In comparison, respondents were more divided as to whether issue conflicts should be regulated in the context of investment treaty arbitrations. A clear majority of respondents considered repeat appointments of arbitrators to be problematic in both commercial and investment treaty arbitrations. Notwithstanding that, they felt that further regulation was not necessary as current instruments offered adequate assistance to deal with this issue.

Tribunal secretaries were widely used by respondents (82 per cent) and their role was generally positively perceived, with interviewees indicating that tribunal secretaries improved the efficiency of arbitral proceedings and should be more frequently offered by arbitral institutions. Most respondents however preferred tribunal secretaries to only complete administrative tasks and 70 per cent of respondents preferred for tribunal secretaries to be regulated through arbitral institutions as opposed to the use of guidelines by international organisations.

Binding arbitration for investors under the Trans-Pacific Partnership

In brief: On 5 October 2015, agreement was reached on the long-awaited Trans-Pacific Partnership. Partner Andrea Martignoni and Lawyer Mary Flanagan report on the dispute settlement mechanism under the TPP.

The Trans-Pacific Partnership (TPP) is a free trade agreement between 12 Pacific Rim nations, including Australia, Japan, Malaysia, New Zealand, Singapore and the United States, which represent around 40 per cent of global GDP.

Chapter 9 of the TPP includes substantive provisions on the protection of investments of nationals of contracting states in the territory of the other contracting states. These protections include the 'national treatment' protection, the 'most favoured nation' protection, a right to fair and equitable treatment, full protection and security and protection against expropriation. The chapter also includes a modern investor-State dispute settlement (ISDS) mechanism, which permits investors to enforce these protections through consultation and negotiation, or failing these processes, through binding international arbitration.

Investors have the option of both institutional and ad hoc arbitration. An investor can commence arbitration under the International Convention on the Settlement of Investment Disputes (ICSID) if the state of the investor and the TPP host state are both parties to the Convention. Alternatively, an investor can commence arbitration under:

  • the ICSID Additional Facility Rules if either the host state or the investor's home state is a party to the ICSID Convention;
  • the  rules of arbitration of the United Nations Commission on International Trade Law (UNCITRAL); or
  • any other arbitral institution or any other arbitration rules if both the investor and the TPP host state agree.

Claims must be brought within three and a half years from the date on which the investor first knew or should have known of the alleged breach of the TPP and the investor knew it had incurred loss or damage.

The TPP introduces several procedural innovations not generally found in older bilateral investment treaties, including provisions: requiring public access to hearings and documents; permitting an expedited procedure for jurisdictional objections; permitting amicus submissions; permitting written comments by the disputing parties on the proposed decision or award before it is finalised by the arbitral tribunal; and permitting TPP members to issue binding joint interpretations of the investment chapter. 

Next steps

Following agreement on the text of the TPP, it must now be ratified by the respective national legislatures. This is expected to happen within approximately two years.

Once implemented, the TPP will significantly expand the ability of investors in several capital exporting states to take advantage of ISDS mechanisms. For example, US investors will now be able to submit disputes with Australia, Brunei Darussalam, Japan, Malaysia, New Zealand and Vietnam to binding international arbitration.

Our detailed report on the Investment Chapter of the TPP can be found here.

Hong Kong welcomes third party funding for arbitration

In brief: In June 2013, the Hong Kong Law Reform Commission established a sub-committee to review the position of third party funding in Hong Kong for arbitration. Partner Andrea Martignoni and Lawyer Mary Flanagan report.

A third party funding arrangement for arbitration commonly provides that the third party funder will pay the funded party's legal and other costs of the arbitration in return for a percentage of the award. While most major international arbitration seats now allow third party funding in arbitration, it is still unclear in Hong Kong whether such arrangements are prohibited by the common-law doctrines of champerty and maintenance.

The purpose of the sub-committee was to review the current position in Hong Kong and to consider whether reform is needed.

On 19 October 2015, the sub-committee released a consultation paper in which it recommended that the Arbitration Ordinance should be amended to permit third party funding for arbitrations taking place in Hong Kong. The recommendation is subject to the proviso that such reform is accompanied by appropriate ethical and financial standards for funders.

The paper invites submissions on issues such as whether there should be a government or independent body overseeing the use of funding and in particular, whether funders should be directly subject to adverse costs orders or made to pay security.

The consultation period ends on 18 January 2016.

Comment

In Australia, third party funding of litigation is not prohibited by the common law doctrines of maintenance and champerty. Court rules and procedures are considered sufficiently robust to protect against potential abuses of process arising from such funding arrangements. However in Singapore third party funding agreements are generally unenforceable unless the funder can demonstrate either that it has a legitimate commercial interest in the claim or the assignment of interest is ancillary to a transfer of property.

This consultation paper from the Hong Kong Law Reform Commission is another sign of Hong Kong's commitment to attract the international arbitration community to continue to use Hong Kong as a seat in international arbitrations. Liberalising the funding rules will no doubt help to maintain Hong Kong’s competitive position in this regard.

A summary of the consultation paper can be found here.

Feedback for arbitrator performance at HKIAC

In brief: The Hong Kong International Arbitration Centre recently launched a new system that allows users to submit confidential evaluations on the performance of their arbitrators and the conduct of their arbitral proceedings. Partner Andrea Martignoni and Lawyer Mary Flanagan report.

A party to a Hong Kong International Arbitration Centre (HKIAC)-administered arbitration or an ad hoc arbitration conducted at HKIAC will be able to rate an arbitral tribunal and an emergency arbitrator (if any) under headings such as:

  • general preparation;
  • familiarity with the applicable laws and rules;
  • the ability to facilitate a fair, neutral and effective process;
  • case management; and
  • communication and decision-making skills.

The arbitrators themselves will also be able to rate HKIAC's services and give feedback on the performance of fellow arbitrators.
In a press release, the HKIAC stated that the launch of the system was a response to the preferences expressed in the 2010 Queen Mary International Arbitration Survey which indicated that users were looking for greater transparency on arbitrator availability and performance. The survey reported that 75 per cent of respondents wanted to assess arbitrators at the end of a dispute and 76 per cent of them would like to report to the arbitral institution.

Comment

While the results of individual evaluations will not be published, it is expected that the new system will encourage a greater sense of accountability among arbitrators who will inevitably be more conscious of their performance. It will no doubt be a challenge for HKIAC to determine what feedback is fair, however, the system should prove useful for HKIAC when deciding whether to renew an arbitrator's terms on its panel and list of arbitrators.

Asian arbitral institutions are increasingly seen as drivers of innovation in international arbitration. Given the competition between the institutions, it would not be surprising to see similar systems emerge in other arbitral institutions in the region.

Footnotes
  1. ACICA Rules, article 14; this rules is in line with article 28 of the HKIAC Rules.
  2. ACICA Rules, article 15; this rule is in line with article 27 of the HKIAC Rules.
  3. ACICA Rules, articles 2.5.
  4. ACICA Rules, article 23.5.
  5. SulAmerica Cia Nacional De Seguros S.A. and others v Enesa Engenharia S.A. [2012] 1 Lloyd's Rep 671; Firstlink Investments Corp Ltd v GT Payment Pte Ltd & Ors [2014] SGHCR 12. 
  6. LCIA Rules, article 16.4.
  7. ACICA Rules, article 7.
  8. ACICA Rules, Appendix A, part 2.2(c).
  9. ACICA Rules, article 2.6; HKIAC Rules, article 3.2.
  10. ACICA Rules, article 2.4.
  11. ACICA Rules, articles 4.1, 4.2.
  12. ACICA Rules, articles 5.5, 6.4.
  13. HKIAC Rules, articles 4.3(i) and 5.1(g); SIAC Rules, articles 3.4 and 4.3.
  14. ACICA Rules, article 32.
  15. ACICA Rules, Appendix A, Part 1.2.
  16. 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration, Queen Mary University of London, 6 October 2015 (International Arbitration Survey).
  17. SIAC Statistics (1 October 2015).
  18. SIAC 2014 Annual Report (2 March 2015) at p14.
  19. HKIAC 2014 Annual Report (31 December 2014) at p11.

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