In any arbitration, there will be a number of interested actors–the claimant and the respondent (there may be more than one of each); the arbitral tribunal; and, where chosen by the parties, the institution. Each of these actors will have different and sometimes competing interests and motivations. This conflict can give rise to a multitude of issues in the arbitration process. However, balancing these interests is key to maintaining an efficient and effective arbitration process, especially in times of economic downturn.
Pitfalls in the arbitration process
There are different ways that arbitral proceedings may be obstructed or the enforceability of an award potentially affected. Much attention in recent years has been paid to “guerrilla tactics” and the conduct of recalcitrant parties in prolonging or frustrating the arbitral process. This includes refusing to pay deposits, delaying proceedings, or otherwise creating procedural issues that could be exploited down the line.
To some extent, these issues have been addressed through the evolution of arbitration laws and procedural rules around the world. Having said that, not all obstacles that arise in arbitration proceedings do so as a result of recalcitrant counterparties or guerrilla tactics. Some challenges come about as an unintended consequence of commercial circumstances, with this especially being the case in times of periods of downturn when a greater number of commercial enterprises find themselves in severe financial difficulties.
Such circumstances can result in reduced staff, closed offices and an inability or unwillingness to engage with an arbitral process–and can manifest within arbitral proceedings in a number of ways. A reduced staff may mean that witnesses and evidence are lost, or that there is no legal department or general counsel to deal with incoming claims. This can lead to complications in complying with pre-conditions to arbitration, delays in bringing and resolving a claim, and a loss of opportunity to reach any kind of negotiated settlement.
Closed offices will most notably lead to difficulties in effecting service, and can necessitate lengthy and difficult enquiries as to addresses and contact details. In the case of applications for interim or conservatory measures, which in themselves are more likely to be needed where a respondent is experiencing financial difficulties, there will be a potential need for an alternative service and navigating the specific complexities of the local courts. All of this leads to increased time and cost, and the potential for procedural missteps by the claimant, tribunal or institution.
The most difficult obstacle to deal with is potentially a respondent’s inability or unwillingness to engage with the arbitral process. A tribunal, in particular, will need to ensure that the respondent has enjoyed the proper levels of due process and has not been prejudiced in its ability to present a defence. Failure to do so will compromise the enforceability of an ultimate award. Article 26 of the United Arab Emirates (UAE) Arbitration Law, for example, requires that each party be given a full opportunity to present its case, albeit without defining what full opportunity means. Article 53(d) likewise allows for challenge of an award on the basis that a party failed to present its case because of lack of proper notice or breach of due process by the tribunal.
Finally, where a respondent has entered or is about to enter insolvency proceedings, this will give rise to a number of particular difficulties. It may be advisable for the claimant to try to secure an award as soon as possible to avoid the consequences of a liquidator being appointed, which may in itself conflict with a tribunal’s efforts to protect due process. If a liquidator is appointed while proceedings are ongoing, this will force a claimant and tribunal to re-examine the conduct of the proceedings, whether the liquidator should be involved, and if so, in what capacity.
Tools to protect the arbitration
Regardless of the issues that may arise, there are a number of tools available in most arbitration laws and procedural rules to combat them.
The UAE Arbitration Law contains a number of provisions allowing for the arbitration to proceed in case of default of one party, such as Article 11 with respect to constitution of the tribunal. Article 24 is useful in respect of service and allows for a deemed receipt of documents where they are delivered to the place of business or mailing address designated in the contract between the parties, or otherwise the last known mailing address or place of business. This is a practical and sensible solution to the problem of a respondent’s office having been closed. Most importantly, Article 32 deals with default of a party and provides the tribunal with discretion to proceed in the face of failure by a respondent to communicate its defence, present its evidence, attend a hearing, or otherwise take part in proceedings. How this discretion is exercised is ultimately a matter for the tribunal based on the circumstances of the specific case.
Institutional rules provide similar assistance. Article 3(2) of the 2021 ICC Arbitration Rules allows for deemed receipt of documents sent by a tribunal or the ICC International Court of Arbitration (ICC Court) to a party’s last known address. Article 5(2) allows the ICC Court to proceed in accordance with the Rules, where a respondent fails to properly respond to a request for arbitration. Article 12 deals with the composition of a tribunal in case of a failure by the party or parties to nominate an arbitrator.
Importantly, Article 23 of the ICC Rules allows for Terms of Reference to be approved by the ICC Court, where a party refuses to take part in drawing them up or signing them. Similarly, Article 26(2) empowers a tribunal to proceed with a hearing, notwithstanding the failure of any party to appear. Finally, where urgent conservatory or interim relief is required as a result of the financial status of the respondent, Articles 28 and 29 allow for applications to the tribunal or judicial authority, or an emergency arbitrator, respectively.
Most parties will not have envisioned arbitrating in a time of economic downturn, and it is clear from our own practice and experience that doing so gives rise to its own challenges. How these challenges are dealt with, both by the claimant and the tribunal, will go a long way to protecting the legitimacy of the arbitral process and ensuring that parties get what they bargained for in the end.
Ince was a sponsor of the 9th ICC MENA Conference, which took place digitally for the first time on 24 February 2021.
*Disclaimer: The content of this article does not reflect the official views of the International Chamber of Commerce. The opinions expressed are solely those of the authors and other contributors.