Having just returned to Vancouver after almost six years of practicing in the international arbitration group of Freshfields Bruckhaus Deringer in Paris, I have noted that an ancient myth still lingers in some Canadian corners. Let me dispel it, in all of its forms, for good: international commercial arbitration is not simply domestic commercial litigation in disguise. It involves a unique skill set, which requires particular training and expertise. Law firms around the world have recognized this by developing distinct, and renowned, international arbitration practices: Borden Ladner Gervais LLP is one of those firms.
My time at Freshfields (with one of the largest international arbitration practices, approximately 100 arbitration lawyers globally) taught me that a company that ignores the highly specialized nature of international arbitration does so at its own peril. It is obvious to arbitrators when counsel are learning as they go.
Many parties have obtained important procedural and substantive advantages because the other's counsel was not familiar with international arbitration practice. For example, in an International Centre for Settlement of Investment Disputes arbitration (a case in which a company from one Mediterranean country was claiming that its investment in another had been mistreated, to the tune of millions of Euros in damages), counsel for the claimant did not submit detailed witness statements with its submissions because, although they were highly-experienced litigation counsel, they were unfamiliar with international arbitration practice. The respondent was represented by counsel experienced in international arbitration, who exposed this error to the respondent's advantage when the claimant announced its intention to present witnesses at the final hearing. The arbitrator eventually admitted last minute "will say" statements into the record, but the damage to the credibility of claimant's counsel, and the claimant's position, had been done. Ultimately, the weight attributed to the late-submitted evidence was minimal because, among other things, its rushed nature resulted in an unpersuasive presentation and a lack of substance. It did not have to be that way.
This article highlights the importance of involving experienced international arbitration counsel, through a short discussion of some issues that can arise during negotiation of an arbitration agreement and arbitration itself.
As a general reminder, an arbitration agreement is subject to the principle of severability: it is a stand-alone contract within a main contract (or separately made at the time a dispute arises). Generally speaking, only the parties to the arbitration agreement (almost always the parties to the main contract) are bound by its terms.
The days of the last minute call requesting an off-the-shelf arbitration agreement to be inserted into a contract – the subject of which was almost always unknown to the lawyer asked to provide the agreement – are fortunately behind us. In today's global market, it is common for sophisticated parties to turn their minds to the dispute resolution provisions of their contracts early in negotiations. Four issues that are often the subject of negotiations, and later arbitration proceedings, are what should be the substantive law, what should be the seat of arbitration, what arbitration rules and institution's administration should apply, and how should an arbitrator be appointed? (It is also advisable, if the parties are from countries of different languages, to agree on the language of the arbitration.) Whether a specific term is appropriately included in a particular arbitration agreement depends on the circumstances. Important arbitral institutions, like the International Chamber of Commerce, London Court of International Arbitration, Stockholm Chamber of Commerce and International Centre for Dispute Resolution, provide standard arbitration agreements which parties may use. Whether a standard agreement should be used in any given circumstance requires careful thought.
SUBSTANTIVE LAW
Agreeing on the substantive law to govern the underlying agreement is essential. This identifies the law which an arbitrator will apply to the substance of a dispute, including the interpretation of the contract and available remedies. Without an identified substantive law, a contract is subject to a quagmire of uncertainty, requiring complex legal analysis by the arbitrator (considering, among other things, the nationalities of the parties and where the contract was signed, performed and allegedly breached). It is hard to imagine how facilitating such uncertainty by leaving out a substantive law provision would make commercial sense.
Which substantive law should apply requires thoughtful consideration and is usually a matter of negotiation. Understanding the place of the contract in the context of the parties' overall relationship, and a party's goals, obligations and benefits under a particular contract, is imperative to ensuring the appropriate stance to take in negotiations. A recent example, where conceding the substantive law resulted in an unexpected benefit to a British Columbia party, occurred when a foreign party insisted that its country's civil code apply. The BC party consulted local counsel in that country to confirm that there were no peculiarities in that code which could adversely affect the BC party, and then agreed. The result was a contractual advantage to the BC party: it obtained the benefit of an established concept of good faith performance of contractual obligations, in a contractual relationship in which almost all of the performance obligations fell to the foreign party (unlike in BC law, in which the role of good faith in the performance of contractual obligations is uncertain, the principle is expressly codified in the laws of almost all civil code countries). Significant exposure to, and experience working with, foreign laws equips Borden Ladner Gervais' international arbitration lawyers with valuable perspective and insight into international contractual negotiations, regardless of whether an arbitration agreement is ultimately agreed by the parties. Indeed, the end result of input from them may be that an arbitration agreement is not the best option in the circumstances. Arbitration does not work in all cases.
Once a dispute arises, substantive law issues often require advice from local counsel. Borden Ladner Gervais' lawyers can also assist in identifying whether that is so, and in finding appropriate local counsel if necessary.
SEAT OR PLACE OF ARBITRATION
Probably the most important issue during negotiation or after a dispute has arisen, is the "seat" or place of arbitration, where it legally (not physically) takes place. The arbitration laws of the seat govern the arbitration, including with respect to issues like grounds for challenge to awards, rules of evidence and the posting of security. The arbitration is also subject to the supervision of the courts of the seat, with respect to these issues and others. The grounds for challenging an award are not uniform: in some jurisdictions courts may be more interventionist than others. Therefore, a principal consideration in choosing the seat may be whether a party expects to be on the winning or losing end of an arbitral award. If the latter, a jurisdiction with broad grounds for challenging an award may be the best option. The point is that a party must consider its options before agreeing to a particular seat. For example, where parties have chosen the popular seat of London, England, and expect a final and binding award, the victorious party may be surprised to learn that the English Arbitration Act provides the English courts with relatively broad powers of intervention. To be clear, the seat is not merely the place of the final hearing (although generally it is that too). Meetings among the arbitrator and counsel may take place anywhere, which does not affect the seat. A procedural hearing on document production may take place in Paris by agreement of the parties or at a tribunal's request, even though the seat of arbitration is New York, Singapore or Vancouver.
The seat may also be a negotiation concession by a party. The issue is most acute when a dispute has arisen and the arbitration agreement is silent on the seat. For example, a party may have designs on an application for security for costs. But that concept is not uniformly addressed in the laws of all seats, making one seat or another a more likely venue for success. Without agreement of the parties, the seat will be determined by the administering institution or the arbitral tribunal itself, usually in light of the parties' submissions and certain factors in the circumstances. Parties should be wary of losing control of this important aspect of international arbitration.
ARBITRATION RULES AND ADMINISTERING INSTITUTIONS
Today, there are numerous international arbitral institutions and procedural rules. For the purposes of this discussion, the principal question is whether the arbitration should be administered by an institution under identified rules or ad hoc (unadministered). Ad hoc arbitrations may still have a place, but more and more parties are keen to have as much certainty as possible when it comes to process and costs. Thus, they generally agree to specific rules and an institution to administer the arbitration.
This issue normally arises during negotiations, rather than after there is a dispute. A common misconception is that the applicable arbitration rules are those of the seat. Often this is the case but, as mentioned above, it is the arbitration laws of the seat that apply, not its rules. For example, the International Chamber of Commerce Rules can apply to arbitrations seated anywhere in the world. Arbitration is based on contract and the concept of consent, thus the parties' agreement to use named arbitration rules will trump most, if not all, procedural rules in the seat's arbitration laws.
In most cases, the arbitration agreement identifies the institution and the rules that apply. Recently however an arbitration agreement provided for a dispute to be submitted to an institution but specified the application of the UN Commission on International Trade Law rules. The tensions between the institution's efforts to administer the arbitration and the tribunal's mandate to adhere to those rules may yet have to be resolved.
There are many options available to parties. Borden Ladner Gervais' arbitration lawyers can provide valuable assistance when it comes to deciding whether, or to what extent, a party may wish to propose or reject a particular arbitral institution or set of rules.
APPOINTMENT OF ARBITRATORS
The appointment of arbitrators provides parties with a meaningful say in how the arbitration will unfold and, in some cases, the approach arbitrators are likely to take to the substantive issues. There are two stages to the process: agreeing on the number of arbitrators and the method of appointment, and making the actual appointments.
Issues related to the number of arbitrators and method for their appointment are very often addressed during the negotiation of an arbitration agreement, for example, deciding whether one or three arbitrators will decide the dispute, identifying who appoints the arbitrators (very important in multi-party contracts), setting out what happens if a party does not appoint or the parties cannot agree on a chair (if it is their agreement that they do so). Leaving these issues to be resolved when a dispute has arisen usually results in disagreement, delay and increased costs. Deciding them at the negotiation stage requires taking a careful look at the parties' relationship and the relevant contract. For example, the cost of having three arbitrators, as opposed to one, is significantly higher, so it may matter if one party has deep pockets and the other does not. Or it may matter if the value or importance of the dispute to a party's overall business is significant. Regarding method of appointment – do the parties want to have a say in appointing the chair of a three-member tribunal or would they prefer a particular arbitral institution to appoint from its list of arbitrators?
This leads to the second aspect of appointing arbitrators: who should be appointed? At this stage, a dispute will have arisen and the relative positions (and to some degree, the strengths and weaknesses of those positions) will be known. A respondent may also know who the claimant has appointed. Involving one of Borden Ladner Gervais' arbitration lawyers, who are tapped into the international milieu and key personalities, will shed light on who would be an appropriate candidate. For example, in a recent case, the claimant had appointed an English QC well-known in international arbitration circles. That suggested the respondent might want to appoint someone of equal stature, who would not be overshadowed in deliberations among the arbitrators.
This is only a sampling of the issues that arise in international arbitrations. In many cases, the issues are interrelated. They must always be addressed on a case-by-case basis, with full knowledge of the relevant factual matrix. Borden Ladner Gervais' experienced international arbitration lawyers are a valuable resource on any arbitration-related issue that may arise.
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