The recent publication of the LCIA India Arbitration Rules (the ‘Rules’) has sparked a fair amount of discussion and interest, not in small measure owing to the fact that this is the first instance when an international arbitral institution has published a set of arbitration rules tailored for the Indian scenario. One of the ways it does this is by providing parties with an extremely attractive framework of arbitration costs. This post focuses on this key aspect of costs, and how the Rules have the potential to bring about a change in perception that institutional arbitration is less cost-effective than ad hoc proceedings and which has hitherto deterred a more widespread use of institutional arbitration in India.

One of the most important features of the Rules is that they provide for an hourly rate of compensation for the arbitrators capped at INR 20,000 per hour. This is a departure from the generally prevalent practice in India of a per-sitting fee charged in almost all ad hoc arbitrations (which today by far outnumber institutional arbitrations), and which varies from INR 25,000 to INR 100,000 charged by former High Court judges, and between INR 50,000 and INR 150,000 charged by former Supreme Court judges, depending frequently on the value of the claim/ counterclaim and in some cases also on the complexity of the dispute. A sitting is usually capped by arbitrators at 3 hours; any spillover is treated as a second sitting for the day. Considering that most arbitrators also charge an additional initial ‘reading fee’, and separate fees for drafting the award, and also that at least a few of the preliminary hearings and hearings on miscellaneous applications tend to last a lot less than 3 hours, the LCIA model should prove attractive to parties.

What would however be interesting to observe is how the arbitrators receive these restrictions on fees, given the current scenario of almost complete arbitrator-autonomy in deciding fees. Not only consensual appointments, but also contested Section 11 appointments ¹ frequently result in the court leaving the Tribunal to decide the terms of its own remuneration. Would this therefore result in established and much sought-after arbitrators having reservations to act under the Rules, or would a widespread acceptance and use of the Rules result in a shift in culture? A related but slightly more complicated scenario may arise in international arbitrations involving three-member tribunals where each party has the right to nominate a member. Would it be possible for an international party to obtain the arbitrator of its choice given the limits on arbitrator fees? Would the other party not invariably refuse to agree to a higher cap given that that would affect its own payout? ² Would this lead to a situation where one party is forced by the other to pay grossly more than it is paying for its nominated arbitrator, or would parties entering into international transactions have second thoughts about using the Rules? These and many more interesting questions will no doubt be answered in the coming months.

The Rules also make pleasant reading to a cost-conscious party due to the fact that LCIA has priced its own administrative charges at what should be an acceptable figure ³ in most commercial disputes barring very small-scale ones. Besides, the Rules mandate the arbitral tribunal to award costs based not only on the outcome of the arbitration, but also on the parties’ conduct during the arbitration proceedings, including any undue delays or unnecessary expenses. ⁴

Finally, the Rules have brought in a few unique India-specific provisions including an experimental form of the now de rigueur ‘Bhatia clause’ ⁵ in international arbitration agreements, which provides for the exclusion of Part I of the Arbitration and Conciliation Act, 1996 where the place (or seat) is outside India. Experimental, because the Rules selectively exclude only the troublesome provisions of Part I (including the right to apply for setting-aside of awards under judicially expanded grounds ⁶ and appeals from orders on interim measures), while retaining the more useful and sometimes potentially critical provisions, for example, the right to court assistance for interim relief where a Respondent is an Indian entity and has assets in India. Although it may still be possible for the Claimant to obtain relief from the curial court and enforce it as a foreign judgment in India, it would be faster and more effective to obtain urgent relief from the Indian courts. It is author’s opinion that the Rules strike the correct balance in this regard, but as with anything new and avant-garde, they remain short of certainty until judicially tested.

These customisations and cost-related advantages in addition to the host of general value additions that an institutionally-administered arbitration brings should herald a new culture of arbitration practice in India, one that goes back to being what arbitration should always have been: a fast, efficient and less expensive alternative to litigation.

Last month a number of noteworthy arbitration-related developments took place in Moscow.

Firstly, the international conference “Commercial Arbitration in Russia, Sweden and the UK: New Business Opportunities”, was held on 9-10 June at the Congress Center of the Russian Chamber of Commerce and Industry. The conference was jointly organized by the Center of Arbitration and Mediation at the Russian Chamber of Commerce and Industry in cooperation with the Stockholm Chamber of Commerce, CIA and BE Capital. More than 100 lawyers from Russia and abroad attended the conference with a wide range of interesting topics. In conjunction with this event, a meeting of the newly elected SCC Secretary General Annette Magnusson and Kaj Hobér with members of the Russian Young Arbitration Lawyers Group, MAF40 was held to discuss arbitration in Sweden in general, and activities of the SCC in particular (http://www.sccinstitute.com/?id=23696&newsid=34412).

Secondly, on June 23, 2010, the Russian Chamber of Commerce and Industry took some initiatives with regard to the International Commercial Arbitration Court (ICAC), which is acting under the auspices of that Chamber. To this, a new list of arbitrators of the ICAC was approved by the Russian Chamber of Commerce and Industry. The list currently includes 179 Russian and foreign practitioners. The previous list that was approved in 2005 with later amendments included 176 Russian and foreign arbitrators. The current list, taken into account the number of deceased arbitrators and those who were not included in the list, there are 30 newly listed arbitrators, among them 10 are foreigners.

The list is not mandatory for the parties to choose from in disputes to be considered by the ICAC; however, the Chairman of the arbitral tribunal (in case there are three arbitrators) shall be appointed by the Presidium of the ICAC only from that list. Should the Presidium of the ICAC decide that the dispute should not be resolved by a panel, a sole arbitrator shall also be appointed by the Presidium of the ICAC only from that list.

In addition, the Russian Chamber of Commerce and Industry has also introduced several important amendments to the ICAC Rules (the “Rules”).

The position of the First Deputy- Chairman of the ICAC has been created. The person in that position is intended to replace the Chairman of the ICAC in case of a need. Subject to the ICAC previous Rules, there were two Deputy- Chairmen with the same legal status.

Furthermore, the amendments increased the number of the members of the Presidium of the ICAC, who are elected during the general meeting of the ICAC arbitrators every 5 years, from fine to seven. Furthermore, the Rules of the quorum of the Presidium of the ICAC (important body in everyday activities of the ICAC) were also amended.

In addition, a new provision was added in relation to the number of copies of all documents that need to be submitted to the ICAC (one extra copy is to be provided); the additional copy is to be provided to the Rapporteur in an ICAC case. The involvement of a Rapporteur is a special procedural feature of every ICAC case: a Rapporteur is a knowledgeable person appointed by the secretary of the ICAC (subject to the proposal of the Chairman of the arbitral tribunal of the sole arbitrator) to help the arbitral tribunal or the sole arbitrator with the file. In the ICAC, there is a list of rapporteurs. A Rapporteur whose name is not included in the list of Rapporteurs can still be appointed subject to the prior approval of the ICAC Chairman.

Moreover, two major amendments were introduced to the Rules in order to promote transparency and efficiency. Firstly, the Rules provides that party in a dispute can request to submit its oral arguments via a video conference. This request is considered by the arbitral tribunal or the sole arbitrator subject to the circumstances of the case, opinion of the other party(s) and technical availabilities. Secondly, the Rules state that a person can hold a position of an ICAC Chairman for two terms only (not more than 10 years).

On June 28, 2010, the General Meeting of Arbitrators of the ICAC was held. Professor Alexey A. Kostin was elected as the Chairman of the ICAC, while Professor Ivan S. Zykin was elected as the First Deputy-Chairman of the ICAC, and Professor Evgeniy A. Sukhanov was elected as the Deputy-Chairman of the ICAC.

Professor Alexey A. Kostin, supported by 80 % votes of the ICAC arbitrators replaced Professor Aleksandr S. Komarov, who held that position for 17 years (since 1993). The following persons were elected members of the Presidium of ICAC for a five-year term: professor Nina G. Vilkova, professor Alexey N. Zhiltsov, professor Aleksandr S. Komarov, professor Sergei N. Lebedev, professor Aleksandr L. Makovskiy, professor Mikhail G. Rozenberg, professor Oleg N. Sadikov.

I believe that all amendments are positive with real intention to make the ICAC more transparent and more competitive.

Just to mention one last thing that I found is interesting, thus worth noting. A few mass-media in Russia broadcasted a rumors on the potential relation between the new elections and the cases heard by ICAC arbitrators almost four years ago (http://www.kommersant.ru/doc.aspx?fromsearch=32838547-ebbf-4c10-bab5-a749b20307c6&docsid=1405322). among the cases were Yukos Capital s.a.r.l. (Luxembourg) v. OJSC Yuganskneftegaz (former subsidiary of Yukos Oil Company, which was held insolvent by Russian courts due to huge tax liabilities because of its involvement in tax scams. OJSC Yuganskneftegaz was finally acquired by the Russian state oil company Rosneft). The claimant sought to enforce four loan agreements. In the four similar cases, the ICAC Arbitral Tribunal found in favor of the claimant. Later on, the debtor successfully challenged the awards before the Russian Commercial (Arbitrazh) Court, which set the awards aside for a number of procedural violations. Then Yukos Capital s.a.r.l. applied to Dutch courts to enforce the awards. The Court of the First Instance rejected enforcement while the Appellate Court found in favor of Yukos Capital s.a.r.l.

On June 25, 2010, three days before the ICAC Meeting, the Dutch Supreme Court denied Rosneft the right to appeal in that case on enforcement. That decision of the Dutch Supreme Court provided a good ground for rumors. It was rumored that the ICAC Chairman was replaced for political reasons, i.e. perhaps due to his influence on the outcome of the said arbitral cases in 2006 or for failing to prevent granting the awards by the ICAC Tribunals in favor of Yukos Capital s.a.r.l. In my opinion, such rumors are mere gossip by people who are not aware of the ICAC procedures taken to resolve the cases and the amount of preparation needed, or that they have an intent to distort the ICAC procedures. You may believe everything you read in the newspapers or hear in the media unless you were a witness to an event. I was.

Alexander Muranov

I recently spoke at a conference co-sponsored by the Milan Chamber of Arbitration and the ICC on the occasion of the publication of the new Italian arbitration treatise entitled Commentario Breve al Diritto Dell’Arbitrato Nazionale ed Internazionale (CEDAM 2010) by my colleague Massimo Benedettelli, along with co-authors Claudio Consolo and Luca Radicati di Brozolo. The topic of my panel was general trends in international arbitration.

Although I would have liked to have spoken on a substantive trend in international arbitration, I decided I could not ignore a much bigger, procedural trend that has been the topic of conferences in both the United States and Latin America – that is the growing discontent of corporate users with international arbitration.

The criticisms regarding international arbitration center around cost and efficiency. A recent study of the Corporate Counsel International Arbitration Group (CCIAG) found that 100% of the corporate counsel participants believe that international arbitration “takes too long” (with 56% of those surveyed strongly agreeing) and “costs too much” (with 69% strongly agreeing).

Three main questions arise from these criticisms. The first is whether these criticisms are justified? The second is, if so, then what (or who) is to blame? The third and final question is what can the arbitration community do about these critiques? The answers to the first two questions depend on where one sits. But I am increasingly impatient with our responses to the third, as I think there are relatively simple solutions if we are willing to be creative and proactive.

First, much of the criticism regarding cost and efficiency in international arbitration is targeted at investor-state arbitration. These by their nature involve a more transparent and political process than international commercial arbitration, and the problems and solutions are, in part, different in each.

Second, there is plenty of blame to go around. Many blame complaints on outside counsel – especially those from the United States – for requesting too many documents, making too many motions, and generally filing too many pages. Others blame in-house counsel for not using their authority to rein in practices they criticize as inefficient or wasteful. And some blame the arbitral institutions themselves for not constructing a system that reins in everyone.

My most negative experiences recently, however, have been with arbitrators – and especially chairs – who are oftentimes overscheduled, unprepared, disorganized, reactive, timid and slow. Without suggesting I am blameless as a chair, there is no way to defend arbitrators who cannot schedule hearings for months or produce awards for years. But don’t take it from me. The CCIAG survey lists the following factors as contributing to the rising inefficiency of international arbitration: (i) 100% of those surveyed identified arbitrator availability and excessive document disclosure; (ii) 95% identified the “failure of tribunals to narrow issues, evidence and argument leading parties/counsel to feel need to cover all bases” and (iii) 90% identified excessive concern for due process over efficiency, leading to a free-for-all on timing.

So, then, what are the solutions? Fortunately several have already been identified and implemented. The CEDR and ICC have published rules and techniques for controlling time and costs. The ICC has revised its Arbitrator Statement of Independence to include information on availability, in the form of data about other cases in which an arbitrator candidate is serving. Despite the many complaints regarding the “Americanization” of document discovery, it is the AAA that has issued international guidelines calling for arbitrators to manage document disclosure strictly, using cost assessment as a control mechanism.

We can go farther. Institutions should require more than the ICC’s disclosure on availability. Why not require a simple calendar with black-out dates for scheduled hearings and deliberations as arbitrator, teaching commitments, hearings and major filings as counsel? No disclosure of details, of course, but just calendar dates – based on then-available information – on when an arbitrator is and is not available for hearings.
As for efficiency in issuing awards, why not require arbitrator candidates to disclose not just how many prior cases they have handled as arbitrator, but also, for each case, how much time passed between the close of the record and the issuance of the award? Provided there is a field for an explanation, i.e., delay caused by suspension, or illness, this is simply objective ‘data’ helpful to the parties.

How about building into the procedural calendar a one or two day private (and paid) meeting of the tribunal to allow (and in some cases, force), the arbitrators to study the record together, prepare focused hearing directions, and (ideally) issue (neutral) questions to parties to prioritize use of witnesses and hearing time. (This is the “Reed Schedule” I mentioned in prior talks and blogs.)

Finally, if these proposals seem radical, consider that the CCIAG has proposed a far more radical solution: linking arbitrator remuneration to achieving milestones in the procedural calendar.

Whether or not concerns about international arbitral efficiency are exaggerated, the international arbitration community must face this discontent and, more importantly, take steps to fix these problems if it is to maintain legitimacy with its users.

As is well known, Section 1782(a) provides that a “the district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal”.

The applicability of 28 U.S.C. § 1782 to international arbitration has generated an interesting debate, especially on this blog (see lastly G. Born’s post, L. Reed’s post, E. Triantafilou’s post, adde, Y. Lahlou, l’applicabilité de l’article 28 USC 1782 à l’arbitrage commercial international, Gaz. Pal., 2009-3). The debate is essentially concerned with the question whether an international arbitral tribunal constitutes a “foreign tribunal” for purposes of § 1782 (see the recent: In re Application of Chevron, 2010 WL 1801526, at *6 (S.D.N.Y. May 6, 2010 and Roger Alford’s blog). Conflicting solutions on this issue have been rendered in the United States (against the application of § 1782 to international arbitration see e.g.: National Broadcasting Co. Inc and NBC Europe v. Bear Steans & Co., Inc et al, 165 F.3d 184 (2d Cir. 1999); El Paso Corp. v. La Comision Ejecutiva Hidroelectrica del Rio Lempa No 08-20771, 2009 US App. Lexis 17596 (5th Cir. Aug. 6 2009); In re Arbitration in London, England, No. 09-C-3092, 2009 US Dist. Lexis 49827. For the application of § 1782 to international arbitration see e.g. In re Oxus Gold plc, MISC 06-82-GEB, 2007 WL 1037387 (D.N.J. April 2,2001), In re Roz Trading Ltd, 469 F. Supp. 2d 1226; In re Hallmark Capital Corp., 534 F Supp. 2d 951 (D. Minn. 2007), Comisión Ejecutiva, Hidroeléctrica del Río Lempa v. Nejapa Power Co., LLC, No. 08-135, 2008 WL 4809035, at *1 (D. Del. Oct. 14 2008).

A related, and somewhat minor question, has however attracted little interest, and that is whether costs incurred by the party to an arbitration procedure in court proceedings based on § 1782 (“the Discovery costs”) may be treated as costs of the arbitration and allocated by the arbitral tribunal. The question will be relevant to the parties since, as it is known, costs are not refunded to the prevailing party in the context of Discovery court proceedings in the United States.

The critical issue is whether the Arbitral Tribunal has jurisdiction to allocate Discovery costs as costs of the arbitration.
The first element of answer may be found in the arbitration agreement.
Proceedings related to a Discovery application in aid of the arbitration may well be considered as a dispute arising out or relating to the underlying contract. Hence, there should not be any difficulty to admit that, in principle, Discovery applications are related to the contract. As a consequence, a broadly formulated arbitration clause (such as a clause worded as follows “all disputes arising out of or in connection with the present contract shall be finally settled through arbitration by one or more arbitrators”) may well be construed as applying to Discovery costs. This is not the end of the story, however.

A first argument against the arbitral tribunal’s jurisdiction to apportion Discovery costs is that applications for Discovery in aid of the arbitration applications usually involve third parties in possession of the evidence sought. Such circumstance, however, should not be relevant as long as the parties in dispute in the arbitration are also parties to the Discovery court proceedings.
Another possible objection relates to the concept of “costs of the arbitration”.

In the context of UNCITRAL or institutional arbitration, it should be seen whether the applicable arbitration rules permit to treat such costs as costs of the arbitration.

It is for example doubtful that, under Article 38 of the 1976 UNCITRAL rules, Discovery costs can be treated as costs of the arbitration. Article 38 provides that “the term ‘costs’ includes only: (a) the fees of the arbitral tribunal to be stated separately as to each arbitrator and to be fixed by the tribunal itself in accordance with article 39; (b) the travel and other expenses incurred by the arbitrators; (c) the costs of expert advice and of other assistance required by the arbitral tribunal; (d) The travail and other expenses of witness to the extent such expenses are approved by the arbitral tribunal; (e) the costs for legal representation and assistance of the successful party if such costs were claimed during the arbitral proceedings, and only to the extent that the arbitral tribunal determines that the amount of such costs is reasonable; (f) Any fees and expenses of the appointing authority as well as the expenses of the Secretary-General of the Permanent Court of Arbitration at the Hague”.

The new 2010 UNCITRAL rules, however, include a new wording of § (e) below. The new Article 40 (e) of the Rules now provides that costs include “the legal and other costs incurred by the parties in relation to the arbitration to the extent that the arbitral tribunal determines that the amount of such costs is reasonable”. Arguably, Discovery costs are costs incurred “in relation to the arbitration”. As a consequence, Discovery costs would be treated as costs of the arbitration.

The ICC rules, with respect to costs, provide in Article 31(3) that “The final Award shall fix the costs of the arbitration and decide which of the parties shall bear them or in what proportion they shall be borne by the parties”. Article 31(1) also provides that the costs of the arbitration include the “reasonable legal and other costs incurred by the parties for the arbitration”. Such a provision does not seem to encompass costs incurred “in relation” to the arbitration. It is generally admitted, however, that arbitrators have wide discretion in apportioning costs. Whether such discretion could be used to allocate Discovery costs remains to be seen.
The LCIA rules confer to an arbitral tribunal the power to “order in its award that all or part of the legal or other costs incurred by a party be paid by another party” (Article 28.3). However, this provision seems to relate to the costs incurred in the arbitration, and would thus not apply to costs incurred in court proceedings. The ICDR rules refer in Article 31 to “the costs of arbitration”. Although the rules also provide for a non-exhaustive list of what “may” be included as such costs, , the concept of costs of arbitration is arguably not equivalent to that of costs incurred “in relation to” the arbitration. The same observation applies with respect to Article 38 of the Swiss Rules.

Another possible ground to recover Discovery costs could be as damages for breach of the arbitration agreement. It is unlikely that the lex arbitri would prevent a party from seeking Discovery in aid of the arbitration, but it may well be that the arbitral tribunal enjoined the party from doing so or from pursuing an application made without the tribunal’s leave.

A U.S. court has, in this respect, decided that § 1782 application suppose the consent of the arbitral tribunal (see In re Bacock Borsig AG, 583 F. Supp. 2d a 233 (D. Mass. 2008)). Such principle is healthy as Discovery applications – as they include leave to depose witnesses and suppose broad discovery – are likely to be inconsistent with the tribunal’s procedural directions. In such a scenario, an application made in disregard of the tribunal’s directions or order would constitute a breach of the arbitration agreement insofar as the arbitration agreement obliges the parties to cooperate in good faith to the proceedings. There should be no valid reason why such a breach could not give rise to damages.

Alexis Mourre/Alexandre Vagenheim

The United States’ Supreme Court opinion in Stolt-Nielsen S.A. v. Animalfeeds International Corp. has already been the focus of much discussion in both U.S. and international arbitration circles. One area of interest for arbitration practitioners is the impact which the decision may or should have on how drafters of arbitration clauses should address the issue of class action arbitrations.

Stolt-Nielsen involved an arbitration brought in New York by AnimalFeeds against Stolt-Nielsen, a commercial shipping company, after Stolt-Nielsen had been subject to a U.S. Department of Justice criminal investigation involving charges of illegal price-fixing. The arbitration was brought pursuant to a broad arbitration clause (“[a]ny dispute arising from the making, performance or termination . . . .”) in a standardized shipping contract that did not mention class arbitration. AnimalFeeds demanded a class arbitration on behalf of itself and similarly situated shipping customers. The parties entered a supplemental agreement which, consistent with the AAA Supplementary Rules on Class Arbitration, submitted to the arbitrators the question whether the clause authorized class arbitration. During the course of the arbitration, the parties stipulated that the arbitration clause was “silent” on the question of class arbitration

The arbitral tribunal issued a partial award stating that the arbitration clause permitted class arbitrations, citing a consensus of arbitral awards interpreting “a wide variety of clauses in a wide variety of settings.” Stolt-Nielsen challenged the award in the federal courts. The Supreme Court found that the arbitrators had exceeded their authority by basing their decision on policy grounds rather than on the applicable law. The Supreme Court found that the FAA barred class arbitrations where the arbitration clause was “silent.” Justice Alito’s majority opinion based this holding on the premise that arbitration is a creature of consent, and that class arbitration cannot be forced on parties who have not consented to it.

As Justice Ginsburg’s dissenting opinion points out, “the Court does not insist on express consent to class arbitration,” and Justice Alito’s majority opinion specifically noted that the Court had “no occasion to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration.” This leaves little guidance to tribunals and courts interpreting arbitration clauses as to what contractual or factual basis can support a finding that the parties agreed to authorize class arbitration. While the Stolt-Nielsen opinion implies a restrictive interpretation of broad arbitration clauses on the issue of class arbitration, given the uncertainty noted by the dissent, and the singular fact that in Stolt-Nielsen the parties had stipulated that the arbitration clause was silent on the issue of class arbitration, the impact of Stolt-Nielsen on clause drafting in different contexts is uncertain.

The best option for drafters of arbitration clauses who want to provide for class arbitration is to make consent express in the clause, for example by including language such as “the parties agree that class action arbitration shall be available under this clause.” Drafters intent on including class arbitration should also consult the AAA’s Supplementary Rules for Class Arbitration, which provide a mechanism for the administration of class arbitration, and may wish to incorporate those Rules into their arbitration clause. It is to be noted, however, the AAA’s Supplementary Rules for Class Arbitration are likely subject to amendment in the wake of the Stolt-Nielsen decision. Drafters who want to exclude class arbitration should do so expressly by stating in their clause that “there shall be no class action arbitration.”

White & Case represented Stolt-Nielsen in the dispute. The writers of this post were not part of the team representing Stolt-Nielsen and this post is based exclusively on information available to the public.

By Paul Friedland and Michael Ottolenghi

The Court of Appeals for the state of Bahia in Brazil recently handed down an arbitration-friendly decision and vacated an injunction intended to stay an arbitration proceeding. In FAT Ferroatlàntica S.L. vs. Zeus Mineração Ltda. and others (see link to English translation below), the Court of Appeals addressed the issue of whether the existence of conflicting arbitration clauses in contracts pertaining to a single economic transaction justifies judicial intervention at the outset of the arbitration. The Court of Appeals held that, provided an arbitration agreement exists, such issue is to be dealt with by the arbitrators, not by the Courts.

Ferroatlàntica, on one hand, and Zeus and Zeus’ individual owners (altogether “Zeus”), on the other, had entered into a joint venture agreement for the research and exploitation of minerals in Brazil. They had also formed a company incorporated in Brazil, FAT Brasil, to perform the research and the exploitation. Zeus had to contribute mining rights to FAT Brasil while Ferroatlàntica had to invest US$22 million in FAT Brasil. The joint venture agreement contained an arbitration clause, which referred to the International Chamber of Commerce (ICC) Rules of Arbitration, whereas the articles of incorporation of FAT Brasil provided for arbitration under the Rules of Arbitration of the Brazil-Canada Chamber of Commerce. The place of arbitration in both agreements was São Paulo, Brazil.

The joint venture agreement also granted Ferroatlàntica an exit option: in the event the research results did not meet certain targets, Ferroatlàntica had the right to exit the joint venture and be repaid the US$22 million invested minus FAT Brasil’s research expenses.

Considering the research results targets had not been met, Ferroatlàntica exercised its exit rights and requested the reimbursement of the balance of its investment in the joint venture. After Zeus refused to pay, Ferroatlàntica initiated an ICC arbitration seeking payment of those sums. In response, Zeus filed a lawsuit before a court in Caetité, in the state of Bahia, Brazil, and obtained an ex parte injunction requesting a stay of the arbitration. Ferroatlántica thereafter filed an interlocutory appeal against the injunction before the Court of Appeals of the State of Bahia, which issued an order vacating the injunction.

When seeking a stay of the arbitration, Zeus had relied on the conflict between the two arbitration clauses and argued such conflict raised “doubts” as to which rules should govern the arbitration.

Since Brazilian law on arbitration provides for judicial assistance at the outset of the arbitration, the Court of Appeals of the State of Bahia had to determine whether the conflict between the arbitration clauses justified such judicial intervention.

The Court of Appeals decided that the existence of conflicting arbitration agreements does not constitute a sufficient cause for a provisional stay of an arbitration. The court found that although conflicting arbitration agreements may raise difficulties for the resolution of a dispute, such difficulties did not justify judicial intervention to allow the arbitration to proceed.

Parallel arbitration proceedings pose a risk of insecurity regarding the outcome of the adjudication procedure. This risk derives from the likelihood that different arbitral tribunals will reach contradictory or incompatible decisions. In some cases, the two decisions may even out at the end. In others, the application of one or both becomes impossible. The most likely consequence is that one or both parties will continue to litigate in the available fora, making compliance with the award(s) unlikely and defeating what many consider to be the purpose of choosing arbitration in the first place: to have an effective and technical decision on the merits using a reasonable amount of resources.

Consolidation of proceedings would be advisable to avoid parallel proceedings. This can always be done in international commercial arbitration if the parties agree to it after the dispute arose. Such an agreement is not uncommon, because, as we have commented above, the prospect of parallel proceedings is a grim enough incentive to opt for consolidation.

In some cases, one of the parties, who is usually the party that has more to lose from the arbitration than the status quo, instead opts for dilatory tactics and litigation in court. More often than not, it is the respondent in the arbitration that takes this road, which is exactly what Zeus, in the possession of US$ 22 million, did.

The dispute that gave rise to the decision commented here was quite simple in practice because all the claims presented by Ferroatlàntica were related to the joint venture agreement. However, in other cases, the relation between the various agreements at issue or the nature of the claim may be such that it is more complex for the parties to determine which arbitration agreement governs their dispute. In those cases, the need for judicial intervention to determine which arbitration agreement prevails could arise. The rationale for such intervention would be similar to the arguments in favor of judicial intervention to support the enforcement of an arbitration agreement where (i) the terms of the agreement themselves are not sufficient to start the arbitration; (ii) one of the parties resists arbitration; or (iii) another obstacle to arbitration arises. The decision by the Court of Appeals of Bahia is an indication, however, that no such action is possible in case of conflicting arbitration

FAT Ferroatlàntica S.L. vs. Zeus Mineração Ltda.

When it comes time to identify an arbitrator candidate, be it in the investor-state context or in an international commercial arbitration, there are many factors to consider. One such factor, however, that has been the focus of much attention recently by arbitration institutions, practitioners and commentators alike, is arbitrator availability. It is clearly a sore subject.

In August 2009 the ICC took a major step towards transparency with respect to arbitrators’ availability and workload. As a result of these measures, the ICC now requires ICC arbitrators to complete an ICC Arbitrator Statement of Acceptance, Availability and Independence listing their “currently pending” cases, and confirming their ability to devote the necessary amount of time to the arbitration and to conduct the process “diligently, efficiently and in accordance with the time limits in the Rules”.
While the ICC’s measures to increase transparency about arbitrator availability are certainly welcomed and commendable, they are only a first step. Aside from ascertaining the number of “currently pending” cases in which an arbitrator candidate is involved, either as tribunal chair, co-arbitrator or counsel, other objective data is relevant and ought to be available. This kind of data includes details about the calendar of an arbitrator candidate, and details about an arbitrator candidate’s record for award drafting in past cases.

Calendar of an Arbitrator Candidate. Arbitral institutions should not be afraid to ask an arbitrator candidate for a calendar of his/her professional responsibilities for the upcoming 12 – 18 months. We obviously do not mean a calendar with case (or personal) details, but rather a calendar showing dates blacked-out for existing commitments: hearings, deadlines for the drafting of awards and time blocked for drafting (particularly if the candidate is acting as tribunal chair), and responsibilities as counsel.

An Arbitrator Candidate’s Record on Awards. As we have said publicly before, why shouldn’t institutions – and parties – ask arbitrator candidates to indicate on their disclosure statements information, from past cases as arbitrator, about the length of time (i) from the final hearing to the close of the proceedings, and (ii) from the close of the proceedings to the issuance of the award. Arbitrators would, of course, be able to explain any particularly long delay, for instance, due to suspension of the proceedings by the parties for settlement purposes or illness of a tribunal member.

Although the number and type of arbitrations an arbitrator candidate has done is perhaps the most important piece of information for appointing parties and institutions, surely it would help those parties and institutions also to have information about the candidate’s availability – real availability – and pattern of award issuance. If the first type of objective date is required on disclosure statements, why not the second?

By Lucy Reed and Noiana Marigo

It was a deliberate decision of the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC) to include both the term and procedures for “conciliation” in their rules.

Representatives of ADCCAC regularly comment to the effect that they see it as one function of a dispute resolution body to offer to the disputants a pre – arbitration solution, via a speeder and less formal set of procedures. Consistently with that theme, ADCCA has in it’s rules a detailed set of provisions that relate to the concilation of a dispute – before arbitration. Below, in summary, are some features of ADCCAC’s approach, certain of which are quite distinctive.

First, like all ADR provisions, the jurisdiction of ADCCAC’s conciliation process starts with either a disputes clause that includes conciliation as a first step, or by way of a joint, ad hoc, reference from the parties.
ADCCAC’s conciliation procedures then outline, or make provision for, the the particulars of the dispute, and supporting documents, to be provided to the Centre by the claimant and a reply by the respondent.

At that point a Conciliation Board is formed. Again, members of the Board can be agreed between the parties, but if there is no agreement, the Centre will select the Board members.

Next, the Board sits and hears from each party claim, it’s and counterclaims. ADCCAC’s particular procedures require the Board to produce a written summary of the case and that summary, or minutes (as they are termed), must be signed by both parties.

Under ADCCAC’s conciliation rules, the Board can reconvene with the parties, or require further information, as it deliberates on the matters in issue. The Board then produces a written report; delivers it to the parties and then reconvenes to hear the reaction of the parties to the report.

There are then in place (in the rules) a set of procedures by which the Board, and the parties, use the report as a from of, if you like, agenda or reference point to see if the dispute can be resolved. Resolution comes in the form of a version of the report ( an iteration at any stage) being accepted by both parties.

As is usual, ADCCA’s conciliation rules cloak the process in confidentiality and protect any evidence or admissions from future use in arbitration or litigation.

Some might see that this concilation process has borrowed a little from both structured negotiations and mediation. But leaving aside labels, it does have the somewhat unique feature of a report being produced for the consideration of the parties and then used as a tool to represent both progress in negotiations, and, if successful, a settlement.

For western lawyers, there may be some initial hesitation in engaging in a process close to mediation, but where a wirtten report is produced by the tribunal.

I suspect that many readers who are practitioners of ADR solutions on major projects, might also possibly baulk at the degee of formality (i.e. the production of a report by the Board) in ADCCA’s Conciliation procedures. But in a region where Arabic is the national language, and English is permitted and used in commerce, but generally via a side-by-side translation, it is more common than not that there be clear documentation at each stage in the ADR process. For arbitrations, ADCCA provides a case managed approach and indeed a very “hands on” style of management.

For it’s conciliation model, ADCCA’s procedures are more focused on ensuring that the parties understand each stage, and ackowledge perhaps any concessions or partial agreements on facts or figures that have been reached.

Concluding this part of the 4 part series, it can fairly be observed that, in the UAE, and in Abu Dhabi in particular, all industry participants – especially their legal advisors – need to support the use of Dispute Adjudiction Boards (in the FIDIC Abu Dhabi Governement form) and further should refer to and include ADCCA’s conciliation process in the dispute resolution clauses in contratcs for major projects, or, indeed, even in significant commecial transactions.

There is a real risk that if these techniques of ADR are not supported, the region will not be able to attract the inflow of foreign investment, which it is now is critically dependent upon.

The most commonly used form of construction contract in the Gulf is the FIDIC form. Although the FIDIC forms, for project procurement and consultantcy services, progressed slowly over the years, culminating in the burst of colours in the suite of contracts issued in 1999, some parts of the Middle East still use the 1987 (Red Book) version. Indeed, most government contracts in Oman are based on the 1981 version of the Red Book, updated marginally in clause 67.

In Abu Dhabi, some years ago, a decision was made by the government here to prepare, under license from FIDIC, two bespoked forms of the contract – build only, and design and build. Those forms were issued in 2007 accompanied by the requirement that they be used as the form of contract by all government departments in the Emirate of Abu Dhabi.

The centrepiece of the ADR process in that new form of contract is the use of a Dispute Adjudication Board (DAB).

It is not the purpose of this note to review the quite lengthy and detailed DAB and related dispute resolution procedures set out in the contract.

What is perhaps more relevant for the theme of this 4-part commentary, focusing on ADR in the Abu Dhabi major projects market, is the fact that, via this mandated form of FIDIC, the dispute resolution process proceeds first to the DAB(cl20.4) ie the use of a DAB is now the default rather than, in earlier versions, an option.

The Abu Dhabi government’s version of the FIDIC contract does maintain cl20.5 which expressly encourages amicable settlement at any time.

Finally, if those two processes do not resolve the matter, the dispute is referred to “final and binding” arbitration. The default body and rules are those of the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC).

In theory, of course, it is possible for some of these provisions to be amended by a government authority for a specific project. But what is more relevant for this note, is that after a detailed review and consultation process, the decision was made to mandate a DAB.

I see the introduction of a DAB as a very valuable and important step to facilitate major project disputes in Abu Dhabi.

In theory, a project-specific DAB, properly appointed and constantly in touch with a project’s progress and the development of a dispute, seems like not just a good solution, but an almost “ must have” for the demands created by projects in Abu Dhabi in 2010 and onwards.

But as good as they appear to be in theory, DABs seem to have a chequered history and more of a “B” rating, than an A+ in construction disputes.

Perhaps their fate is not helped by the entry alongside “dispute board” in Wikipedia which says “This article is an orphan, as few or no other articles link to it”.

But that is being a little unfair. In many jurisdictions DABs compete with an array of offerrings from commercial ADR institutions, advancing soltionsthat are quite varied and not limited to just arbitration (see for example AAA’s and the ICC’s extensive menus of ADR solutions).

So what are, or should be, the drivers in the Abu Dhabi market for making this DAB process work?

First, speed to an initial decision. Around the world, and particularly with in-house counsel, the constant and resounding criticism of arbitration is that it takes too long, and is too appealable (ie even longer). In almost all surveys of arbitration users, time and delay ranks far more significantly than cost. The case for arbitration, for major project and construction disputes, is not helped these days as being almost always a very expensive process. But speed of decision consitently comes first in surveys of in-house counsel and the users of the ADR systems, as the key factor in choosing an ADR solution or in measuring its success or valueto them.

Consistently with the views of Tom Stipanowich (Arbitration: the New Litigation(Univ. Illinois Law Review 2010) a speedy process must, by its very nature, require the setting of tight boundaries on evidence and submissions and expert reports. And the surveys tend to indicate that a controlled, and ostensibly fair but speedy system, is what most large orgainaistions are looking for thesedays.

Witness the outstanding success of the adjudication system in England. In England, and in Australia where it has been almost uniformly adopted in all states, it has had the effect of greatly reducing the number of disputes that go to arbitration. Adjudication has, however, had some adverse side effets. It has produced a large number of court cases at the stage the court is asked to adopt the adjudicator’s report. In the first 4 years of its introduction in Australia, there were over 150 cases ranging from issues of statutory interpreation through to whether the adjudicator had exceeded his jusrisdiction. The outcome being that a relatively short statute needs to be read an interperted in the light of quite a number of important judicial pronouncements. Another side-effect is that lawyers running these matters regularly have to prepare in 14 or 28 days claims and evidence that otherwise would take many months in an arbtiration or even in court.

So will the use of a DAB in Abu Dhabi produce a better result than say arbitration? Or is there a better alternative in this region and at this time in the cycle of major projects?

On any view the introduction of a mandated DAB is a very good first step. The essence of an effective DAB is a decision making process, in real time, by people who can see and view the project and fully understand the issues.

It is the complete converse of a project-specific DAB, that years after construction is completed 3 learned arbitrators have a sitting lasting mouths, to hear and consider expert debate on what did happen and more theoretically, what should have happened or been done, as they look at “as-built” programmes and the true audited accounts of the builder (did he really suffer a loss?).

If you therefore set the sceneas being Abu Dhabi in 2010 and onwards, looking to attract and secure investment; seeking to give transparency to the dispute resolution process and both physically and commercially just purely manage the massive volume of work (and hence disputes) there can be no argument against doing everything that is sensibly possible to make the DAB system work.

One real concern I have is that this initiative is not backed by my professional collegues, or their clients, in Abu Dhabi. If that were to happen, I do not believe that the “system” absent a DAB process, will cope at all.

Finally, let us not forget mediation. In the final part of this series I would like to advance the case for both ad-hoc and institutional mediation to be used as a first choice even before DAB’s in the major project market in Abu Dhabi.

It is not by chance that ADCCAC’s title includes the term “ concilitation” and that the centre promotes a disputes clause that requires the parties first to attempt concilitation, before embarking on an arbitration. In the next part I will review in some detail ADCCAC’s approach to conciliation and how it might be a valuable process for this market, at this time.

In its first newsletter of the year 2010, the Swiss Chambers’ Court of Arbitration and Mediation was able to announce a high increase in arbitration cases submitted to the Court under the Swiss Rules of International Arbitration. A total of 104 new arbitration cases was submitted in 2009, an increase of more than fifty percent compared to 2008. According to the Court’s statistics, 48% of the parties were from Western Europe, 24% from Switzerland, 6% from Eastern Europe and Russia, 12% from Asia/Middle East and 5% from Northern America. 43% of the new arbitrations were heard by a panel of three arbitrators, 53% by a sole arbitrator.

Apparently, the expedited procedures available under the Swiss Rules remained very popular for their cost-efficiency and speed. Pursuant to Article 42 of the Swiss Rules, cases involving amounts in dispute of less than CHF 1 million are referred to expedited arbitration. In expedited proceedings, the parties are, in principle, limited to one Statement of Claim and one Statement of Defence. The arbitral tribunal shall hold a single hearing for the examination of the witnesses and expert witnesses as well as for oral argument and the award shall be made within six months from the date when the file was transmitted to the arbitral tribunal. Furthermore, the arbitral tribunal shall state the reasons upon which the award is based in summary form only. The success of the expedited procedures confirms that they meet the need of parties for lean and efficient arbitration particularly in smaller cases.

Andrea Meier, Schellenberg Wittmer