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WHAT IS ARBITRATION?




In Greek mythology, many deities possess the power to shapeshift. Some use this gift out of necessity or fofdfr a relative good, others for ulterior motives (take Zeus, for instance). On some occasions a god or goddess would take an animal form; on others – an inanimate object. Yet, the outcome is often the same: a mortal (or a fellow a god) is tricked to believe in an illusion.




THE MISCONCEPTION

It is, as if influenced by the past experiences of divine mischief, many parties, counsel and even arbitrators see arbitration for what it is not and treat this process as if it were litigation transformed, the court proceedings in disguise (‘litigation without wigs’).

This misconception is quite dangerous. It hinders the arbitrators’/counsel’s ability to conduct proceedings in a manner required/expected under the applicable lex arbitri and rules and, in some jurisdictions, even threatens the very existence of a yet fragile arbitration ecosystem (‘why should I arbitrate, if it is like litigation, but more expensive’).

DEFINING THE SUBJECT

While modern arbitration procedure has arguably been greatly shaped by litigation practices in common law jurisdictions, arbitration has always been and remains to be the Kantian thing-in-itself and should be approached as such. Building upon Mr Gary Born's analysis in 'International Arbitration Law and Practice', I tend to explain to counsel- and arbitrators-to-be (i.e. my undergrads, graduate and executive students) that arbitration can generally be described as 'a consensual process, where an independent and impartial person (or persons) selected by or for the parties (i.e. arbitrator) resolves a dispute based on the parties' statements and submissions in a final and binding decision (i.e. an award)'.

  • The consensual and adversarial character;

  • the parties' right to select an impartial and independent tribunal, and;

  • the finality and binding nature of an award

are the three pillars arbitration stands on.

Remove any and you will end up with something that is not arbitration, no matter the name.

CAVEAT ARBITER, CAVEAT IURIS CONSULTUS!

At this point one may reasonably wonder, how arbitration is different from litigation, apart, may be, from the fact that parties must have an arbitration agreement in place and have a right to select a decision-maker. Indeed, litigation is an adversarial process, and sooner or later one would get a binding judgment to which there is no appeal.

Well, the differences are many.

Those interested in a more or less 'side-by-side' comparison may find an article by LexisNexis of interest. In this post, however, I sidestep the usual enforceability, cost/time, flexibility, etc. analysis and focus on some (but definitely not all) issues that, in my experience, may (and often do) startle and confuse even some seasoned litigators, let alone in-house counsel and parties.

The contractual nature of arbitration rules

Many parties and their representatives find it difficult to accept that arbitration rules are part of the parties' agreement to arbitrate and, therefore, are of contractual nature. Arbitration rules are not procedural codices, rules of court, the law, etc. and, thus, can generally be changed by the parties depending on the circumstances of the case.

Why generally?

The parties' freedom is not without limits. Some provisions of the rules, typically those related to an institution’s administrative functions, are imperative.

To wit, 2021 ICC Arbitration Rules, Art. 1(2) reads: 'The Court is the only body authorized to administer arbitrations under the Rules, including the scrutiny and approval of awards rendered in accordance with the Rules'.

The parties cannot amend or contract-out this provision. Do so and the Secretariat would not accept the request for arbitration. Note, however, that the absence of 'unless otherwise agreed by the Parties' or similar language does not per se indicate that the provision is imperative.

Procedural timetable

Parties and counsel, especially, from civil law jurisdictions, are used to rely on codices to ascertain procedural deadlines or look forward to the Judge's relevant direction (e.g. submit a statement of defence by date X; the hearing shall take place on day Y, etc.). In arbitration, however, most procedural deadlines are seldom fixed in the applicable lex arbitri or rules.

  • For example, Vietnam International Arbitration Centre Arbitration Rules, Art. 9(1) provides that: 'Unless otherwise agreed by the parties on the period of time, the Respondent shall, within 30 days from the date of receipt of the Notice, the Request for Arbitration, the arbitration agreement and other relevant documents, submit to the Centre a Statement of Defence'.

  • While 2021 UNCITRAL Arbitration Rules, Art. 25 merely states: 'The periods of time fixed by the arbitral tribunal for the communication of written statements (including the statement of claim and statement of defence) should not exceed 45 days'.

Against this background, arbitration procedural timetable is typically subject of discussion and agreement between the parties and the arbitral tribunal, and the latter expects meaningful participation of counsel in such. Once finalized, the timetable is recorded in procedural order (PO), usually, PO1. It is noteworthy that the procedural timetable is not set in stone and may be changed during proceedings, depending on the circumstances (e.g. a justified extension of time request by a party).

When a Court is not the court

Many arbitral institutions or their bodies contain 'Court' in their names (e.g. London Court of International Arbitration (LCIA), ICC Arbitration Court, or Sąd Arbitrażowy przy Konfederacji Lewiatan/Lewiatan Court of Arbitration). This confuses some counsel who would address an institution or its body, not the tribunal, in their statements and submissions. Remember, it is not the institution or its body that resolves your dispute (the second pillar), but a tribunal. While some statements should be made to an institution itself (e.g. a consolidation request under 2025 Singapore International Arbitration Centre Arbitration Rules, Art. 16.1), the substantive statements and submissions must be addressed to the tribunal.

A web of laws and rules

Although similar to a transnational commercial litigation, parties and counsel are expected to navigate a complex maze of applicable laws and rules in international commercial arbitration, the complexity of the regulatory web for the latter may be overwhelming.

Take the following (simplified) examples.

There is a dispute between an English seller and a buyer from Kazakhstan about the quality of the goods. The contract does contain neither a choice-of-law nor a forum selection/arbitration agreement. In that scenario, the Kazakhstani buyer would have to sue an English seller before the English courts. The procedure and evidentiary matters would be governed by lex fori, and English conflict-of-laws rules would apply to determine the substantive law.

Complicated, yes, but not too much.

Let's add an SCC Arbitration Institute arbitration clause in the equation.

The applicable procedural law (lex arbitri) would depend on the seat chosen by the parties (e.g. if the parties chose AIFC (Astana International Financial Centre) as the seat, the lex arbitri would be AIFC Arbitration Regulations, Stockholm, Sweden - Swedish Arbitration Act). If the parties failed to agree on the seat - the seat and hence procedural law would be determined by the SCC's board (SCC Arbitration Rules, Art. 25(1)).

The fact that arbitration is seated in AIFC or Stockholm, Sweden or elsewhere does not per se mean that the rules of evidence of AIFC, Sweden or another jurisdiction would apply. It is for the arbitral tribunal to determine the applicable evidentiary rules, including those relevant to the taking of evidence. Typically, the taking of evidence is done according to the International Bar Association Rules on the Taking of Evidence, while the rules applicable to admissibility of evidence may vary (e.g. the rules applicable at the seat; lex causae; lex contractus, etc.).

Similarly, it is for the arbitral tribunal to determine the applicable substantive law, and in so doing the arbitrators are not bound by the conflict-of-laws rules at the seat but may apply those they consider most appropriate.

Finally, since arbitration agreement is independent and separate from an underlying contract, the law governing the arbitration agreement may differ from that of the contract. Note that approaches to determining the law governing the arbitration agreement absent the parties' choice vary across jurisdictions (e.g. the law of the seat; the law of the contract; the law that most closely connected to arbitration agreement, etc.).

Much more complex, you would agree, would you not?

CONCLUSION

Is arbitration an 'informal litigation'? Definitely not: neither in substance nor form. Is it better or worse? Wrong question. Arbitration is different, and for this mechanism to remain the preferred one for resolving cross-border commercial disputes, those differences must be understood and respected.

Prof. Elijah Putilin FCIArb



SOLUTION IS ONE CLICK AWAY

ADDRESS: UZBEKISTAN, TASHKENT, [HUB], SAID BARAKA STREET, 16A

 

EMAIL: ELIJAH@PUTILIN.LAW

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