Commercial Arbitration

“Commercial” Disputes

Commercial disputes cover a range of legal areas where the dispute is between businesses.  The common feature is that the parties to the dispute are not consumers and act in the course of a trade, business or profession. The UNCITRAL Model Law on arbitration provides that the term “commercial” should be given a wide interpretation, to cover matters arising from all natures of a commercial nature whether contractual or not.

Relations of a commercial nature include, but are not limited to, trade transactions for the supply or exchange of goods and services, commercial representation or agency, distribution agreements, leasing, construction works, consulting, engineering, licensing, investing, financing, banking, insurance, exploitation agreements, concessions, joint venture, carriage of goods or passengers by air, sea, rail or road.

Confidentiality is a key advantage of arbitration.  There is generally an obligation imposed on the parties participating, not to disclose the details of the dispute to any outside persons.  The limits on confidentiality in the context of arbitration, are still being developed by the courts.

Disclosure may be allowed where there is consent and where a court grants permission in circumstances where it is reasonably necessary for the protection of legitimate interests, in the interests of justice and possibly, where the public interest so requires.

Arbitration Agreements

Commonly, arbitration agreements adopt the rules of an institution.  The rules may vary in length, typically, from six to thirty pages.

Many commercial and international bodies, trade associations, professional and specialist dispute resolution organisations, publish their own arbitration for use in the areas in which they are involved.  Bodies which publish rules for arbitration include the following:

• ICC International Chamber of Commerce,
• CEDR Center for Effective Dispute Resolution,
• CIA Chartered Institution of Arbitrators (trade associations or professional body schemes),
• JCT Joint Contracts Tribunal,
• LMAA Land Maritime Arbitrators Association,
• PCA Permanent Court of Arbitration,
• CDER Center for Effective Dispute Resolution.

Arbitration bodies draft their rules to be consistent with the Arbitration legislation under the relevant law.

Arbitration Agreements

The arbitration agreement or clause should deal with certain key matters including

• the composition of the arbitration panel;
• whether a particular arbitration institution’s rules are to apply;
• whether a particular institution is to administer the arbitration;
• the seat or venue of the arbitration;
• the governing law;
• whether mandatory or non-mandatory rules of the relevant jurisdiction are to apply;
• the extent which appeals to a court may be allowed.

An initial question may arise as to whether the dispute in question is within the scope of the arbitration clause.  The reference may be mandatory or optional.

Parties Witnesses and Representatives

Barristers or solicitors are commonly involved in dealing with, and in representing clients in arbitration proceedings and hearings. The claimant and respondent will typically retain lawyers to frame their statement of claim and response.  This requires verification of issues of fact and law in dispute.  The relief sought must be as consistent with law.  The respondent must consider each claim, the terms of admission or denial. The arbitration claims and responses will be equivalent to pleadings.

Witnesses will be required depending on the nature of what is sought to be proved.  Expert witnesses will commonly be required in commercial arbitration.  Efficiency will generally require that the issues in dispute on expert evidence should be minimised.  There may be a requirement for a  without prejudice meeting of the experts, in order to determine what is agreed and what is disputed.

Procedure

The procedures employed in commercial arbitration vary considerably.  There may be simple procedures without a hearing. There may be complex multi-stage proceedings, equivalent to those in a complex civil case. There may be multiple pre-hearing applications and order followed by a hearing equivalent to that of a complex trial.

The arbitration agreement may have a bespoke procedure.  Arbitration procedures may be tailored as the agreement determines.

An arbitration may take place on the basis of documentary submissions only.  It is more usual to have a hearing with witnesses and oral submissions, analogous to court proceedings.  The proceedings need not be as adversarial as court proceedings. Arbitrations are commonly less formal.

Typically, counsel for the parties will produce written skeleton arguments or submissions on how the facts should be analysed within the framework of the legal principles.  If witnesses are to be heard, witness statements are commonly taken as the evidence in chief of the parties.  They will then be cross-examined on the basis of their witness statements.

Sample Procedure I

The ICE (Institution of Civil Engineers) short form procedure is an example of an expedited arbitration procedure.  Within two days after the appointment of the arbitrator, the claimant must file a statement of his case which must set out a statement of the orders required, statement of the reasons and copies of relevant documents including witness statements.

The respondent must deliver his defence within 14 days.  A counterclaim must be brought by way of a separate reference. Following delivery of the respondent\’s file, there is a 14 day period in which each may comment on the other\’s case.  Documents may be added or removed from the file.

There is no formal hearing and the arbitrator makes an award based on the papers within 14 days.  This period may be extended.  The arbitrator may make a site visit and may require further documentation or information.  He may require the parties to attend for the purpose of answering questions.

Sample Procedure II

The arbitrator has the discretion to hold a hearing with cross-examination.  The procedure is more analogous to civil proceedings.  On the appointment of the arbitrator, a preliminary meeting will be convened.  The main purpose of the meeting is to discuss matters of jurisdiction, procedural directions for the preparation of evidence.  There is no set agenda.  The preliminary meeting may be held by teleconference or video conferencing.

Procedural matters are considered at the preliminary meeting or later, depending on the nature of the dispute, the terms of the agreement or the institutional rules and the preference of the parties and the arbitrator. Generally, the arbitration tribunal decides procedural and evidential questions.  Parties may agree matters between themselves.  Procedural matters will include

• when and where the proceedings are to be held;
• the language,
• whether there are to be written claims and defences;
• whether certain documents or types of documents are to be disclosed and at what stage;
• whether questions should be put for answer by the parties and how this should be done;
• whether the rules of evidence as to admissibility, relevance and weight apply; and
• whether submissions should be written or oral.

Interim Measures

The Arbitration Act gives the tribunal power to make provisional orders for relief sought in the proceedings.  There may be provision for an interim payment, transfer of assets and security for costs. The arbitral tribunal may give directions in relation to assets which are the subject of the proceedings.  They may allow for inspection, photography, custody and detention of property by the tribunal. They may or order that samples be taken or observations made on the property and asset.

Interim directions may set out procedures in relation to the delivery of points of claim, counterclaim, defence and reply with the timetable. They will generally require that the parties deliver each other a list of documents on which they rely.  It will usually require the exchange of witness statements for each witness which they intend to call. Parties may be required to agree on certain matters (such as losses), if possible.

Statements of Case

Statements of case are commonly used to set out the matters in dispute.  The agreement or arbitral tribunal will provide if and in what form a statement of claim and defence are to be used, and to what extent they can be amended. The tribunal may decide to use less formal pleadings, which may be appropriate where the dispute is simple.  It may require that matters in dispute be defined by requiring the parties to provide a list of issues.  A statement of case is, however,  most commonly used.

The statement of case is equivalent to court pleadings. It sets out what facts are alleged.  It is intended to define the issues and set out the relief sought. The claimant will set out the points of claim.  The respondent, if he has a cross-claim, may send points of the counterclaim.   The defendant will set out his points of defence.  The tribunal may allow subsequent statements of case with points of reply. .

Directions

The arbitral tribunal may make peremptory orders and directions.  Where parties fail to comply with previous orders or directions without sufficient cause, the peremptory order may provide that unless a step is taken, the party’s claim is to be struck out, the defaulting party may not rely on matters, the subject of the order or that adverse inferences may be drawn from non-compliance. It may proceed to make an award on the basis of such materials as have been provided or make such order as he thinks fit for payment of costs arising from non-compliance.

Arbitrators do not have the power to impose penal sanctions, such as committal to prison.  Where the innocent party has exhausted all processes to seek compliance with an order, it may apply to the High Court for an order requiring the defaulting party to comply with a peremptory order.  An order may be made for committal for non-compliance if there is substantial prejudice. The arbitral tribunal may make an order striking out or dismissing the claim.

The arbitral tribunal will decide on the extent to which to apply the strict rules of evidence.  It will determine which rules as to admissibility, relevance and weight will apply and the nature of the evidence, which may be tendered.  It should exercise an overriding discretion to ensure that matters are dealt with fairly.

Disclosure

The tribunal will consider what items or classes of items should be disclosed by the parties and at what juncture in the proceedings, disclosure should take place.  It will usually direct parties to disclose to the tribunal and to each other, documents which assist in the resolution of the dispute.  The form of disclosure will be directed.  A standard schedule is commonly used.

The arbitrator will usually direct exchange of witness statements by witnesses giving factual evidence.  As in ordinary litigation, the cost of expert evidence may be a concern.  Directions may limit the expert evidence and limit the parties to one expert in each relevant field.

The arbitrator may require the experts to deliver copies of their reports to each other and the tribunal by a fixed date. It may require the putting of written questions to the other side\’s expert, which must be answered. It may require the experts in a particular area to have without prejudice discussions, to seek agreement where possible and to identify any areas of disagreement.

Expert Witnesses

Expert witnesses may be limited to one witness for each party.  There may be provision for an expert’s evidence be given by way of a written report.  There may be provision for written reports to be exchanged by experts.  There may be without prejudice discussions between the experts. The experts may be required to make a joint statement setting out areas of agreement and disagreement.

Each of the above steps will be timetabled. Ultimately, the final steps may provide that within less than 14 days before the hearing, each party is to deliver a written summary of submissions on matters to be decided. They may be required to deliver to the arbitrator within that period, all documents relevant to the hearing in a specified format. The claimant may be responsible for hiring the venue and suitable rooms.

The arbitrator may appoint experts to report to it and to the parties.   He may appoint assessors to assist on technical matters.  Parties must be given a fair opportunity to comment on submissions and opinions offered by an expert appointed by the tribunal.  The tribunal may allow the expert or other assessors to attend the proceedings.

Pre-Hearing

In more complex arbitrations, a pre-trial conference may be directed.  This will take place a number of weeks before the hearing.  The purpose is to review the preparation of the case for the hearing and to assess whether parties are ready.  The arbitrator may make directions or further directions for the hearing and may direct or seek agreement on the manner of hearing and the determination of particular matters in dispute.

The arbitral tribunal will decide whether or not there should be an oral hearing or written submissions.  It should bear in mind the overriding requirement to act fairly, giving each party an opportunity to present its case fairly but without incurring unnecessary expense or delay.

Directions may be made requiring compilation of bundles for the hearing.  This is generally the responsibility of the claimant.  Bundles must be provided for members of the tribunal, parties and in some cases, for use by witnesses. Bundles should be paginated and should be identical.

Bundles should include the key documents commencing the arbitration, statements of case, amendments and procedural orders.

The file may be required to set out opening submissions and/or skeleton arguments together with legal authorities relevant.  The relevant authorities which the legal representatives wish to refer to should be set out in the representations and skeleton arguments.

The Hearing

Directions will be given regarding the hearing. It may take place in a hotel or similar facility.  A secretary may be appointed.  Arrangements may be made for recording and transcribing evidence and submissions.  Evidence may be given through teleconference.

The arbitral tribunal may decide to what extent the process should be adversarial or inquisitorial.  It may decide to what extent it should take the initiative in ascertaining fact and law.

Opening and closing submissions will generally be allowed by advocates, supported by their written submissions and skeleton argument.  In complex cases, they may be very long and detailed.  Skeleton arguments summarise the main submissions.  The Skeleton arguments will summarise the main points and arguments to be developed orally.

The tribunal will not have the power to compel attendance by the issue of witness summonses.  It may be possible to compel a witness to attend by application to the High Court and resultant order.  Witnesses are not generally sworn.

Evidence

Witnesses’ statements are usually taken as their evidence in chief. The party calling the witness will generally ask questions to establish their status, identity and their competence in relation to the area concerned.  Witnesses are cross-examined in much the same way as in court.  The purpose of court cross-examination is to assist the other party\’s case by eliciting relevant facts or undermining the credibility of the witness.

See above in relation to experts.  The arbitrators may require that the evidence be given by way of expert reports supplemented by written questions and answers.  In other cases, experts will appear and be cross-examined in relation to matters of difference between each side ’s expert witness. Experts may visit sites and relevant places in order to appraise “real” evidence..

When evidence has been completed, the advocates for each party may make verbal or more commonly written submissions in conjunction with their skeleton argument.  The respondent usually makes the first submission followed by the claimant. The arbitrator will designate a mechanism to close proceedings.  This may be set out in directions or it may be at the last closing submission.  After closing, no further evidence or submission is permitted.

The Decision

If there is more than one arbitrator, they will confer in order to discuss evidence and submissions and to decide on the case.  They must act  judicially.  They must act on the basis of the evidence before them, fairly and in good faith.  By appointing arbitrators with experience in relevant matters, they may bring their own knowledge to bear in the decision.

An arbitrator may use his technical knowledge and experience to evaluate the evidence provided it is a type of knowledge which the arbitrator might be reasonably be expected by the parties to have.  An arbitrator may not however substitute his own knowledge for evidence without disclosing to the party.  So they can question and challenge it, bring other evidence to bear on the matter.

Where there is more than two members of the tribunal, they may act by a majority generally.

Arbitrators will generally be expected to make the decision in accordance with domestic law.  Other law may be specified in the agreement.  Parties may define other principles with the reference to which the matter should be decided in their agreement.