LXL Energy Handbook 2013 by LXL LLP

LXL Energy Handbook - 2013 A Guide to the Energy Industry for the in-house Energy Lawyer, focusing in 2013 on International Arbitration

Contents

3.0 Arbitration rules - an overview

3.1 Which rules should one apply and why?

3.2 The main arbitral institutions

3.3 Comparison of the main provisions of the ICC, LCIA, SCC and UNCITRAL rules

3.4 An introduction to the China International Economic and Trade Arbitration Commission (CIETAC)

4.0 Appointment of the arbitrators

4.1 Selection of the arbitral panel: appointing the arbitrators

4.2 How to appoint

4.3 Steps prior to appointment

4.4 Role of the chairman

4.5 Challenging arbitrators

69 71

Message to the reader

4.6 Common circumstances which may give rise to a challenge include

1.0 Global trends and recent developments in international arbitration

5.0 The procedure of an international arbitration

5.1 How to commence an arbitration

5.2 The arbitral proceedings

5.3 Example of a typical arbitral timetable

5.4 Description of main stages of the proceedings

1.3 The use of international arbitration as the default mechanism 17 to resolve disputes in the energy sector

6.0 The award and its enforcement

1.4 Other trends in international arbitration

6.1 Types of awards

2.0 Arbitration - an introduction

6.2 What remedies can arbitrators grant?

2.1 What is arbitration?

6.3 Compliance with an award

2.2 What is an â&#x20AC;&#x2DC;Arbitration Agreementâ&#x20AC;&#x2122;?

6.4 Challenging an award

2.3 What should the arbitration agreement cover?

6.5 International recognition and enforcement of awards

2.4 The different laws that can affect an arbitration

6.6 Refusal of recognition and enforcement

2.5 What are the main advantages of Arbitration?

6.7 Where are the assets you want to enforce against?

2.6 What are the main disadvantages of arbitration?

6.8 Procedure for enforcement under the NYC

2.7 Tips for drafting a good arbitration agreement

Appendix / Glossary / Arbitration terms

1.1 Experiences and attitudes 1.2 Recent developments in international arbitration in the energy sector

Message to the reader This is the second edition of the annual LXL energy handbook written primarily for lawyers working in the energy industry. Last year we focused on the Gas and LNG sectors; this year we are looking at international arbitration. It seemed to us that the challenges facing the global economy and the ever demanding strains on energy supply and demand will continue to have a depressing tendency to lead to disputes; both disputes between international energy corporations and between those companies and the States and regulators who grant concessions and licences under which these corporations go about their business. Our desired intent each year is to provide the in-house lawyer and negotiator with a modest, but we hope, useful tool to enable him or her to do their best in advising their clients across the broad range of matters which might come up. In looking at dispute resolution this year, we specifically address the role of international arbitration although of course disputes can be processed through litigation in courts and/or through mediation. But here we aim to guide the in-house energy lawyer through the legal framework, procedures, rules and terminology pertaining to international arbitration; and in doing this we highlight some of the main features whilst recognising that there is considerable detail below the surface. We hope that it will give the reader a clear idea of what to consider before commencing arbitration, how to ensure that your arbitration and dispute resolution clause is effective, how to appoint an arbitrator, the differences between certain arbitral rules, the typical process of an international arbitration and how an

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award rendered by an arbitral tribunal can be recognised and enforced or, if need be, challenged. There are many more topics to be explored in the world of international arbitration which are not covered in this edition which we would hope to look at on another day, for example, how effectively to manage multiparty and multi-contract disputes, the basics of ICSID international investment arbitrations and further special issues which may come up when arbitrating against a State entity or Government. For the moment though we hope that this will be a useful guide and where there are further questions to be asked, please do not hesitate to ask us. We must of course stress that we are not providing any legal advice in this handbook and as such we must exclude any liability that may arise upon reliance on any of its content. Sincere thanks must be given to our partner Birgitte Jensen who has taken a vast subject and made it digestible and also to those of our clients who have engaged us on international arbitrations over the years. Of course no one wants to be in a dispute but they are an unfortunate fact of commercial life. If your client or your corporation finds itself in that place, please think of LXL to help find the way through.

Alan Jones LXL LLP

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1.0 Global trends and recent developments in international arbitration

1.1 Experiences and attitudes Due to the very private and confidential nature of international arbitration only very little research has been conducted on the experiences and attitudes of corporations towards international arbitration. In addition, the various arbitral institutions do not offer published statistics on a party’s experience of arbitration utilising the relevant institute and nor do the majority of institutions keep track of their awards once rendered (in order for example to accurately determine what percentage of awards are challenged). For these reasons it is not always easy to identify what are the main trends, preferences, perceptions and developments in international arbitration. One main exception to the otherwise general lack of data in the sometimes murky world of international arbitration are the surveys conducted by the Queen Mary University (School of International Arbitration), based in London.1 Published every two years since 2006 these empirical surveys shed some light into how corporations use and view international arbitration as a tool for resolving their commercial disputes. We set out below some of the main findings of the Queen Mary University surveys in the hope that they may be of some interest to you and your organisations. Corporate attitudes towards international arbitration • 88% of the participating corporations have used arbitration. • Certain industries, such as insurance, energy, oil and gas and shipping, use International Arbitration as a default resolution mechanism. • 86% of the participating corporate counsel said they are satisfied with International Arbitration. • The enforceability of arbitral awards, the flexibility of the procedure and the depth of expertise of arbitrators are seen as the major advantages of arbitration. • The length of time and the costs of International Arbitration are seen as the disadvantages.

1 The surveys can be found at www.arbitrationonline.org

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In terms of the outcomes of international arbitration

In relation to compliance with the arbitral awards

• Overwhelming majority of arbitration cases are successfully resolved.

• 84% of the participating corporate counsel indicated that, in more than 76% of their arbitration proceedings, the non-prevailing party voluntarily complies with the arbitral award; in most cases compliance reaches 90%.

• 25% of cases are settled before an arbitral award is rendered. • 49% of cases end in voluntary compliance with an arbitral award. • 11% of cases result in recognition and enforcement proceedings. • The remaining 8% of cases involved an apparent settlement, or an arbitral award, but this was followed by litigation. • Overall, 92% of the arbitration disputes are successfully resolved at some stage through the arbitration proceedings. In terms of settlements • These most frequently occur before the first hearing. • 43% of the settlements involving the participating corporations were reached before the first (usually procedural) hearing in the arbitration proceedings. • Settlement before the first hearing is more likely in institutional rather than ad hoc proceedings.

In terms of enforcement • Most corporations are able to enforce arbitral awards within one year. • 57% of the participating corporations that had experienced recognition and enforcement proceedings said that it took less than one year for arbitral awards to be recognised and enforced. • 44% of those corporations had recovered the full value of an award from enforcement and execution proceedings. • 84% of those corporations had received more than 75% of the value of an award following the enforcement and execution proceedings. Lack of assets is the most common problem

• In 27% of cases, the participating corporations settled disputes in order to preserve business relationships.

• Most participating corporations revealed no major difficulties in achieving recognition and enforcement of their arbitral awards.

• Other factors influencing settlement were a weak position in the case and a desire not to incur excessive time and costs before the dispute was resolved.

• Where difficulties were encountered, they usually related to the circumstances of an award debtor, typically a lack of assets or an inability to identify relevant assets.

• 40% of the participating corporations have negotiated a settlement after the arbitral award was rendered; this usually entailed a discount in return for prompt payment.

• The place of enforcement and its domestic procedures may also present problems.

• Almost one in five of the interviewed corporations realised value from the claim or award by selling or assigning it.

• Compliance is highest in the re-insurance, pharmaceutical, shipping, aeronautics and oil and gas industries.

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• 17% of the participating corporations indicated that they have experienced various degrees of hostility from a country to the enforcement of a foreign arbitral award; the hostility did not always result in non-enforcement.

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Place of enforcement based on the availability of assets of the award debtor • Not surprisingly, the most commonly cited reason for choosing the place of enforcement was where the non-prevailing party had sufficient assets. • Other major factors taken into consideration when deciding upon the place of enforcement included the local recognition and enforcement mechanisms and the applicability of the 1958 New York Convention. Local enforcement and execution proceedings are the reasons corporations encounter complications • 56% of respondents who experienced problems at the place of enforcement had problems with enforcement or execution proceedings; in most cases, the problems were described as “complications”, not insurmountable difficulties. • In most cases, however, those perceptions were not matched by actual experiences of hostility.

difficulties in enforcing awards against states or state enterprises, the main problems had been in identifying or obtaining access to relevant assets; in particular, there had been difficulties in linking assets to a particular state enterprise or the state itself. In relation to the type of international arbitration • Corporations prefer institutional arbitration as opposed to ad hoc arbitration. • 86% of awards were rendered by arbitration institutions rather than through ad hoc arbitrations. • 67% of arbitrations involving states or state-owned enterprises are conducted through institutional rather than through ad hoc arbitrations. • The ICC, LCIA and AAA are the institutions most commonly used by participating corporations. • The popularity of regional arbitration centres is increasing. What drives decisions about arbitration institutions?

Corporations are the main users of international arbitration • 74% of the arbitration proceedings involved private corporations only. • 21% of the disputes involved a state enterprise. • 5% of the disputes were against states; so, investment treaty arbitration still accounts for only a small proportion of the total arbitration market. Less than one quarter of enforcement proceedings relate to arbitral awards against states or state entities • 19% of respondents indicated that they had sought recognition and enforcement of arbitral awards against states and state enterprises. • Over half of those respondents had experienced no significant difficulties in enforcing awards against states or state enterprises.

• The most important factor is neutrality, “internationalism” (66%), followed by reputation and recognition (56%). The arbitral rules of the institution and the law governing the substance of the dispute exert equal influence at 46%. • Previous experience of the institution is also important (42%), as is the overall cost of the service (41%) and whether an institution has a global presence and/or the ability to administer arbitrations worldwide (39%). Also important is expertise in certain types of cases and free choice of arbitrators (i.e. no exclusive institutional list) (both at 38%). Arbitration institutions do not have a system of monitoring arbitral awards • Only 29% of arbitration institutions keep track of their arbitral awards. 29% of the institutions keep track of arbitral awards only when an award is challenged.

• Of the minority of participating corporations that had experienced

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• While most arbitration institutions interviewed expressed views on the enforcement of awards, most of their comments were based on anecdotal evidence. Regarding corporations’ choice of governing law • The choice of governing law (i.e. the applicable law which governs the substance of the dispute) is mostly influenced by the perceived neutrality and impartiality of the legal system with regard to the parties and their contract (66%), the appropriateness of the law for the type of contract (60%) and the party’s familiarity with the law (58%). • Also ‘very important’ is the impact of choice of law on the enforceability of the award; considering where the award is likely to be enforced and either selecting that law or another governing law that would be consistent with that jurisdiction (i.e. common law or civil law, or a law from which the law of that jurisdiction originated) or that is highly regarded by the courts of that jurisdiction. • There is strong finding in favour of English Law, (40% saying that they use English law most frequently, followed by 17% who use New York law). • “Familiarity” and “predictability”, “foreseeability” or “certainty” are reasons for choosing a particular governing law (e.g. English Law) citing the existence of a “well developed jurisprudence” and “international acceptance”. • Convenience is also an important factor including location, industry specific usage, prior use by the organisation, established contacts with lawyers in the jurisdiction, language and culture and the efficiency of court proceedings. What drives the choice of the seat? • The seat of the arbitration is the legal place where the arbitration is deemed to be held and the therefore the law of the arbitration process and it is mostly influenced by the ‘formal legal infrastructure’ of the chosen location which includes the quality of the national arbitration law and also the track record in enforcing agreements to arbitrate and arbitral awards in that

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jurisdiction as well as its neutrality and impartiality, the law governing the contract and general convenience. • Also important is whether the country concerned is a signatory to the New York Convention 1958 and less importantly, whether the national arbitration law is based on the UNCITRAL Model Law and the ability to join third parties and the availability of appeals against awards. • London, Paris, New York and Geneva are the seats that were used most frequently by respondents over the past five years. The level of user satisfaction for these seats is high. For all four seats a majority of users described them as either ‘excellent’ or ‘very good’. • London is the most preferred and widely used seat of arbitration. Some of the main reasons parties used London are its reputation as a neutral and impartial jurisdiction, the law governing the substance of the dispute (being English law) and established contacts with specialist lawyers. Language and cultural familiarity and the efficiency of court proceedings were also mentioned by some respondents. • Singapore has emerged as a regional leader in Asia. What aspects of the general infrastructure of a seat are most important? • Cost is the most important aspect of general infrastructure that influences the choice of seat (42%), followed by good transport connections (26%) and hearing facilities (including translators, interpreters and court reporters) (21%). Respondents also listed safety and the absence of bribery as important factors. • Efficiency and promptness of court proceedings is the most important aspect of the convenience of a seat (20%), followed by language (16%), established contacts with specialised lawyers operating at the seat (15%) and the location of the parties (11%). Cultural familiarity is also an important factor (10%). Interestingly, previous experience of the seat is not a particularly important factor (7%), nor is the location of the arbitrators (6%).

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What influences the choice of arbitrators? • Key factors are open-mindedness and fairness, prior experience of arbitration, quality of awards, availability, knowledge of the applicable law and industry and reputation. • 50% of those surveyed have been disappointed with arbitrator performance (possibly reflecting the result of the award). • Corporations want greater transparency about arbitrator availability, skills and experience and, to some extent, greater autonomy in the selection of arbitrators (which is possible in ad hoc arbitrations). • 75% want to be able to assess arbitrators at the end of a dispute. Of these, 76% would like to report to the arbitration institution (if any). 30% would like to be able to submit publicly available reviews. And finally other important points for corporate counsel • Confidentiality is important to users of arbitration, but it is not the essential reason for recourse to arbitration. • Importantly, 50% of respondents erroneously believe that arbitration is confidential even where there is no specific clause to that effect in the arbitration rules adopted or the arbitration agreement itself. • A few issues are considered deal-breakers: Confidentiality (27%), language (15%). Also important are the governing law, the seat and the institution and rules, but the majority of respondents will concede these issues if there are compelling reasons. • The governing law and the seat often ‘go together’ e.g. English law and seat in London. This is perceived as being more ‘rational’ or ‘efficient’ – both in terms of the cost and conduct of the arbitration (e.g. likely location of arbitrators and specialist lawyers), but also less risky from a legal perspective (e.g. if there is need for recourse to the courts of the seat during the arbitration or to enforce the award). • The issue of institution often appears to be decoupled (e.g. English law and seat in London may not necessarily lead to use

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of the LCIA). However, practical considerations can sometimes be taken into account (e.g. the convenience of having the seat and headquarters of the institution in the same place). In most circumstances though, the institution is considered a ‘free-floating’ issue. • A number of interviewees referred to the difficulties in ensuring that arbitration clauses are considered early in the negotiation process. Many referred to it as the “2am clause” or similar and described how often they are brought into negotiations late and expected to conclude dispute resolution clauses with minimal negotiation because the commercial terms are settled and that’s where things can go wrong.

1.2 Recent developments in international arbitration in the energy sector During 2011 and 2012 we have witnessed a large increase of international arbitrations in the energy sector relating to so-called “price review” clauses (also called “gas price reopeners”). Such provisions in long-term gas contracts and LNG SPAs have historically been included to protect both parties against changes in a particular market. These included changes in market segmentation – such as the increased use of a particular fuel-oil in the industrial segment or the entry of a new competing energy source. A gas pricing mechanism in a contract aims to reconcile the Buyer’s and Seller’s very differing interests in the longer terms and to produce a price which distributes the risks in an equitable manner. For the Seller, the price must reflect the value of the gas in the market place from time to time. It further needs to provide the gas producers with the confidence to make the substantial investments needed to develop offshore gas-fields. For the Buyer, in the case of a gas marketing company (as is often the case), it is imperative that the change in gas price matches that of the other fuels with which gas has to compete in the marketplace (and where there is gas-to-gas competition, the price of gas available to its competitors). On the whole, the Buyer aims to have pricing provisions which can ensure that the gas is sold at an acceptable profit throughout the term of the contract.

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“Today, in particular in Europe due to increased market liberalisation, price review clauses in traditional long-term SPAs are coming under strain”

For long-term periods, the gas price is generally recalculated on a regular basis by means of price formulae.2 Traditionally, prices in longterm contracts have been assessed by reference to alternative fuels, and therefore linked to oil product prices. Today, in particular in Europe due to increased market liberalisation, price review clauses in traditional long-term SPAs are coming under strain. The onset of gas-to-gas competition and much higher crossborder integration is making it more difficult for buyers and sellers of LNG to assess the market value of gas when considering how the price formula has evolved and to identify what criteria will be relevant for the future. In this context, more and more buyers have found themselves in the situation of wanting to renegotiate the existing pricing formula by either: (i) invoking the price review clauses in their existing longterm contracts, if they can demonstrate that the price is no longer appropriate in the current market conditions; or (ii) invoking the “hardship” clause (if present in the contract) which allows either buyer or seller to require the other party to renegotiate the price if they can show that they are suffering hardship as a result of the existing price level. In both instances however, if the parties are unable to agree on a new price or whether hardship exists, then the dispute will be referred to either an independent expert or (more often) an arbitrator. The “trigger” for such clauses to be successfully invoked is often linked to the “circumstances changing significantly compared to the underlying assumptions in the prevailing price provisions” in a manner which is “beyond the control of both Parties”.3 If the parties fail to reach an agreement, then they will usually submit the dispute to a third party, either an expert or arbitral tribunal. The position can be summed as follows: • Referral of the dispute to an expert for determination is usually cheaper than arbitration. • However, parties are often “nervous” of leaving the decision in the hands of a single expert.

• This can lead to a two-tiered approach i.e. referral to an expert with subsequent recourse to arbitral tribunal if a party is dissatisfied with the outcome. Recent cases demonstrate that the parties commonly refer these disputes to arbitration. In this context, arbitrators will look into whether the conditions for renegotiation are satisfied. If the arbitrator decides that they are, he will then have to consider whether to proceed to the redetermination of the gas price. This in turn, raises issues as to arbitration as a tool of contract revision and in particular it raises questions such as: • How will the tribunal determine the manner in which the terms of the agreement are to be revised? • If the clause does not expressly provide for arbitrator’s authority to revise the contract, does the tribunal in fact have such power? In practice, the vast majority of cases have involved European gas utility companies bringing arbitration proceedings against Gazprom and most of these have settled before any award being made with the relevant price clauses being renegotiated successfully by the parties. However, this is likely to still be an area where further disputes will arise in the future due to the evolving market conditions and liberalisation.

1.3 The use of international arbitration as the default mechanism to resolve disputes in the energy sector Most oil and gas corporations submit commercial disputes arising under their contracts to international arbitration but is this trend likely to continue in the years ahead? We believe it will for the following reasons: • Energy disputes often involve parties based in different jurisdictions.

2 We will not discuss here in detail the mechanics of such formulae (i.e. base price, escalation formula and so on) – however should you wish to discuss this topic any further, please contact us and we will be happy to do so. 3 European Energy Charter Secretariat Report “Putting a Price on Energy”.

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• No single party will want to submit the dispute to the national courts of the other party as there is a general perceived fear that domestic courts are biased towards their own nationals. • The New York Convention has been ratified by 148 countries and essentially ensures that a country will recognise and enforce arbitral awards rendered in another country that have also adhered to it (subject to limited exceptions). • Court proceedings can last for up to ten years in certain countries such as France (mainly because of the automatic right to appeal). • Generally there are no or limited rights to appeal an award in international arbitration – appeals are only allowed in limited instances on the basis of lack of substantive jurisdiction and procedural irregularity – and parties are free to exclude this right altogether (and are deemed to have done so when they incorporate certain rules e.g. LCIA or ICC Rules). This ensures certainty of the outcome to the parties. • Energy disputes often involve complex issues – parties take confidence in the knowledge that they are able to appoint their “own” expert(s). • Arbitration also allows the parties to choose arbitrators who have a particular technical knowledge/expertise in the relevant matter in dispute i.e. an arbitrator need not be a lawyer but may be e.g. an engineer. • Arbitrators can be familiar with complex conflicts of laws and comparative law issues.

1.4 Other trends in international arbitration • Whereas traditionally the financial sector shunned arbitration in favour of litigation, the past few years has witnessed an increase in financial institutions choosing arbitration to resolve disputes. The main driver for this development is increasing investment in emerging markets and the realisation that when dealing in these markets, unlike judgments rendered by national courts, arbitral awards can be enforced worldwide due to the enforcement

procedures found in the New York Convention and which has been signed by 148 states. • The increasing popularity of arbitration in the banking and finance sectors has witnessed the establishment of a new institution based in the Hague called the “Panel of Recognised International Market Experts in Finance” (“PRIME Finance”). PRIME Finance which was launched in January 2012 was set up to assist in the resolution of complex financial disputes on the basis that complex financial transactions and disputes are best resolved by experts in those markets and in particular the derivatives market. PRIME Finance has also issued its own set of arbitral/institutional rules of which articles 8 - 10 state that arbitrators in a PRIME arbitration must be selected from the PRIME Finance expert list of arbitrators (unless otherwise agreed by the parties). • The Government of Saudi Arabia has reportedly announced that it intends to lobby the UK government to set up a confidential court in London to deal with multimillion pound commercial disputes arising from the Kingdom of Saudi Arabia in the hope of appeasing investor concerns.4 The Saudi government is apparently also aiming for its largest national corporations such as ‘Aramco’ (the state oil monopoly) to stipulate the use of the London/Saudi centre in their contracts. Whether or not the establishment of a Saudi/London arbitration centre will in fact materialise remains to be seen. • Following some high profile cases whereby the government of India attempted to intervene in international arbitrations seated outside of India, the recent decision of BALCO -v- Kaiser Aluminium has been welcomed by the international business and arbitration community. In the aforementioned case the Supreme Court ruled that “supervision” of an arbitration is solely for the courts of the jurisdiction of the seat (i.e. the legal place of the arbitration which amongst other factors gives an award its nationality). The decision provided much needed clarity as to what powers the Indian courts would assume in international arbitrations.

4 Financial Times, “Saudis seek private court in London”, October 30, 2012.

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2.0 Arbitration - an introduction “When will mankind be convinced and agree to settle their difficulties by arbitration?” Benjamin Franklin

2.1 What is arbitration? “Parties who are in dispute agree to submit their disagreement to a person whose expertise or judgment they trust...They each put their respective case to this person – this private individual, this arbitrator – who listens, considers the facts and the arguments, and then makes a decision...That decision is final and binding on the parties; and it is binding because the parties have agreed that it should be, rather than because of the coercive power of any State...Arbitration, in short, is an effective way of obtaining a final and binding decision on a dispute or series of disputes, without reference to a court of law.”1 The arbitral “tribunal” to whom parties surrender resolution of their dispute will usually consist of either one or three independent arbitrators. The final and binding decision of the arbitrators is referred to as an “award” which can only be challenged on very limited grounds. As discussed later in this handbook there are many features of arbitration which may make it preferable to litigation; however one advantage arguably stands out above all namely, the ease of enforcing arbitral awards worldwide. It is primarily for this reason that arbitration is now the main method for States, corporations and individuals to resolve disputes relating to international trade, commerce and investment. In this handbook we are dealing with international arbitration as opposed to domestic arbitration. In simple terms an arbitration is said to be “international” if it transcends national boundaries (for example if parties have their place of business in different states or if the obligations of the commercial relationship is to be performed outside the State in which the parties have their places of business). Before commencing any arbitration certain key questions need to be asked: • Why should I choose arbitration as opposed to litigation? • Does my contract allow me to start arbitration proceedings? • If I win, how can I secure the result I was after? • Does my counterparty have any assets I can enforce against?

1 Nigel Blackaby and Constantine Partasides with Alan Redfern and Martin Hunter, Redfern and Hunter on International Arbitration, (5th Edition, Oxford University Press 2009) 1 – 2 (“R&H”).

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• What nationality will the award possess? Why does this matter? • What are the chances of settling the dispute? Sometimes of course you will not have a chance to ask these questions as someone else may be bringing the arbitration to you. As a respondent there are still some key points you can address early:

A key feature of an arbitration agreement is the doctrine of “separability.” In short this means that an arbitration agreement is treated as a separate stand alone agreement that can survive independently to the other terms of the relevant contract. Thus if the obligations of a commercial contract are carried out in full by the parties and the contract is therefore discharged by performance, the arbitration clause within that contract can survive nonetheless and allow arbitration to be commenced.

• Is it worth defending? • What are the likely costs of defending the claim?

2.3 What should the arbitration agreement cover?

• Would a renegotiation of the commercial deal be possible or a sensible option?

An arbitration agreement should capture all of the following:

• On what grounds can I challenge an award made against me? • How can I resist enforcement against my assets if the award is not in my favour? • What are the chances of settling the dispute?

2.2 What is an ‘Arbitration Agreement’? The agreement of contracting parties to submit disputes to arbitration can arise either before or after a dispute has arisen. Arbitration agreements can be of three types: (i) The Arbitration Clause: Whereby parties include a clause in a contract to refer any future disputes to arbitration. This is the most common form of arbitration agreement. (ii) Submission Agreement: Whereby in the absence of an existing agreement, parties who find themselves in dispute agree a way forward and formulate an agreement to arbitrate which usually takes into account the characteristics of the actual dispute. (iii) Investment Treaty Articles: Whereby international treaties provide a degree of investor protection rights which might kick-in when there is a dispute between an investor and a State or State entity.

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Consent It should be clear that the parties agree to submit any dispute to arbitration. In other words the agreement must record that the parties consent to remove their disputes from the jurisdiction of national courts and instead submit to the jurisdiction of a privately appointed tribunal. If not clearly stated in the agreement a party may attempt to argue that the tribunal has no jurisdiction to consider the dispute which could also give rise to any future award being challenged. The “Seat” The seat of arbitration means the legal place where an arbitration is deemed to be held. It is usually a place with which the parties to the proceedings have no connection. The law governing the arbitration proceedings is normally the law of the seat of arbitration, and the law governing the arbitration is known as the lex arbitri. The parties to the arbitration will have no connection with the seat, thus accommodating a completely neutral setting. The nationality of the award will also follow the nationality of the seat. If for example parties choose England as the seat of the arbitration, the lex arbitri will be the laws of England and Wales and in particular the English Arbitration Act 1996 will apply. The English Arbitration Act sets out fundamental principles as to how the arbitration will be conducted and provides for certain provisions which are “mandatory” and others which are “non-mandatory” - meaning that parties can decide to opt out of certain aspects of the Act but not all. Since

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national arbitration acts (such as the English Arbitration Act) do not cover all aspects of arbitral proceedings, parties usually also decide to adopt certain “arbitral rules” (discussed below) to supplement the relevant national arbitral law. The seat of the arbitration should not be confused with the place the parties choose for the arbitral hearing to be heard. For an example of what this means in practice see section 2.7.

may nominate one of the main arbitral institutes to act as the “appointing authority” in case parties fail to constitute the tribunal. The main advantages of ad hoc as opposed to institutional arbitration and vice versa are shown below:

AD HOC

INSTITUTIONAL

The law governing the arbitration agreement This means the law which governs the construction of the actual arbitration agreement itself. Usually the law which governs the arbitration agreement is the same as the law of the seat. Being able to determine the law which governs the arbitration agreement may become relevant if a dispute arises as to the actual meaning and construction of the arbitration agreement (this is often referred to as “satellite dispute”). Whether the arbitration shall be “ad hoc” or “institutional”? Parties can choose two ‘forms’ of international arbitration, namely “institutional” or “ad hoc”. Institutional arbitration involves selecting an arbitral institution to administer and support the arbitral process (such as the International Chamber of Commerce (“ICC”), the London Court of International Arbitration (“LCIA”), the Stockholm Chamber of Commerce (“SCC”), the American Arbitration Association (“AAA”) or the Singapore International Arbitration Centre (“SIAC”)). Ad hoc arbitration gives parties control over the procedure of the arbitration without the auspices of an arbitral institution. Parties to an ad hoc arbitration are free to adopt established ad hoc rules (i.e. the UNCITRAL rules) or if preferred parties could choose to draft their own set of arbitral rules - although in practice this is unusual. Ad hoc proceedings need not be kept entirely separate from institutional arbitration as parties may choose to engage an institution at any time to help administer the proceedings. Furthermore, ad hoc arbitrations

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Advantages • It is more flexible in that it can be designed (even after the dispute has arisen) to meet the specific needs of the parties. • May prove less expensive as parties will not have to pay the institution’s fees/ expenses. • Parties are not “hand held” by an institution and therefore benefit from less cumbersome administration and procedures. • Disputes involving States or a State entity may benefit from ad hoc proceedings since the tribunal and legal representatives can devise a procedure which is sensitive to the particular requirements of the State as well as the other non-State party.

• The institution can act as an intermediary in dealing with frustrated proceedings e.g. ICC will not allow arbitration to continue until advance on costs have been paid by the relevant party. • Institutions often have access to large pools of experienced arbitrators. • An award from a respected institution benefits from its reputation and standing which may compel parties to respect and honour the award issued by the institution. • Costs may be easier to predict/control as fees charged by institutions are published and freely available.

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Administrating institution AD HOC

INSTITUTIONAL

Disadvantages

• Since there is no institution formally overseeing the arbitration, ad hoc arbitrations are dependent on the parties’ co-operation, which may not be easily attainable. • More vulnerable to obstructive tactics e.g. delaying or refusing to nominate an arbitrator, challenging the tribunal’s jurisdiction. • Efficiency dependent on the wording of the arbitration agreement – poor drafting may require the tribunal/ national court intervention (as opposed to the institution who could rule on the matter). • Unlikely to have support in policing time limits/appointing arbitrators, or support in resolving challenges to arbitrators (other than by reference to local courts) which may end up being time-consuming.

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• Some parties feel that institutional arbitrations have political affiliations with the country within which the institution is based (i.e. institutions such as the LCIA or ICC may be tied down to a more European approach). However, such reasoning is more of a “perception” as opposed to a well founded justification. • Perception of increased administration by the relevant institute which may prove arduous and leaving the parties with less control over the arbitral proceedings. • Costs. Although institutions publicise their respective fees which may give certainty as to the institution’s and arbitrators’ fees, some institutions such as the ICC base these amounts on the value of the dispute. In high value claims institutional arbitration can prove considerably more expensive than ad hoc arbitration.

If the arbitration is to be institutional the arbitration agreement should clearly specify which institution will oversee the arbitration, e.g. ICC, LCIA, SCC or AAA. The rules The rules, if any, that will apply to the administration of the arbitration should be clearly identified, e.g. ICC Rules, LCIA Rules for institutional arbitration or UNCITRAL Rules in the case of ad hoc arbitration. If choosing institutional arbitration it is advisable to adopt the rules of that institution, e.g. for an LCIA administered arbitration, adopt the LCIA Rules, for an ICC arbitration adopt the ICC Rules. For a discussion of the key differences between the various institutions and those institutional rules please refer to chapter 4. The number of arbitrators The arbitration agreement should set out the number of arbitrators that will preside over the dispute. As a general rule the more complex and high value the dispute the more likely parties will choose an arbitral tribunal made up of three arbitrators. The tendency for parties to choose a three man tribunal, as opposed to appointing a sole arbitrator, is also based on the notion that rogue decisions are less likely when referring disputes to be decided by a panel. The number of arbitrators may also be ‘pre-determined’ by reference to the arbitral rules. Appointment of arbitrators The method for the appointment of arbitrators is usually specified in the arbitration agreement. For example if three arbitrators are to be appointed the arbitration agreement may specify that each party appoints one arbitrator and the two arbitrators will jointly agree upon a third arbitrator who will act as chairman/president of the tribunal. Alternatively the appointment procedure may simply be by reference to a particular a set of arbitral rules which provide for the selection of arbitrators.

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2.4 The different laws that can affect an arbitration A common area of confusion in international arbitration is the interaction and differences between the various ‘systems’ of law or legal rules which form part of an international arbitration. It is important to understand that these include: • The law that governs the arbitration agreement and its performance (see “The law governing the arbitration agreement” above). • The law that governs the formation of and the proceedings of the arbitration and the arbitral tribunal. This will be the law of the seat/ lex arbitri (see “the ‘seat’” above). • The law or legal rules applicable to the substantive issues in dispute, i.e. the proper law of the commercial contract/relationship between the parties, referred to as the ‘applicable law’ or the ‘governing law’. The applicable law will be stated in the contract. • Procedural soft laws such as the IBA Rules on the Taking of Evidence2 or the IBA Guidelines on Conflicts of Interest.3 These procedural rules help to administer the actual proceedings by for example setting out how parties should request for disclosure of the other side’s documents or providing for a codified set of principles as to circumstances which could call into question an arbitrator’s independence or impartiality (as discussed further in chapter 5). • The law that governs the international recognition and enforcement of the award - this can be more than one law if recognition and enforcement of an arbitral award is sought in more than one country.

“The whole point of winning any argument is to ensure that one can gain some kind of satisfaction”

2.5 What are the main advantages of Arbitration? Neutrality The process of hearing the dispute, the process of appointing the arbitrators and the identity and character of the arbitrators are all designed to be neutral. Parties to international contracts are likely to come from different countries and if a dispute arises between these parties which becomes the subject of litigation in the courts of one of the parties (“home party”), those courts will be foreign to the other party (i.e. the “away party”). The away party is therefore exposed to: • Foreign formalities, rules and legal/civil procedures. • The trial being conducted in a foreign language. • Foreign judges and lawyers. • Increased costs (i.e. translation costs, additional local lawyer costs, travel and accommodation costs). • The home party having a home crowd on its side! International enforceability of award The whole point of winning any argument is to ensure that one can gain some kind of satisfaction. In international arbitration the tribunals’ decisions rendered in the form of awards can be enforced under international and national laws. There are different types of awards (discussed further in chapter 7), such as interim or final awards, however subject to very limited rights of challenge they are all final in their absolute disposition of the issues brought before the arbitral tribunal. Unlike court judgments, arbitral awards are not the first step towards “an expensive ladder of appeals.” Furthermore, arbitral awards are binding decisions and unlike mediation or conciliation, they are not recommendations that parties are free to accept or reject. On account of the award being a final and binding decision, once it is rendered it will be capable of direct enforcement by court action nationally and internationally.

2 IBA Rules on the Taking of Evidence in International Commercial Arbitration, 2010. 3 IBA Guidelines on Conflicts of Interest in International Arbitration, 2004

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Expertise Arbitral awards are capable of recognition and enforcement in the national courts of 148 States worldwide pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention (NYC).4 National courts (or “competent authorities”) who are NYC signatories are obliged to give effect and to recognise international arbitral awards as though they were judgments given in their own national courts and can only refuse recognition or enforcement on limited grounds as set out in the NYC.5 Arbitral awards are more internationally enforceable than court of law judgements, with greater acceptance of the NYC (148 States) than treaties on the reciprocal enforcement of court judgements of which there are only three such treaties.6 Flexibility Arbitration unlike national court proceedings is not subject to stringent legal rules and civil procedures. The flexibility and adaptability of the arbitral process allows the arbitration to be tailored to meet the specific requirements of the dispute, with the tribunal giving directions that are specific to the dispute. This helps for a more quick and efficient determination of the dispute without sacrificing the outcome of the hearings or enforceability of the tribunal’s conclusions. Confidentiality Arbitration is an out-of-court form of dispute resolution and unlike court proceedings and judgements, arbitral proceedings and awards are not in the public domain unless the parties consciously put them there. Therefore, parties who settle their disputes by arbitration avoid public court proceedings and the disclosure to the public of trade secrets, competitive practices, poor decision making or the mere existence of a dispute.

The arbitral tribunal can be appointed by the parties based on their expertise, whether legal, scientific or technical. For example, if the dispute is on a point of law or interpretation, legal experts such as barristers, solicitors, senior academics or judges can be appointed to the tribunal; or if the nature of the dispute is very technical, it may be appropriate for an expert in the field of the dispute to be appointed to the tribunal. Even if the arbitrators themselves do not have the required expertise, the process allows for them to seek the expert advice they require. Continuity of role In arbitration, the members of the arbitral tribunal are appointed to deal with the specific case and follow it through from beginning to end. The arbitrators therefore become familiar with the dispute, the parties and their advisors, the documents, pleadings and the evidence, all of which should help speed the dispute resolution process.

2.6 What are the main disadvantages of arbitration? Costs of arbitration A much cited advantage of arbitration as opposed to litigation is comparably lower costs. However, this is no longer always the case in international commercial arbitration for a number of reasons: (i) Arbitrators’ fees: the fees and expenses of arbitrators are borne by the parties, whereas the salaries of judges at litigation are not, and depending on the magnitude of the arbitration, arbitrators’ fees may be substantial; (ii) Arbitration Institution fees: if the arbitration is institutional or ad hoc but utilises administrative facilities or court rooms of an arbitral institution, the fees and expenses of the institution must also be borne by the parties;

4 Article V, NYC 5 Article V, NYC 6 (i) European Council Regulation No. 44/2001; (ii) The Mercosur Common Market between Argentina, Brazil ,Paraguay, Uruguay and Venezuela established the Las Leñas Protocol 1992 for the recognition and enforcement of the Mercosur State’s court judgements; and (iii) The Hague Conference on Private International Law establishing the Convention on Choice of Court Agreements 2005.

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(iii) Secretary’s or Registrar’s fees: in a major arbitration, appointing a secretary or registrar to the tribunal to administer the proceedings is desirable, if not necessary, and a fee must be paid by the parties to the secretary or registrar; (iv) Room Hire: rooms for meetings and hearings will be necessary for the arbitration which are also a cost to the parties, whereas the public facilities of the courts of law are used for litigation; (v) Legal advice: the costs of legal advice will not be too dissimilar to those at litigation and will account for the majority of the costs of arbitration; and (vi) Expert witnesses: the testimony of expert witnesses at arbitration often tip the scales in favour of one of the parties, and whilst the costs of expert witnesses can be quite high, the outcome for the winning party can be worth the expense. These costs make it unlikely that an international arbitration will be cheaper than litigation proceedings, unless there is a conscious effort to keep costs down by skilled and effective case management. However, it must be remembered that overall arbitration may prove cheaper since the arbitral awards are unlikely to be subjected to a series of costly appeals. Arbitration costs can also be recovered by the successful party. Delay Arbitration can be a rather delayed process, with delays particularly occurring at the beginning and end of the arbitral process. (i) Beginning stages: the delays that can occur at the start of the arbitral process centre around the constitution of the tribunal for the following reasons: • The parties have to co-operate and mutually agree on the one arbitrator, if a sole arbitrator is to be appointed. • If three arbitrators are to be appointed, it may take time for the two party nominated arbitrators to jointly agree upon the third arbitrator.

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“Arbitrators can in some instances have greater power than judges”

• Finding arbitrators with the necessary skills, expertise, availability and with no conflicts of interest can be a lengthy process. (ii) Final stages: the length of time it takes for the tribunal to render its award to the parties can sometimes range from months to over a year due to the potential for delay in filing the post-hearing briefs and the tribunal needing to find the time from heavy workloads to render their decision. This is why it is so important to select arbitrators who can manage their time efficiently and who understand the importance of a timely process. Limits of arbitrators’ powers Arbitrators can in some instances have greater power than judges, such as the power to order compound interest which some courts may not have, however they do not have the power to: • Order the attendance of witnesses who would consequently face a fine or imprisonment for disobeying a court order. • Enforce awards by attachment to bank accounts or sequestration of assets. Multi-party arbitrations Like all dispute resolution mechanisms, arbitration works best when there are only two parties to the dispute – one claimant and one respondent - and while disputes can be complicated in themselves they naturally become more so with two or more claimants or respondents. Arbitration can though work just as easily in a multiparty disputes if all parties to the dispute are parties to the arbitration agreement and leave the leadership of the arbitration to one nominated party on their side. Multi-contract and consolidation The term “multi-contract” refers to a scenario whereby there are a number of contracts possibly binding different parties. The main difficulty in these situations is to ensure that all the parties to the various contracts sign up to consistent dispute resolution procedures, including means for consolidation in order to avoid multiple

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proceedings and therefore possibly inconsistent awards. Unlike arbitration, in court proceedings it would be possible for the court to bring all of the relevant parties together in the same proceedings. Conflicting awards Unlike precedents of court judgements binding judges in common law jurisdictions, an arbitral award of one arbitration will not bind arbitrators in another separate arbitration.

2.7 Tips for drafting a good arbitration agreement Arbitration agreements are often the last and at times most overlooked terms agreed in the course of finalising a commercial agreement. We frequently come across arbitration agreements which have quite clearly been “copy and pasted” from other precedent agreements with no regard as to the suitability of the provisions to the type of agreement actually being agreed or without regard to the actual wording and inherent mistakes these precedent clauses may contain. In section 2.3 we set out what an effective arbitration agreement should address. Failure to ensure that your arbitration agreement is effective not only potentially compromises your position should a dispute arise, it could also lead to: (i) timely and costly satellite litigation on the meaning and interpretation of the arbitration agreement; (ii) finding yourself inadvertently agreeing to a three-person tribunal to be appointed (and the added costs of this) as opposed to a sole arbitrator when in fact the likely dispute could be dealt with efficiently by a sole arbitrator; (iii) you inadvertently agreeing to a set of procedural rules that you may not like or are not familiar with or perhaps more worryingly a seat which is not in a country that is a NYC signatory (leading to potential difficulties should you ever have to enforce your award); and (iv) unwelcome intervention of the national court in your arbitration. As a general rule it is best to avoid using over complicated and lengthy arbitration agreements. The more lengthy the clause the more likely ambiguities can arise. If choosing institutional arbitration a prudent and safe option for ensuring that your arbitration agreement is effective and covers all the necessary components is to refer to the homepage of the relevant institution (such as the ICC or the LCIA) who publicise

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recommended standard model arbitration clauses incorporating the rules of that institution. In this section we set out an example of an arbitration clause referring disputes to institutional arbitration and a standard clause referring disputes to ad hoc arbitration: Institutional arbitration “Any dispute, controversy or claim arising out of or in connection with this Agreement or the breach, existence, termination or validity thereof, shall be finally settled and determined by arbitration under the London Court of International Arbitration Rules (the “LCIA Rules”) which Rules are deemed to be incorporated by reference into this clause. There shall be [one/three] arbitrators, appointed in accordance with the LCIA Rules. The arbitration will be administered by the London Court of International Arbitration (the “LCIA”), the seat of arbitration shall be London, England, the language of the arbitration shall be English, the governing law of this clause and the governing law of the proceedings shall be the law of the seat.” Some considerations on the above clause: • Arbitrators will apply the substantive law that applies to the dispute, i.e. the law governing the main agreement. The law of the main agreement will be set out in the main agreement itself and is not based on the law governing the arbitration clause although it may be that the governing/substantive law and the law governing the arbitration agreement/clause are the same. • Whilst the seat is London, this does not mean that the actual proceedings (i.e. the hearing) must take place in London. The law of the seat is the juridical base of the arbitration therefore by selecting a given state as the place of the arbitration; the parties place their arbitral process within the framework of that state’s national laws. The parties are free to decide that the actual place of the proceedings (i.e. the hearing) takes place in a different country to that of the seat. For example parties may decide that it may be convenient that the actual hearing should take place in Cairo, Egypt if most of the parties are based in Egypt and the dispute centres around events in that country. Therefore although the hearing may physically take place in Cairo, since the seat of the arbitration is

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London, England it will be English law and the mandatory provisions of the English Arbitration Act 1996 which will apply to the arbitral proceedings themselves. • The words “Any dispute” are important as such wording is sufficiently wide enough to capture all of the likely disputes that could arise from the particular contract. Ad-Hoc arbitration “Any dispute, controversy or claim arising out of or relating to this agreement, including any question regarding its breach, existence, termination or validity thereof, shall be finally resolved by arbitration under [the UNCITRAL Arbitration Rules as revised in 2010]. It is agreed that: (i) The tribunal shall consist of thee arbitrators who are to be [SPECIFY ANY QUALIFICATIONS REQUIRED];

strictly speaking a “qualification” as such, it may be that the parties wish to explicitly state that the arbitrators cannot be of the same nationality as any of the parties to the arbitration agreement. • In case parties fail to appoint their respective arbitrator the clause provides that the SCC will step in and appoint an arbitrator on behalf of that party. It would also be advisable (in particular in an ad hoc arbitration) to specify the time limits that apply for the appointment of the arbitrators i.e. that the parties are each to appoint their choice of arbitrator within 30 days of the notice of arbitration having been submitted on the respondents. • Had the clause not specified the SCC as the appointing authority, the Permanent Court of Arbitration (PCA) would act as the appointing authority since a distinct feature of the UNCITRAL Rules is that the PCA by default shall act as the appointing authority if the parties fail to specify an alternative appointing authority.

(ii) The Parties shall appoint one arbitrator each and the chosen arbitrators will together appoint the third arbitrator who shall act as President of the Tribunal; (iii) In default of a Party’s appointment of an arbitrator, the appointing authority shall be the Stockholm Chamber of Commerce (SCC); (iv) The seat of the arbitration shall be Sweden; (v) the law governing the proceedings and the arbitration agreement shall be the law of the seat; (vi) The language of the arbitration shall be English”. Some considerations on the above clause: • The incorporation of the UNCITRAL Rules incorporates the rules with regard to the time limits for appointing the arbitrators (UNCITRAL Rules, Arts. 8-9) (see also chapter 5 “Appointment of Arbitrators”). • The parties are free to include any specific qualifications they require the arbitrators to possess. For example, although not

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3.0 Arbitration rules - an overview

“You have to learn the rules of the game. And then you have to play better than anyone else.” Albert Einstein

3.1 Which rules should one apply and why? As explained in chapter 2, the law of the seat will determine the law that governs the procedure of the arbitration. However since the laws of the seat will not necessarily deal with all aspects of the procedure of an arbitration, specific arbitral rules of a recognised institution (in the case of an institutional arbitration) will usually be chosen by the parties to help govern the proceedings and supplement the national arbitration laws of the seat. In the case of ad hoc arbitration whilst parties are free to use or adapt a set of institutional rules or even create their own rules, the usual practice is to adopt the UNCITRAL Rules which are specifically designed to cater for ad hoc arbitrations. The rules of the various arbitral institutions and UNCITRAL Rules may at first glance seem very similar, however, when studied in detail, significant differences are evident, especially in relation to: • Confidentiality obligations. • Charging/fee structures. • The extent to which an award may (or may not) be scrutinised. Confidentiality There are key differences in international arbitration in respect of what is meant by “privacy” and “confidentiality”. Privacy usually means that only those parties involved in proceedings will be admitted to them and that any hearings will be held in private (i.e. without access to the public). Confidentiality, on the other hand, applies to the documents and information generated in, and disclosed during, the proceedings. In contrast to privacy which is a universally accepted and enshrined principle of arbitration, the extent of any duty of confidentiality is far from clear and hinges principally on the parties’ choice of law and arbitral rules. Confidentiality provisions of the various rules differ considerably from being non-existent to requiring absolute confidentiality, for example: • LCIA Rules: incorporate an express provision to keep all awards, materials used in the proceedings that were created for the purpose of the arbitration and all materials produced by the other party to the proceedings (which are not already in the public domain) confidential. The LCIA Court will also not publish any award

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or part of it without the prior written consent of the parties (Article 30). • ICC Rules: no express provisions for confidentiality apply; however, a party to the arbitration can request the tribunal to make specific orders concerning the confidentiality of the proceedings and any other matters relating to the arbitration. The tribunal may also take measures for the protection of trade secrets and confidential information (Article 22.3). • UNCITRAL Rules: no express provisions for confidentiality apply in respect of documents produced throughout the arbitration or to material created during the proceedings. Scrutiny of the award The extent to which awards are examined by the court of the institution also vary significantly depending upon which institution or arbitral rules are chosen: • Awards in an ICC arbitration must first be scrutinised and approved by the ICC Court in draft form before being signed and rendered to the parties (Article 33). Scrutiny of the award by the ICC Court is a measure deployed by the ICC to maintain consistency and a high standard of award-writing and also ensures that the award deals with all required matters (including costs). Whilst the ICC Court’s power to scrutinise is mostly as to form, the ICC Court can and does draw to the tribunal’s attention “points to substance.”1 (Art. 33).

3.2 The main arbitral institutions International Chamber of Commerce (ICC) The ICC’s arbitration institution is called the International Court of Arbitration (the “ICC Court”). The ICC Court is based in Paris and has branches in Hong Kong and Singapore. The base and branches of the ICC Court has no bearing on the seat (legal place) of arbitration, which parties are still free to choose regardless of their choice of institution. The 1998 ICC Rules were revised in 2011, with the new Rules coming into force on 1 January 2012. LCIA The LCIA, established in 1892, is one of the oldest and most prominent international arbitration institutions. The LCIA administers arbitrations under its own Rules (LCIA Rules) and the UNCITRAL Rules, as well as other rules which do not specify an institution. The LCIA can be appointed to act as appointing authority (of the arbitral tribunal), an administrator, or to adjudicate any challenges to arbitrators for arbitrations under any rules. The LCIA is headquartered in London, with regional centres in Dubai (in partnership with the Dubai International Financial Centre (DIFC), they make up the DIFC-LCIA Arbitration Centre), in New Delhi (as LCIA India) and Mauritius (in partnership with the Mauritius International Arbitration Centre (MIAC) as the LCIA-MIAC Arbitration Centre). The LCIA will administer arbitrations anywhere in the world and is not bound to its regional centres.

• Another example of an institution which also scrutinises the award is CIETAC.2

The Arbitration Institution of the Stockholm Chamber of Commerce (SCC)

• The LCIA, AAA, SCC and SCAI do not scrutinise awards.

Although part of the Stockholm Chamber of Commerce, the SCC is independent from the Chamber. Established in 1917 and recognised in the 1970s by the United States and Soviet Union as a neutral centre for the resolution of East-West trade disputes, the SCC is now recognised as a major international arbitration institution and maintains its perception of neutrality which stems from its history and recognition during the Cold War.

Fees Institutions’ fees and arbitrators’ fees (set by the institutions) also differ between establishments. The fee structures of some institutions are based on the amount in dispute (e.g. ICC), whereas some charge a flat hourly rate basis (e.g. LCIA).

1 ICC Rules, Art. 33. 2 Chinese International Economic and Trade Arbitration Commission (CIETAC).

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3.3 Comparison of the main provisions of the ICC, LCIA, SCC and UNCITRAL rules The chart below sets out the key differences in the various arbitral rules:

Aspect of Arbitration

Institutional Arbitration ICC

LCIA

SCC

UNCITRAL

Where is the head office and are there any regional centres?

Head office: Paris Regional centres: Hong Kong and Singapore

Head office: London Regional centres: New Delhi and Dubai (DIFC)

Head office: Stockholm No regional centres

N/A

How is the arbitration started?

By request sent to the Secretariat of the ICC Court, which then notifies the other party

By request sent to the LCIA and the other party

By request sent to the SCC Institute

By the claimant sending a notice of arbitration to the other party

Rule: 2

Rule: 1 (1)

Rule: 3(1)

Rule: 4(1) (1998; 4(1) (2012)

How many arbitrators are to be appointed?

In the absence of agreement between the parties, 1, unless the ICC decides 3 is appropriate

In the absence of agreement between the parties, 1, unless the LCIA decides 3 is appropriate

In the absence of agreement between the parties, 3, unless the SCC decides 1 is appropriate

Rule: 8(2) (1998; 12(2) (2012)

Rule: 5(4)

Rule: 12

Who appoints the arbitrators?

The parties by agreement or nomination (to be confirmed by the ICC Court). In the absence of agreement, the ICC Court will appoint the arbitrators

The LCIA with reference to the methods or criteria agreed by the parties

Where there is one arbitrator, the parties have 10 days to jointly appoint, failing which the SCC appoints Where there is more than one arbitrator, each party shall appoint one, and the SCC appoints the chairperson

Rule: 8(3) and 8(4) (1998); 12(3) and 12(4) (2012)

Rule: 5(5)

Where a party fails to appoint an arbitrator, the SCC shall make the appointment Rule 13(2); 13(3)

In the absence of agreement between the parties, 3 arbitrators are appointed Rule: 7

Where there is one arbitrator, the arbitrators have 30 days to jointly appoint, failing which the appointing authority (as decided by the parties or by default the Permanent Court of Arbitration) appoints Where there are three arbitrators, each party will choose an arbitrator and then the chosen arbitrators will jointly appoint the third, failing which the appointing authority (as decided by the parties or by default the Permanent Court of Arbitration) appoints Rule: 8(1);9 (1);10

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Aspect of Arbitration

Institutional Arbitration ICC

LCIA

SCC

UNCITRAL

Are there any restrictions on the nationality of the arbitrators?

Yes. A sole arbitrator or chairman is not usually the same nationality as one of the parties

Rule: 9(5) (1998); 13(5) (2012)

Rule: 6(1)

Yes. A sole arbitrator or chair is not usually the same nationality as one of the parties unless the parties have agreed otherwise, or the SCC deems it appropriate

Yes â&#x20AC;&#x201C; the rules stress the advisability of appointing an arbitrator of a nationality other than the nationality of the other parties

Rule: 13(5)

Rule: 6(7)

What are the time limits for challenging the appointment of an arbitrator?

30 days from notification of his appointment or becoming aware of the relevant circumstances

15 days from notification of his appointment or becoming aware of the relevant circumstances

15 days from the date on which the allegedly disqualifying circumstances became known

15 days from notification of his appointment or becoming aware of the relevant circumstances

Rule 11(2) (1998); 14(2) (2012)

Rule: 10(4)

Rule: 15(2)

Rule: 11; 12 (2) and (3); and 13(1)

Multi-party disputes

The ICC appoints the tribunal unless all the parties have previously made a joint nomination

The LCIA Court appoints the tribunal (taking into account the partiesâ&#x20AC;&#x2122; nomination, as the case may be)

Rule: 10 (1998); 12 (2012)

Rule: 8

The multiple Claimants (jointly) and the multiple Defendants (jointly) appoint an equal number of arbitrators. If either side fails to make an appointment, the SCC will appoint the entire tribunal

The Multiple Claimants will jointly appoint the arbitrators, failure means that the appointing authority (as decided by the parties or by default the PCA) will appoint the panel

The SCC has the power to order consolidation

Rule 10(1) and (3)

Rule 13(3); 11

Venue for the hearing

In the absence of agreement between the parties, this will be determined by the ICC Court Rule: 14(1) (1998); 18(1) (2012)

In the absence of agreement between the parties, London, unless the LCIA Court decides otherwise

To be decided by the tribunal after consultation with the parties Rule: 20(2)

In the absence of agreement between the parties, this will be determined by the tribunal Rule: 18(1)

Rule: 16(1)

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Aspect of Arbitration

Challenges to the jurisdiction of the tribunal

Institutional Arbitration ICC

LCIA

SCC

UNCITRAL

The ICC Court will rule on the prima facie validity of the agreement to arbitrate. Other questions of jurisdiction are for the tribunal to decide

Made to the tribunal itself

Made to the SCC board

Rule: 23(1)

Rule: 9;10

Made to the tribunal itself during the arbitral proceedings Rule: 23(2)

Rule: 6(2)(1998) 2012 Rules: the tribunal will rule on the existence, validity or scope of the arbitration agreement, and on any issues as to whether the claims submitted may be determined together in the arbitration, unless referred to the court Rule: 6(3) and (4) (2012)

Procedure

The parties may supplement the Rules in their arbitration agreement. Subject to the Rules the tribunal has discretion in how to conduct proceedings Rule: 15 (1998); 19 (2012)

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The parties are encouraged to agree procedures. Any gaps are to be filled by the tribunal

To be determined by the tribunal in accordance with the arbitration agreement and the SCC tribunal

Rule: 14

Rule: 19

The tribunal decides on the procedure in accordance with the UNCITRAL rules. The tribunal will invite parties to express their views in order to establish the timetable of the proceedings Rule: 17(1) and (2)

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Aspect of Arbitration

Are proceedings confidential?

Institutional Arbitration ICC

LCIA

SCC

UNCITRAL

No specific provision, though the tribunal may take measures to protect trade secrets and confidential information

Yes

Rule: 30

Rule: 46

The rules provide only confidentiality to the award as it is made public only with the consent of the parties Hearings may be held in camera unless the parties agree otherwise

Rule 20(7) (1998)

In addition to measures to protect trade secrets and confidential information, the tribunal may make orders concerning the confidentiality of the arbitration proceedings or of any matter in connection with the arbitration

Rule: 28(3); 34(5)

Rule: 22(3) (2012)

The Award (i) Is there a time limit for the making of the award?

(ii) If the arbitrators fail to agree on an award, who is it made by?

6 months from signature of the terms of reference-extendable

None

Rule: 24 (1998); 30 (2012)

None

Rule: 37

By a majority of the arbitrators but in the absence of a majority, the Chair/President may make the award alone

By a majority of the arbitrators but in the absence of a majority, the chairperson may make the award alone

Rule: 25(1) (1998); 31 (1) (2012)

Rule: 26(4)

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6 months from the date of referral to the SCC - extendable

By a majority of the arbitrators, or failing a majority, by the chairperson

By majority of the arbitrators, or failing a majority by the chairperson

Rule: 35(1)

Rule: 33

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Aspect of Arbitration

Institutional Arbitration ICC

LCIA

SCC

UNCITRAL

(iii) Is there scrutiny of the award by any other body?

Yes – by the ICC Court to identify mistakes in form

Costs:

Yes – ad valorem, adjusted to take account of the complexity of the matter.

Yes – time based

Yes – ad valorem

Yes – timed based adjusted to take into account the complexity of the matter and the amount in dispute

(i) Is there an administration fee and if so how is it calculated?

Rule: 27 (1998); 33 (2012)

Rule: 41(1)

(ii) How are the arbitrators’ fees calculated?

By reference to the time spent and the value of the dispute

(iii) Can the successful party be awarded legal costs?

Yes – at the discretion of the tribunal

(iv) Are deposits for the costs of the respondent being ordered?

Yes

Rule: 43

Rule: 31 (1) (1998); 37(1) (2012)

By reference to the time and rates appropriate to the particular circumstances of the case including its complexity and the special qualification of the arbitrators

Ad valorem

Yes – at the discretion of the tribunal

Rule: 45

Rule: 42(1)

Yes – the board will determine the amount

Yes – at the discretion of the tribunal

Rule: 45

Rule: 43(1)

Rule: 43

By reference to amount in dispute, the complexity of the matter, the time spent by the arbitrators and any other relevant circumstances of the case Rule: 41 (1)

Rule: 28(3)

Rule: 31 (1998); 36 (2012)

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Yes – at the discretion of the tribunal Rule: 24

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Aspect of Arbitration

Institutional Arbitration ICC

LCIA

SCC

UNCITRAL

(v) Will security for the costs of the respondent be ordered?

Yes

Yes â&#x20AC;&#x201C; at the discretion of the tribunal

Other relevant aspects

Terms of reference must be drawn up. These should include a summary of claims and issues. Potentially leads to a more focussed arbitration but often contentious and can delay proceedings

Rule: 31 (1998); 36 (2012)

Rule: 25(2)

LCIA arbitration procedure may be quick as there is no requirement for Terms of Reference to be drawn up and there is no review of the final ward

The SCC rules provide for the appointment of an emergency arbitrator to provide interim measures prior to the constitution of the tribunal

The ICC does not maintain a central list of arbitrators but instead seeks recommendations from its consultative national committees Rule: 18 (1998); 23 (2012)

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Aspect of Arbitration

Advantages

Institutional Arbitration ICC

LCIA

SCC

UNCITRAL

One of the best known arbitral institutions. Composed of members from 90 countries and every continent, the ICC Court is the worldâ&#x20AC;&#x2122;s most widely representative dispute resolution institution

One of the longest established international institutions for commercial dispute resolution and widely respected

SCC arbitrations can proceed relatively quickly. The Rules do not require Terms of Reference and do not provide for a review of the final award. The Rules for Expedited Arbitrations further reduce the time needed for the resolution of the dispute. The SCC is seen as a neutral venue and may be acceptable to both eastern and western parties when other venues may not

For the advantages of ad hoc/UNCITRAL arbitration see the chart in section 2.3

May not be considered sufficiently neutral by non-English parties where the other party is English

Under Swedish arbitration law, arbitrators in a Swedish seated arbitration lack some of the powers taken for granted elsewhere e.g. the power to order witnesses to testify under oath

For the disadvantages of ad hoc/UNCITRAL arbitration see the chart in section 2.3

One of the most important functions of the ICC Court is the scrutiny of arbitral awards which ensures that arbitral awards are of the highest possible standards and less susceptible to annulment Disadvantages

The need for Terms of Reference and the vetting of the award by the ICC Court adds to the time and costs involved to complete the arbitral process However, the ICC has taken a number of steps to improve efficiency. They include a checklist for arbitrators when drafting awards and a Statement of Acceptance, Availability and Independence for arbitrators to accept or decline, and (under the 2012 Rules) provision for active case-management to reduce costs and delays

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Aspect of Arbitration

Particularly suitable for

Institutional Arbitration ICC

LCIA

SCC

UNCITRAL

International arbitrations where the parties come from very differing backgrounds or those where administrative support or guidance is of benefit

International arbitrations of all natures

Due to its perceived neutrality, SCC arbitration may be appropriate where parties are sensitive to issues of partiality, or are unable to agree on the appointment of another major institution

Historically favoured by the energy industry and cases of high value due to the perception of increased political independence (due to there being no administrating institute). The presumption of a three man tribunal is favoured as it is often perceived to lower the risk of rogue decisions

Often used for disputes involving Russian and CIS counterparties. The SCCâ&#x20AC;&#x2122;s pool of potential arbitrators includes several who are fluent in Russian

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3.4 An introduction to the China International Economic and Trade Arbitration Commission (CIETAC)

• The CIETAC Rules allow a sole or three-member tribunal (Article 23.1), and in the absence of an agreement by the parties as to the number of arbitrators, the Rules assume a three-member tribunal (Article 23.2).

CIETAC, founded in 1956 as the Foreign Trade Arbitration Commission under the China Council for the Promotion of International Trade, is one of the foremost permanent arbitration institutions in Asia. In 2010, 209 Chinese arbitration committees accepted 1,219 foreignrelated arbitrations, of which CIETAC took 418, making CIETAC the most popular arbitration institution in China. CIETAC is headquartered in Beijing and has sub-commissions in Shenzhen, Shanghai, Tianjin and Chongqing. Parties can however have a CIETAC administered arbitration with a seat outside China.

• Parties must nominate arbitrators from CIETAC’s panel of arbitrators, and if they choose to nominate from outside CIETAC’s panel, their nominations must be granted by the Chairman of CIETAC (Article 24).

The main provisions of the CIETAC Rules effective as of 1 May 2012 are:

• For a three-member tribunal, the parties have 15 days to nominate an arbitrator each and jointly nominate the presiding arbitrator, failing any of which the Chairman of CIETAC shall make appointments (Article 25.1 and 25.2). Where there is a solearbitrator, the parties have 15 days to jointly nominate the arbitrator failing which the Chairman of CIETAC shall make the appointment (Article 26).

• Arbitration commences on the day the CIETAC Secretariat receives the Request for Arbitration or when the Secretariat for a subcommission receives the request (Article 11 and Article 2.6).

• In a multi-party dispute, the co-claimants or co-respondents will make a joint nomination or jointly entrust the Chairman of CIETAC to appoint an arbitrator on their behalf (Article 27.1).

• If the parties have not agreed on the seat of arbitration or if their agreement is ambiguous, the seat shall be the domicile of CIETAC or its sub-commission that is administering the case, however, based on the circumstances of the case, CIETAC may also determine the seat to be elsewhere (Article 7.2).

• CIETAC has the power to consolidate two or more arbitrations at a party’s request but only with the agreement of all of the parties and only if CIETAC believes it is necessary (Article 17.1). CIETAC would consider whether the claims under the different proceedings stem from the same arbitration agreement, whether the arbitrations are between the same parties, whether one or more arbitrators have been nominated or appointed in the different arbitrations, as well as any other factors it considers relevant to take into account (Article 17.2).

• Where the parties agree on a language for the arbitration, their agreement prevails, in absence of which the language shall be Chinese or another language that CIETAC decides is more appropriate (Article 71).

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• The tribunal has the power to order any interim measure at the request of a party if it deems the measure is necessary or proper in accordance with the applicable law (Article 21.2).

• CIETAC requires hearings to be held in camera (in private). Parties can request an open hearing but the tribunal shall have the final say (Article 36.1).

• Prima facie evidence of the existence of an arbitration agreement providing for CIETAC arbitration shall suffice, but if the arbitral tribunal finds contradictory evidence during the proceedings, CIETAC will be able to make a new decision on jurisdiction (Article 6.2).

• CIETAC fees are based on the amount in dispute. Unlike the ICC’s fee schedule which contains a fee schedule for administration of arbitration and a schedule for arbitrators’ fees, CIETAC’s fee schedule does not specify arbitrators’ fees. CIETAC charge the parties a registration fee, a handling fee and an arbitration fee all based on the amount in dispute.

• If the parties have agreed on the law that must be applied to the merits of the dispute, their agreement shall prevail. In the absence of the parties’ agreement or if their agreement conflicts with a mandatory provision of the law, the tribunal shall determine the law that applies to the merits of the dispute (Article 47.1). • The tribunal has the power to decide the dispute equitably (without the express agreement of the parties), with the CIETAC Rules stating the tribunal shall render a fair and reasonable award, based on the facts of the case and contract terms, as well as the law and customary international law (Article 47.1). • The award is final and binding upon the parties who may not go to court or to another organisation to revise the award (Article 47.9). • Draft awards are scrutinised by CIETAC before being signed and sent to the parties. CIETAC can bring issues to the tribunal’s attention without affecting the tribunal’s independence, i.e. the tribunal can ignore the points raised by CIETAC (Article 49).

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4.0 Appointment of the arbitrators

“Never interrupt your enemy when he is making a mistake” Napoleon Bonaparte

4.1 Selection of the arbitral panel: appointing the arbitrators In international arbitration the quality of an arbitration is almost entirely dependent upon the quality and calibre of the arbitrators. The importance of choosing the right arbitrator is further emphasised by the fact that the parties’ rights of appeal in international arbitration are either entirely excluded or limited. Interestingly, the 2010 International Arbitration Survey shows that 50% of the respondents have been disappointed with the performance of their arbitrators.1 The survey also explains that respondents are disappointed mainly due to the arbitrators’ bad decisions and conclusion of outcomes, failure to control the process, or time consumption and delays.2 It is probably fair to say that parties who have received an adverse award are likely to be “disappointed” with the arbitrators’ performance so it may be difficult to determine a true sense of the level of dissatisfaction. The key considerations when appointing arbitrators are: (i) to check the relevant arbitration clause/agreement; (ii) to consider the number of arbitrators and whether a sole arbitrator as opposed to a panel (of three arbitrators) may be more appropriate; (iii) to check any qualifications of arbitrators; (iv) see who is the appointing authority; and (v) to follow the appointment procedure.

4.2 How to appoint Appointing an arbitral tribunal can be done in various ways as parties are ultimately free to choose the procedure which best suits them. Failing any detailed procedure as may be set out in the arbitration agreement, parties can leave the appointment of arbitrators to be carried out by the relevant appointing authority or via the relevant arbitral institution (if any) and in accordance with any specific arbitral rules. Should the arbitration agreement specify that all parties are to agree on the identity of a sole arbitrator the most usual approach to manage this rather delicate task is to resort to a ‘list system’. The list system allows for each party to suggest a list of 3 - 4 candidates to the other side with the intention of reaching an agreement on the choice of arbitrator. The downside to this system is that one party may for tactical purposes decide to reject perfectly reasonable suggestions 1 Queen Marry University, ‘The 2010 International Arbitration Survey: Choices in International Arbitration’ (2010) at 3 Available at www.arbitrationonline.org/docs/2010_InternationalArbitrationSurveyReport.pdf 2 Ibid, 26.

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“It is vital that parties choose an arbitrator whom they consider to be the best available candidate for them as the choice will ultimately have a huge influence on not only the outcome of the arbitration but also the length, cost and general character of the arbitration”

simply because the request came from the opposing side. The list system is also commonly applied in ad hoc arbitrations whereby either the two party appointed arbitrators or the relevant appointing entity must decide upon the third arbitrator to act as chairman/president of the tribunal. In these circumstances the two party appointed arbitrators or appointing authority will provide the parties with a list of potential arbitrators which the parties must consider and then rank in order of preference. The third arbitrator then appointed is usually someone who ranked highly on both parties’ lists.

Number of arbitrators

4.3 Steps prior to appointment

For the appointment of a panel each party is usually entitled to nominate an arbitrator; and together either the two party chosen arbitrators or the arbitral institution (if any) choose the third arbitrator who will usually act as the chairman/president of the tribunal. If the parties do not specify the number of arbitrators to be appointed in the arbitration agreement, the number of arbitrators will be determined either by the administering institution, the incorporated rules or by default through the relevant arbitration law.

It is vital that parties choose an arbitrator whom they consider to be the best available candidate for them as the choice will ultimately have a huge influence on not only the outcome of the arbitration but also the length, cost and general character of the arbitration. With the assistance of the party’s legal representatives, assessment of potential candidates should begin at the earliest opportunity (not least due to international arbitrators’ diaries being extremely busy and booked far in advance). Consideration should also be given to the likely choice of the opposing party’s nomination and whether, as discussed further below, there would be any basis to challenge the opponent’s arbitrator. Although there are several open and private databases listing arbitrators, the most informed and best source of the quality and experience of arbitrators are the lawyers who represent a party. Based on the lawyer’s past dealings with various arbitrators and knowledge gained through the wider international legal network and community, legal representatives will usually be well informed on the various arbitrators’ backgrounds, reputations and suitability. Matters to consider when appointing your arbitrator include the following:

Although there is no universal rule as to the number of arbitrators that preside in an international arbitration, the number of arbitrators is typically set at either one or three. In high value and complex disputes in particular parties often favour a three-man panel as opposed to a sole arbitrator mainly due to the perception that 3 arbitrators would lead to greater neutrality, less risk of a poor decision and a more ‘balanced’ award.

Impartiality and independence The difference between being “impartial” as opposed to “independent” is mostly academic; “independence” usually refers to the relationship between the arbitrator and the relevant party - and the arbitrator not being under the influence or control of that party - whereas “impartial” refers to bias in favour or against one of the parties. The distinction between the two terms varies in different jurisdictions, however in practice the terms are closely related. Most (if not all) arbitration rules deal with impartiality and independence of the arbitrators. For instance the ICC Rules provide that “each arbitrator must be and remain impartial and independent of the parties involved in the arbitration.”3 Similarly, the LCIA states that “arbitrators conducting arbitration under [the LCIA Arbitration Rules] shall be and remain at all times impartial and independent of the parties.”4 Moreover, some arbitration institutions have also attached codes of ethics to their arbitral rules; such codes provide further elaboration as to the meaning of impartiality and independence.

3 ICC Rules, Article 10. 4 LCIA Rules, Article 5.2.

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The IBA Guidelines on Conflicts of Interest in International Arbitration5 (“IBA Guidelines”) are a set of principles and standards aimed at promoting codified rules and guidance on the meaning and standards of impartiality and independence. The guidelines provide general standards and non-exhaustive lists of circumstances which serve as examples of when an arbitrator should decline to accept an appointment or when generally further action (i.e. disclosure) may be required. The lists are colour coded (red; orange; and green) which distinguish situations which would ordinarily constitute disqualification (red) from situations when disclosure from an arbitrator is required (orange) and when no disclosure is required (green). Although the use of the IBA Guidelines is very common, they are not legally binding. Nonetheless arbitral institutions refer to the IBA Guidelines extensively when deciding the appropriate disclosure levels for arbitrators and parties often refer to the Guidelines as a tool to help decide circumstances which could give rise to challenging an arbitrator. The independence of an arbitrator is further enforced by their continuing duty to disclose facts which may affect their autonomy. Such a duty is for example found in the ICC, UNCITRAL and SCC arbitration rules. This not only promotes transparency and confidence but also ensures that parties and institutions have the information that would serve as a basis for challenging an arbitrator (if such circumstances should arise). Since arbitrators are required to be independent, party appointed arbitrators should not act as advocates of the party who appointed them. Advocating the position of a party to the proceedings not only undermines the neutrality and professionalism which form part of the foundations of international arbitration but could also produce counterproductive outcomes. Further, an arbitrator who advocates the position of the party who appointed him may in fact discredit the case of the nominating party since the other arbitrators are unlikely to trust or be persuaded by the reasoning of an advocated co-arbitrator. A good description of the role/duties of an arbitrator is “a friend, who must be independent enough to award against the party who appointed him should the merits of the case warrant it, but who will ensure that all the arguments of his party get a thorough and fair hearing”.6

5 International Bar Association’s Rules of Ethics for International Arbitrators available at www.ibanet.org/Document/Default.aspx?DocumentUid=B21F3C32-190E-4FB0-9750-5459AE4E8498 6 Jacques Werner. ‘The Independence of Party Appointed Arbitrators: For a Rule of Reason’ (2009) 7 (2) J Int. Arb. 5.

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“A fundamental consideration when appointing an arbitrator is determining the likely disposition of an arbitrator”

Nationality of the arbitrators Nationality of the arbitrator is often of primary concern to the parties. Having an arbitrator of the same nationality as a party to a dispute may bring a level of comfort due to the common cultural and legal background; however, most institutional arbitration rules or arbitration agreements specifically promote neutrality, particularly in the case of sole arbitrators, by providing that the arbitrator shall not be of the same nationality as any of the parties unless otherwise agreed. In some instances parties wish to include more elaborate provisions in this regard and widen the scope of ‘nationality’ by also looking at the nationalities of the shareholders or the controlling persons/entities of the parties. An example of such a clause could be: “No arbitrator shall be of the nationality of the place of incorporation of principal place of business of any of the parties [or any shareholders holding more than [5%] of such party’s shares.”7 Likely disposition and reputation A fundamental consideration when appointing an arbitrator is determining the likely disposition of an arbitrator. Typically, parties seek to appoint arbitrators who share their cultural background as well as professional and legal mentality. Whilst it is clearly difficult to establish with certainty an arbitrator’s likely disposition, parties or their lawyers will nonetheless attempt to gather as much information as possible in order to decipher the relevant arbitrator’s predisposition towards the relevant party. Conducting this type of due diligence includes for example considering any written publications produced by the arbitrator and previous engagements in order to decipher his general reputation. The reputation of an arbitrator is also an important quality. A reputation for fairness and honesty benefits not only the parties seeking a just and fair process but also the arbitrator’s own career. An arbitrator’s reputation is also synonymous to an arbitrator’s “standing and gravitas” which may play an important factor in relation to being able to influence the other arbitrators and acting persuasively in the tribunal’s deliberations.

7 Gary Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing (Kluwer Law International 2010) 76.

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Expertise

4.4 Role of the chairman

Another quality which may be important is the arbitrator’s level of knowledge and experience within the industry relevant to the dispute. Arbitration clauses often reflect this characteristic by specifying a certain specialised/technical expertise as a requirement for an arbitrator. However, a possible drawback of specifying a certain expertise which the arbitrator must possess is that it may be difficult for parties to foresee and determine in advance the exact type of expertise which may be needed in a future dispute. In the oil and gas industry, such specification may be worthwhile but it should be stated objectively rather than subjectively, for instance a clause could read: “[Each arbitrator] [The presiding arbitrator] shall be legally-qualified and experienced in [oil and gas contracts]”. Whilst experience in oil and gas contracts may be beneficial it is not necessarily vital. Rather it is arguably more important that the arbitrator has strong commercial and legal sense, good judgement, experience as an arbitrator and therefore able to apply these qualities to the context of any industry including for example the oil and gas industry. Furthermore, expert evidence is often adduced either by the parties each appointing their own industry/ technical expert or if need be the arbitrators themselves may appoint an expert to assist the tribunal to consider and to understand specific issues. Bearing in mind that all major arbitral rules allow for the involvement of experts (either party appointed or tribunal appointed) the necessity of an arbitrator possessing certain expertise is not in fact as crucial as is commonly perceived.

The sole arbitrator or the chairman/president of the tribunal, as the case may be, plays a crucial role in establishing and managing the arbitral process. The chairman of the tribunal stewards the proceedings, acts as the main “administrator” and takes on a diplomatic role when dealing with the parties and his fellow coarbitrators. The chairman’s view will also be prevailing where a majority vote has not been obtained. For instance the LCIA provides that “when there are three arbitrators and the Arbitral Tribunal fails to agree on any issue, the arbitrators shall decide that issue by a majority. Failing a majority decision on any issue, the chairman of the Arbitral Tribunal shall decide that issue”.8

Availability The availability of an arbitrator is a very important practical consideration. Many parties prefer to appoint a reputable arbitrator, but usually, such arbitrators are committed to many upcoming arbitrations thus making it difficult for parties to appoint their first choice of arbitrator. Parties should therefore avoid specifying by name in the arbitration agreement a particular arbitrator as that person may not necessarily be available to act when a dispute arises, or may have retired as an arbitrator.

4.5 Challenging arbitrators Challenging arbitrators used to be a relatively uncommon occurrence in private international arbitration, however in recent times it has ceased to be a rare occurrence - this is possibly due to the increasingly large monetary figures involved in international arbitration which in turn may encourage parties to seek tactical advantages at any opportunity. There are various scenarios which could give rise to challenging an arbitrator, these include: • An arbitrator has a (financial) interest in the dispute. • An arbitrator and counsel (i.e. barrister) belong to the same chambers. • An arbitrator has a certain relationship with one of the parties. There are only subtle differences in the various arbitration rules on challenging arbitrators. The ICC Rules 2012 provides that such challenge may arise for “an alleged lack of impartiality or independence, or otherwise.”9 In a similar approach the UNCITRAL rules (Article 10) provide that “any arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence.” The LCIA Rules provide that in the opinion of the LCIA Court, the Court may consider an arbitrator to be “unfit” if any arbitrator acts in deliberate violation of the arbitration agreement (including the LCIA Rules); does not act fairly or

8 LCIA Rules, Article 26. 9 ICC Rules, 2012, Article 14.

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impartially as between the parties; or does not conduct or participate in the proceedings with reasonable diligence including avoiding unnecessary delay or expense. Procedure for challenging an arbitrator The procedure for raising a challenge to the appointment of an arbitrator will depend on the rules under which the arbitration is being conducted. For example if the arbitration is pursuant to the LCIA Rules, a party who wants to challenge an arbitrator must do so within 15 days of the formation of the tribunal by submitting a written statement giving its reasons to the LCIA Court, the tribunal and all other parties. The LCIA Court is the body who will decide the challenge and will provide reasons as to why it has either accepted or rejected the challenge. Under the ICC Rules a party challenging an arbitrator must submit a written statement to the ICC Secretariat setting out the circumstances and facts giving rise to the challenge. The ICC Secretariat will then allow the arbitrator who has been challenged, the other members of the tribunal and other parties an opportunity to comment in writing on the challenge. The challenge must be sent either 30 days from the receipt of the notification of the appointment or within 30 days from the date the challenging party was informed of the circumstances or facts giving rise to the challenge. In the case of an ad hoc arbitration conducted under the UNCITRAL Rules the challenging party must send notice of the challenge within 15 days after notification of the appointment of the challenged arbitrator (or within 15 days of becoming aware of the relevant circumstances). The appointing authority will make the decision on the challenge if the challenged arbitrator does not withdraw voluntarily.

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4.6 Common circumstances which may give rise to a challenge include Arbitrator has a (financial) interest in the dispute An arbitrator may have an interest in the dispute if he would stand to profit financially or if he for example owns shares in one of the parties to the arbitration. However, these circumstances alone do not necessarily mean that a challenge would be upheld. If an arbitrator were to gain a significant financial interest from the outcome of the arbitration this would warrant his removal. However, in the case of an arbitrator owning shares in a company involved with the arbitration it becomes a matter of considering: (i) how large his shareholding is; (ii) whether the company is publicly listed; (iii) whether the outcome of the arbitration would significantly impact his shareholding; and (iv) what, if any, benefit would the arbitrator truly derive from the outcome. Arbitrator belongs to the same chambers as counsel In common law legal systems, barristers unlike lawyers (who usually practice in law firms as partners) are self employed/sole practitioners. Barristers however usually belong to a set of chambers to which other barristers also belong (in order to for example share some of the administration costs). It is a common occurrence in international arbitration that counsel representing one of the parties will belong to the same set of chambers as one of the arbitrators. The IBA Guidelines list this circumstance on the â&#x20AC;&#x153;orange listâ&#x20AC;? meaning that the arbitrator should disclose to the other parties the fact that he belongs to the same chambers as counsel representing one of the parties. Most challenges on the basis that an arbitrator and counsel belong to the same chambers will be unsuccessful, only if exceptional circumstances exist will such a challenge be upheld.

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“The existence of a professional relationship between an arbitrator and one of the parties does not equate to automatic disqualification”

Arbitrator has a relationship or connection with a party to the arbitration Justifiable doubts as to an arbitrator’s independence and/or impartiality may arise if an arbitrator has a certain connection, business or personal, with one of the parties. For example it may be that the arbitrator (or his law firm) has acted for a party before or has somehow previously been involved with the relevant dispute. Whether or not these circumstances are enough to sustain a challenge depends on the nature and extent of the relationship and level of involvement. The existence of a professional relationship between an arbitrator and one of the parties does not equate to automatic disqualification. The proximity of the relationship, the level of ‘dependency’ between the arbitrator and the party, the intensity and materiality of the supposed relationship would all be considered.

Is it worth challenging? Parties considering to raise a challenge should also bear in mind the consequences of their challenge not being successful and how this may impact the overall arbitration including the likely delay and cost a challenge will bring about. As stated above some parties to arbitration raise challenges for tactical reasons despite the grounds for challenge being tenuous (and unlikely to be upheld by the authority deciding the challenge) and do so merely in the hope that the challenged arbitrator will decide to withdraw voluntarily in order to spare the parties the disturbance such challenges can cause to the proceedings.

Other common scenarios giving rise to challenging the appointment of an arbitrator Further non-exhaustive examples of situations which may give rise to challenge of an arbitrator include: • An arbitrator has previously commented (i.e. via publications) on the issues which are relevant to the arbitration. • An arbitrator is involved in a different arbitration as counsel in which the same or similar issues and points of law are being discussed. • An arbitrator is a former partner in a law firm which is representing one of the parties to the arbitration. • An arbitrator is instructed in other proceedings by a law firm representing one of the parties to the arbitration.

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5.0 The procedure of an international arbitration

5.1 How to commence an arbitration To start arbitration proceedings all that is required is for the claimant to submit a request or notice of arbitration. If the arbitration is institutional, then a ‘Request for Arbitration’ will be submitted to the agreed institute who will then notify the respondent of initiation of proceedings. There may also be a fee to be paid to the relevant institute along with submitting the Request. If the arbitration is ad hoc and pursuant to the UNCITRAL Rules, ‘Notice of Arbitration’ is given directly to the respondent party. Such Notice will set out (i) a demand that the dispute be referred to arbitration; (ii) the names and addressed of the parties; (iii) the reference to the arbitration agreement that is being invoked; (iv) the general nature and amount of the claim; (v) the relief or remedy sought; and (vi) the proposal of the number of arbitrators if not already set out in the arbitration agreement.

5.2 The arbitral proceedings After establishment/appointment of the tribunal (see chapter 4), the proceedings will usually be as follows: (i) First procedural hearing and first order. (ii) Written submissions/pleadings (i.e. the Statement of Claim, the Defence, the Reply to the Defence and the Rejoinder.). (iii) Exchange of memorials (i.e. any documentary evidence relied upon, Witness Statements and any Expert Reports etc.). (iv) Requests for production of additional documents. (v) Pre-hearing administrative conference by telephone or video conference. (vi) The Hearing. (vii) Post-Hearing briefs. (viii) Closure of the proceedings by the arbitral tribunal (ix) Award. (x) Proceedings after the award (correction, interpretation or additional awards).

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First procedural hearing As early as possible, ideally just after the appointment of the tribunal and prior to the written submissions, a preliminary meeting may be held between the parties and the arbitrators. The purpose of the preliminary hearing is to agree upon how the arbitration will be conducted. Parties will also as soon as possible after the establishment of the tribunal, and usually as part of the first procedural hearing, agree upon a timetable for the various stages of the proceedings.

5.3 Example of a typical arbitral timetable We set out below an example of what a typical arbitration timetable may look like based on a statement of claim being submitted on 4 January 2013. The stages in the timetable shown below are based on a fictitious ad hoc arbitration (governed by the UNCITRAL Rules) although in practice a timetable for an institutional arbitration would be very similar.

Document/Stage

Status/Comments

Rejoinder to the Reply to the Defence

30 April 2013

Notice by the Parties to the Tribunal if they apply to adduce expert opinion and the scope of such opinion

22 May 2013

Responses by the Parties (if any) with respect to applications to adduce expert opinions and the scope thereof

03 June 2013

Tribunal to determine the use of expert opinion and the scope of such expert opinions

17 June 2013

Disclosure of all documents on which a party relies which has not already been disclosed

21 June 2013

Request for documents (Request to Produce)*

12 July 2013

Disclosure (or reasons for non disclosure)

23 August 2013

Tribunal to determine which documents are to be disclosed

13 September 2013

Document/Stage

Status/Comments

Statement of Claim

Submitted 4 January 2013

Disclosure of remaining documents

18 October 2013

Defence

Submitted 5 February 2013

Notification to the Tribunal of the identity of witnesses of fact / experts

25 October 2013

Conference with Tribunal

26 February 2013

Simultaneous Exchange of Witness Statements

15 November 2013

Reply to the Defence

13 March 2013

Simultaneous Exchange of Reply Witness Statements

16 December 2013

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Document/Stage

Status/Comments

Simultaneous Exchange of Expert Reports (if any)

08 January 2014

Meeting of Experts and production of joint memorandum on what issues are agreed and what issues are disputed

27 January 2014

Simultaneous Exchange of Reply Expert Reports (if any)

10 February 2014

Further procedural hearing – to monitor progress

27 February 2014

• Include a claim for every remedy you intend to seek including any claim which you may want to claim in the alternative (for example you may want to include alternative calculations of your claim or if you are seeking an injunction you may advance an alternative claim in damages). The Statement of Defence is the response /pleading in response to the Statement of Claim. Tips to consider when drafting the Statement of Defence: • Ensure that the Defence addresses all of the points raised in the Statement of Claim. • Append all documents to the Defence which are relied upon. • Any counterclaim should be raised in the Defence.

Bundles to be completed and submitted to Arbitrators

7 March 2014

Exchange of Opening Statements

28 March 2014

Hearing (4 – 5 days)

Not before 7 April 2014

* IBA Rules on the Taking of Evidence in International Arbitration will apply.

5.4 Description of main stages of the proceedings Written submission/pleadings and drafting tips The Statement of Claim is the document which sets out the claimant’s case. Tips to consider when drafting the Statement of Claim: • Statements of facts and the legal grounds should be concise and focused. • Raise every possible matter which is relied upon in support of the claim.

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Once the Defence is served, the claimant will usually be given the opportunity to respond to the Defence, this is referred to as the ‘Reply to the Defence’. Likewise, the respondent will usually be given an opportunity to the respond to the Reply to the Defence referred to as the ‘Rejoinder to the Reply to the Defence’. Request to produce and documentary evidence/disclosure Each party to the proceedings must prove its own factual case. The tribunal has the power to require parties to produce documents or other evidence as well as deciding on the admissibility, relevance, materiality and weight of the evidence produced by the parties. Parties can also apply directly to the tribunal to make ‘orders to produce ‘ if they believe their opponent is in possession of relevant documents which have not yet been disclosed. The evidential principles and procedures as to how parties are to disclose and request evidence from their opponent can be decided either directly between the parties, by reference to institutional rules, by reference to national laws or pursuant to the procedures and guidelines set out in the IBA Rules on the Taking of Evidence in International Arbitration (2010). The IBA Rules are particularly popular in respect of documentary disclosure and operate by use of ‘Requests to Produce’ whereby parties set out the specific documents or requested categories of documents reasonably believed to exist that they want the other party to produce.

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“The role of a witness is to help convey your case and to support and give credibility to your case”

Under the Rules the Tribunal may exclude evidence which is: • Privileged. • Confidential or politically/commercially sensitive. • Lacks relevance or materiality. • Is unreasonably burdensome to produce. • Has been lost/destroyed.

If a party fails to disclose evidence as requested, when so required, and without satisfactory justification the tribunal will be allowed to draw ‘adverse inferences’ from the relevant party’s non-compliance. Witnesses of fact - witness statements The role of a witness is to help convey your case and to support and give credibility to your case. Witnesses of fact can also be very helpful to explain complex factual issues or to make up for evidentiary gaps in the documentary record as well as refuting the opponent’s evidence. A witness statement will set out the witness’s story from his/her own perspective and first-hand knowledge. It will also serve as the witness’s principle evidence upon which he or she will be crossexamined at the hearing. A ‘good’ witness statement will: • Avoid statements which are contradicted by supporting documents/ evidence. • Avoid statements of facts which the witness is unsure of. • Follow a chronological structure. • Be concise and disclose sources of information wherever possible. Expert evidence

adduced by the parties to the proceedings when the case raises a technical issue which goes beyond legal expertise e.g. engineering, forensic accountancy, industry practice. Experts can either be appointed by the parties or by the tribunal. If appointed by the parties it is important to acknowledge that ‘your’ expert will not act as your advocate as he/she has a duty to provide honest and unbiased professional opinion to the tribunal. That said, parties will inevitably instruct an expert whose genuine professional opinion supports that party’s case. Experts appointed by the parties will normally produce expert reports which are exchanged with the other side. As seen from the example timetable above, experts will ordinarily also be given the opportunity to ‘respond’/comment upon the other party’s expert report. A meeting between the party appointed experts may also be required (or indeed ordered by the tribunal) in order for the experts to identify points which, to the extent possible, they agree upon. This helps to narrow the points of differences between the experts which in turn assists the tribunal in determining the facts and issues which remain disputed between the parties. The hearing All main arbitral rules require the hearing to be held in private. This means that only the tribunal, the parties and their representatives are allowed to attend (unless agreed otherwise between the parties and the tribunal). The tribunal may give specific orders to control the hearing. For instance the tribunal may ask that time limits for making oral statements and examining witnesses be applied to keep the hearing as short as possible. The location of the hearing is usually agreed between the parties to the proceedings and in practice will be determined by mutual agreement giving consideration to the views of the tribunal, the residence of factual and expert witnesses the parties and their lawyers. As mentioned previously, the place of the hearing will not necessarily be the ‘seat’ of the arbitration. The seat of the arbitration is a legal choice as opposed to a choice of convenience.

Depending on the nature of the dispute, expert evidence may be necessary to support a party’s case. Expert evidence is normally

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6.0 The award and its enforcement

“Once the tribunal submits its final award to the parties, the special relationship between the parties and the arbitral tribunal comes to an end”

6.1 Types of awards After the close of proceedings, the tribunal will render a ‘final’ award which is intended to dispose of all the substantive matters which formed the basis of the dispute. The tribunal can also render ‘interim’ or ‘partial’ awards which dispose of some but not all issues. Further, the tribunal can rectify their awards or add to them by making additional awards. Once the tribunal submits its final award to the parties, the special relationship between the parties and the arbitral tribunal comes to an end, the special relationship being the submission of the parties to the authority of a non-judicial tribunal who have the power to bind the parties to their decisions. Interim and partial awards - one and the same? The terms ‘interim’ and ‘partial awards’ have not been consistently defined in arbitration literature. In practice therefore the terms ‘interim award’ and ‘partial award’ are generally interchangeable, with the content of the awards being the prevailing factor. Nonetheless, there are circumstances whereby distinctions between the common use of ‘interim’ as opposed to ‘partial’ award can be made. Partial awards Partial awards (also known as ‘separate awards’ and ‘awards on different issues’) are treated as ‘final’ awards regarding the matters decided within them.

“The harder the conflict, the more glorious the triumph.” Thomas Paine

A common example of when a partial award may be sought is where it may be appropriate to deal with the issue of ‘liability’ and ‘quantum’ separately. Liability in this context simply means the determination of a party’s responsibility for something i.e. the alleged breach giving rise to the arbitration as opposed to quantum which refers to the actual (monetary) amount which is being claimed. A partial award may also be appropriate to seek an award on a discrete fact or contractual interpretation leaving other issues to be decided in a later award. As well as dealing with part of the substance of the dispute, a partial award can also rule on matters of law and jurisdiction. They can also rule on conservatory measures, but it is more likely for such matters to fall under ‘interim’ awards (see below).

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Interim awards

Additional awards

Interim awards might be partial awards by their very nature but are most commonly used for ‘interim/conservatory measures’ in order to preserve assets or evidence. For example interim conservatory awards could be sought to:

If a final or partial award fails to cover all of the issues that it was supposed to cover, the most common procedure to rectify the omission would be to apply to the arbitral tribunal (or the relevant institute) to make an additional award, or the tribunal could make an additional award on its own initiative. A party requesting an additional award would have to notify the other parties of such application.

• Maintain or restore the status quo pending determination of the dispute. • Take action that would prevent current or imminent harm or prejudice to the arbitral process itself, such as the preservation of evidence that may be relevant and material to the resolution of the dispute. • Provide a means of preserving assets out of which a subsequent award may be satisfied. • Provide security for all or part of the amount in dispute. • Provide security for the legal or other costs of any other party. • Make an interim payment on account of the costs of the arbitration. • Preserve, store, sell or dispose of in another way any property or thing under the control of any party and relating to the subject matter of the arbitration. Arbitrators will gain their authority to order interim measures either from the arbitration agreement (e.g. by the incorporation of a set of rules that confer such authority on the tribunal) or through statute (e.g. national arbitration laws). What happens if a party fails to comply with an interim/partial award? A party that fails to comply with a provisional order of an arbitral tribunal, when it has given the tribunal the power to make such orders, may be forced to comply if the other party (or in some instances, the arbitral tribunal) applies to a national court to enforce and implement such orders. Courts will only refuse to enforce an interim order if the tribunal would be overreaching its powers by making the order.

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Parties can also apply to the tribunal to correct computational, clerical or typographical errors or the tribunal can make such corrections itself. Parties can also apply to the tribunal for an interpretation of an award. Default awards If a party decides not to participate in the arbitral proceedings such non-participation will not necessarily negate the arbitration proceedings. The most common stages/circumstances when a party may choose not to participate includes: • Ignoring the commencement of arbitration and not nominating/ appointing arbitrators. This would trigger the appointment of arbitrators in default (e.g. an institution or appointing authority would appoint the arbitrator on behalf of the defaulting party). The arbitral tribunal would still be constituted and decide on the dispute. • Failure of a claimant to submit a statement of claim. This would ordinarily result in a tribunal issuing a default order and terminate the proceedings. • Failure of a respondent to submit a statement of defence or failure of a party to participate in the proceedings or the hearing. A party that decides not to submit a defence or participate in proceedings (whether or not it partook in appointing arbitrators), without due cause, is likely to be regarded as an admission of the claimant’s allegations or will entitle the tribunal to make a decision on the evidence before it. A default award will be granted to the active party in the proceedings. For the default award to be effective, the defaulting party would have had to been given the opportunity throughout the proceedings to participate and state its case.

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“A settlement agreement embodied in an award is referred to as a ‘consent award’ or ‘agreed award’. By formalising the settlement agreement in the form of an arbitral award the settlement agreement/ award would have immediate international enforceability via the usual enforcement procedures”

Consent/agreed awards Parties often settle their disputes before the tribunal has rendered its final award. In such circumstances and in order to be able to enforce the settlement terms, parties usually want their settlement terms formalised in an agreement which forms part of an arbitral award. A settlement agreement embodied in an award is referred to as a ‘consent award’ or ‘agreed award’. By formalising the settlement agreement in the form of an arbitral award the settlement agreement/ award would have immediate international enforceability via the usual enforcement procedures (see below). Furthermore, if a party was to breach a term of the settlement agreement, the non-breaching party would be able to enforce the consent award for a breach of terms without having to re-commence new proceedings.

6.2 What remedies can arbitrators grant? Parties to arbitration are free to agree on the arbitrators’ remedies/ powers to, inter alia, award money; award interest; order specific performance; and order the rectification, setting aside or cancellation of a contract. Most arbitral rules state that the tribunal shall apply the remedies as allowed pursuant to the law governing the dispute i.e. the applicable law. The types of remedies typically awarded are as follows: • Monetary compensation: The payment of a sum of money by one party to the other is the most common form of relief awarded by arbitral tribunals. The sums may represent money due under a contract (i.e. debt owed), damages for any suffered loss, or both. • Punitive damages and other penalties: Arbitral tribunals may have greater power than some courts in ordering punitive damages. For example a judge sitting in the United Kingdom applying the law of the United States could not order a party to pay “triple damages” under United States antitrust legislation, whereas in theory an arbitral tribunal with a seat in England could. • Specific performance: The main form of remedy granted by courts in many civil jurisdictions is specific performance, i.e. to have the contract performed as agreed. This is a form of equitable relief

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that is likely to be awarded if specific performance is realistically achievable by the parties. Specific performance can be ordered in addition to monetary compensation. • Restitution: Restitution seeks to put the claimant in the same position it would have been in had it not been for the wrongful act of the respondent. Restitution is a form of specific performance which is rarely used in international arbitration as it would be very difficult and impracticable to order for something to be undone and to place the aggrieved party in the position it would have been had it not been for the breach. • Injunctions: Arbitral tribunals will generally have the power to grant injunctions on an interim basis or as a final relief. They cannot, however, grant injunctions against third parties who are not bound by the arbitration agreement. • Declaratory relief: A declaration by the arbitral tribunal that there has been a breach of contract can be sought either on a stand-alone basis or in addition to a claim for damages. Parties who do not wish to jeopardise their commercial relationship but are at a ‘stand-off’ as to whether or not there has been a breach of contract may seek declaratory relief. • Interest: Any interest levied in addition to a monetary award shall be determined in accordance with the contract (i.e. if the contract specifies the level of interest in case of a breach) or in accordance with the applicable law if the contract is not specific. The ability of the tribunal to order compound interest will depend on the arbitration agreement and the law of the seat of the arbitration. • Costs: The arbitral tribunal can order the losing party to pay all, some or specific costs of the other party’s costs. The costs can be split as: (a) arbitration costs (institution fees, arbitrators fees, room hire etc.) and; (b) costs of legal representation (lawyers’ fees, expert witness fees, travel expenses of lawyers and witnesses, etc.).

6.3 Compliance with an award An arbitration agreement reflects not only the parties’ agreement to take part in any arbitral proceedings, but also an inherent agreement to voluntarily carry out any resulting arbitral award. Awards are final and binding on the parties, as well as any persons

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claiming through or under them, subject to any legal challenges to an award (see below). Most arbitral rules will dictate that the parties carry out any award without delay and that the parties also agree to have waived their right to any form of appeal/recourse in state courts or other judicial authorities, insofar as such waivers can be validly made.1

6.4 Challenging an award The first opportunity to challenge an award is as the seat of the arbitration. The grounds for reviewing arbitral awards will depend on the national laws of the seat but are generally narrow and restrictive. As a guide, we will look at the position under the English Arbitration Act pursuant to which a challenge may only be brought if: • The award is incomplete and has not addressed the issue in dispute. • The award contains a clerical mistake or error. • The award is made by a tribunal lacking substantive jurisdiction. • There has been a serious irregularity affecting the tribunal. • The award is wrong in law. What does ‘substantive jurisdiction’ mean? ‘Substantive jurisdiction’ relates to matters concerning: • Whether there is a valid arbitration agreement. • Whether the tribunal is properly constituted. • Whether matters have been submitted to arbitration in accordance with the arbitration agreement.

1 Annex to the UNCITRAL Rules contains a waiver statement that the parties can incorporate if they wish to, but it will not apply unless they expressly incorporate it into their arbitration agreement, whereas if the parties have incorporated the ICC, LCIA or any other institutions’ rules and do not want to incorporate the waiver, they would have to expressly exclude it.

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“The good news is that the enforcement of an arbitral award is rarely required”

What does ‘serious irregularity’ mean? ‘Serious irregularity’ under the English Arbitration Act includes: • Failure by the tribunal to comply with its general duties. • The tribunal exceeding its powers. • Failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties. • Failure by the tribunal to deal with all the issues that were put to it. • Uncertainty or ambiguity as to the effect of the award. • The award being obtained by fraud or the award or the way in which it was procured being contrary to public policy. • Failure to comply with the requirements as to the form of the award.

6.5 International recognition and enforcement of awards The good news is that the enforcement of an arbitral award is rarely required. In approximately 76% of cases the unsuccessful party complies with arbitral awards voluntarily.2 The effectiveness and rise in popularity of international commercial arbitration is largely due to awards being capable of being recognised and enforced internationally. Recognition and enforcement of international arbitral awards has been facilitated by the New York Convention (the “NYC”), which has currently been ratified by 148 countries. The term ‘recognition’ is the acceptance of an international award as having the same effect as a domestic award whilst ‘enforcement’ is the positive action taken by a national court to recover a claim. In other words recognition gives an award the validity that it requires in order to be enforced.

2 Queen Mary (University of London) School of International Arbitration & PriceWaterhouseCoopers, ‘International Arbitration: Corporate attitudes and practices’, 2008, p.8.

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“The NYC requires that equal treatment is afforded to international awards, with ‘no more onerous conditions or charges... than are imposed on the recognition or enforcement of domestic arbitral awards”

Pursuant to the NYC contracting states are required to recognise arbitral awards as binding and enforce them in accordance with the rules of procedure where enforcement is sought. The NYC requires that equal treatment is afforded to international awards, with ‘no more onerous conditions or charges... than are imposed on the recognition or enforcement of domestic arbitral awards’.

6.6 Refusal of recognition and enforcement The grounds for refusing recognition and enforcement under the NYC are limited and would involve a party being able to prove that: • A party to the arbitration agreement was under some incapacity. • The arbitration agreement was not valid under the law to which the parties subjected it or, under the law of the country where the award was made. • A party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case. • The award deals with an issue not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration, however, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognised and enforced. • The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, with the law of the country in which the arbitration took place. • The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made.

6.7 Where are the assets you want to enforce against? A winning party will want to enforce an award in the jurisdiction where the losing party’s assets are - which may mean enforcing in more than one jurisdiction. If the award is made in a state which is a party to the NYC and the assets are also located in a NYC state it should be a relatively straight forward process to enforce an award. If however despite the award being granted in a NYC state, the assets of the losing party are in a country which is not a signatory to the NYC, enforcement of an award may prove difficult and will depend on the local laws of that particular country where the assets are and potentially the existence of other reciprocal international treaties. A winning party may also want to consider taking steps to preserve the assets against which it is seeking enforcement by for example seeking a freezing injunction which restrains the losing party from disposing or dealing with his assets. Whether or not a party can apply for such preservation measures depends on the laws of the seat of the arbitration.

6.8 Procedure for enforcement under the NYC The NYC requires that a party seeking to enforce an award must provide the national court where enforcement is being sought with: • An authenticated original of the award. • An original arbitration agreement; or • Certified copies of the above and • Certified translations of the award as applicable. We hope that you have enjoyed this contribution on international arbitration and that the few insights we have added for the benefit of the in-house energy lawyer will prove helpful. In the appendix we have added a glossary on commonly used terms in international arbitration as well as terms often utilised more generally in dispute resolution proceedings. LXL LLP

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Glossary - Arbitration Terms

Action To Set Aside Action aimed at setting aside an arbitral award. Modern arbitration laws permit only limited review of an award by local courts in setting aside actions, and do not permit review of merits of the award. Ad Hoc Arbitration An arbitration that is not administered by an arbitral institution. Parties to an ad hoc arbitration may agree to the use of established arbitration rules, such as UNCITRAL Arbitration Rules, and may provide for an appointing authority to assist them in the constitution of the arbitral tribunal or the appointment of an arbitrator. Alternative Dispute Resolution (ADR) A method of resolving disputes that does not involve using the official court system (i.e. litigation). ADR choices include negotiations, mediation, conciliation, early neutral evaluation and expert determination. Some commentators and legal practitioners also include arbitration as a form of ADR however growing consensus sees arbitration as more akin to litigation and therefore distinct from ADR procedures. Some forms of ADR like expert determination provide for binding or judgmental determinations unlike mediation, conciliation and early neutral evaluation which are examples of consensual resolution and non-binding mechanisms. ADR can be utilised by parties even if there is no contractual requirement or incorporated into a tiered dispute resolution clause (meaning that parties must instigate ADR prior to commencing arbitration or litigation). American Arbitration Association (AAA) The is the leading arbitration and dispute resolution institution in the United States

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headquartered in New York. The AAA established the International Centre for Dispute Resolution (the ICDR) in 1996 to administer all of the AAA’s international matters. Amiable Composition Power given by the parties to the arbitrators to seek an equitable solution to their dispute, by setting aside, if necessary the rule of law which would otherwise be applicable or the strict application of the contract. An arbitrator can also be said to decide “ex aequo et bono” or “amiable compositeur”, or in “equity”, these three expressions being often considered interchangeable. Annulment of Award Also known as setting-aside; decision by a national court to annul an award, which is only possible in exceptional circumstances. Anti-arbitration Injunction Order made by a national court requiring a party to halt arbitration proceedings. Appeal A legal action which seeks review by a court of a lower court’s decision. Appointing Authority Means the institute the parties have chosen to select the arbitrator or arbitrators in the first instance or only after the failure of one or more parties to nominate an arbitrator within a certain timeframe. Arbitrability The issue of whether parties are legally entitled to have their dispute decided by an arbitral tribunal as opposed to a national court.

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Arbitral Case Law or Arbitral Precedent The body of existing arbitral awards that may be referred to by parties in later disputes seeking a set of legal principles to support the arbitrators’ decision. The vast majority of commercial arbitration awards are unpublished, although excerpts from some awards are published. Public international law arbitral awards (including the majority of awards in investment treaty arbitrations) have, on the other hand, very often been published and are frequently cited by parties in later cases. Arbitral case precedent is non-binding and is referred to only in support of arguments. Arbitral Institution Organisation that manages arbitral procedures, generally taking place under the arbitration rules it issues. Among the leading international arbitral institutions are the ICC, AAA (and its international arm, the ICDR), CIETAC, HKIAC, DFIAC, LCIA, SIAC, SCC, and Swiss Chambers. The institution’s role is more or less extensive depending on its arbitration rules, but in no event does it have a jurisdictional function. The jurisdictional function of deciding on the merits of a dispute resides with the arbitral tribunal. In addition to the issuance of arbitration rules, the arbitral institution’s role consists mainly in assisting the parties in resolving certain procedural difficulties, such as the constitution of the arbitral tribunal, and in supervising the proper conduct of the arbitration proceedings. Arbitration A way of resolving disputes whereby the parties withdraw their dispute from the jurisdiction of State courts to submit it to private individuals - the arbitrators - freely nominated by the parties and charged

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with the task of determining the dispute by means of an enforceable and binding decision. Arbitration Agreement Agreement in which parties agree that a dispute that has arisen (submission agreement) or that may arise between them in the future (arbitration clause) shall be resolved by arbitration. Arbitration Clause Provision which states that the parties agree to submit their dispute to arbitration. Most arbitral institutions provide model arbitration clauses which parties can adopt. Arbitration Hearing A relatively informal legal proceeding held before the arbitral tribunal at which the parties’ legal representatives are given the opportunity to make oral statements to the tribunal and witnesses may also give their oral evidence. It is also an opportunity for the tribunal to ask questions in relation to the evidence and submissions submitted. All arbitration rules allow for hearings to take place. Arbitration Law This is the law which governs the arbitration and will nearly always be the same as the place/seat of the arbitration. It is sometimes referred to as the lex arbitri or Curial Law. The arbitration law deals in particular with the validity and effects of the arbitration agreement, the functions of the arbitrator, the constitution of the arbitral tribunal, the mandatory procedural rules and actions to set aside the awards and their enforcement. It should not be confused with the substantive law which is the law applied to the issues in dispute. As

an example, the Arbitration law of England is set out in the English Arbitration Act 1996. Therefore if parties choose England as the seat/place of their arbitration, the English Arbitration Act will apply. Arbitration Rules Set of provisions that determine the main rules regarding the establishment and conduct of the arbitration, facilitate the constitution of the arbitral tribunal or the appointment of the arbitrators and govern the powers and obligations of the arbitrators. They are usually issued by the arbitral institutions and used in arbitration proceedings conducted under their aegis. UNCITRAL are arbitral rules devoted to ad hoc arbitrations. Arbitrator Private individual, in principle a natural person, to whom the parties submit a dispute which has already arisen or which may arise with a mandate to decide the dispute and who accepts this mandate. Award The arbitrators’ determination of the merits of the dispute is given in the form of an “award” which is issued in writing to the parties. Arbitral proceedings come to an end with the issuing of the final award. The final award will be final and binding on the parties (subject to some limited rights of recourse). The arbitrators will also have the power to issue “interim” and “partial” awards which can dispose of some of the issues in dispute whilst leaving other issues to be decided at a later stage (in for example the final award). See also “Final Award”, “Partial Award” and “Interim Award”.

Binding Arbitration The parties to an agreement agree to be legally bound (committed) to the ruling of the arbitrator. The arbitrator renders a decision in the case and the parties must abide by that decision. There is no legal appeal or recourse following a binding arbitration decision unless there is evidence of fraud, conflict of interest, or some other recognised conduct that would invalidate the arbitration. The arbitrator provides a decision that may include a formal “finding of fact”, application of legal precedent, assessment of witness credibility, and award or other relief. Bifurcation A term meaning the division of arbitral/ litigation proceedings into two phases, each dealing with a different issue, such as jurisdiction and liability, or liability and quantum. Bilateral Investment Treaty (BIT) Term given to a treaty between two States granting protections for investments including for example the right to prompt and adequate relief in the case of expropriation and the States’ consent to resolve disputes with investors through binding arbitration, often before ICSID. Calvo Doctrine Is a rule under international law and foreign policy doctrine according to which the relevant courts for investment disputes are those of the State where the investment takes place. Therefore an investor, under this doctrine, has no recourse but to use the local courts as opposed to that investor’s home country. This principle is particularly endorsed by the constitutions of several Latin American countries.

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Chairman Is the arbitrator who is either appointed by two party-appointed arbitrators or by the relevant institution or appointing authority to act as the third arbitrator. The third arbitrator is known as the Chairman or the President of the tribunal. If the tribunal fails to deliver a majority decision, the Chairman may also usually be given the presiding vote. Challenge of the Arbitrator Request to remove an arbitrator (usually for reasons of lack of impartiality or independence). See chapter 6. Challenge of Award Application made to a national court to review an award. Grounds for the challenge of awards are strictly limited by national arbitration laws. Chess-Clock Arbitration Arbitral proceedings where parties are allocated exactly the same amount of time to present their cases (for example during the actual hearing itself each side will be given equal time to make oral submissions). Time equality is ensured with chess clocks, hence the name. China International Economic and Trade Arbitration Commission (CIETAC) Formerly known as the Foreign Trade Arbitration Commission, CIETAC is the most important international arbitration institution in China. It was established in April 1956 under the China Council for the Promotion of International Trade (CCPIT). The headquarters is in Beijing, CIETAC has sub-commissions in Shanghai, Shenzhen, and Tianjin.

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Civil Law A system of national law based on codes and status developed by a national legislative parliamentary body. Claimant Party initiating the arbitration. Closing Submissions or Closing Statements After the hearing legal counsel to the parties will submit written statements in the form of post-hearing briefs. This is the usual practice in international arbitration in particular since instantaneous transcripts from the hearing are usually available immediately. These submissions may include a summation of facts, conclusions, achievements, or positions taken and a rearticulation of a party’s interests. Co-arbitrator An Arbitrator who is not the chairman and is appointed by a party.

whether the dispute is to be arbitrated. The tribunal’s inherent power to decide on its own jurisdiction is enshrined in some of the main arbitral rules such as the UNCITAL Rules and ICC Rules. Conciliation A form of alternate dispute resolution whereby a neutral conciliator (third-party) is appointed to meet with and hear both parties to a dispute and draw up or propose terms of settlement. Such proposals for settlement need not be in writing and do not need to discuss the merits. Conciliation is considered to be very similar to mediation, with the two terms often used interchangeably. Confirmation of Arbitrator Pursuant to the ICC Rules, all arbitrators nominated by the parties are also subject to “confirmation by the Court”. When confirming arbitrators, the ICC Court will consider the proposed arbitrator’s nationality, residence and other connections to any particular country.

Common Law A system of law based on usages, customs and judicial decisions (precedent legal decisions) as distinguished from civil law. Common law is the basis of the legal systems in inter alia England and Wales, North America, Australia and India.

Consent Award An Award whereby the arbitrators record a settlement as entered into by the parties. A consent award has the authority and effect of a final arbitral award and can also be referred to as an “award of consent”.

Competence Also known as “Competence/ Competence” or “Kompetenz-Kompetenz” Generally accepted principle according to which the arbitrators have jurisdiction to decide on their own jurisdiction when a party to the arbitral proceedings challenges it, without having to suspend the proceedings until a State court determines

Conservatory Measures Is a form of interim measure which usually aims to preserve assets or evidence. In international arbitration either the arbitral tribunal or a national court may grant conservatory measures. Whether or not an arbitral tribunal will have the power to do so will depend (i) on the terms of the arbitration agreement (i.e. the

parties expressly allow for the tribunal to grant such measures); (ii) the applicable arbitration rules; and (iii) the laws of the seat. Italy is an example of a country which does not allow arbitrators powers to grant interim measures. Consolidation The joining of more than one arbitral proceedings into one arbitration, potentially on the basis of separate contracts. Costs of Arbitration The total amount payable for the conduct of the arbitration (including arbitral institutions fees (if any) and expenses, arbitrators’ fees, expenses, and legal costs.) Costs Submission A tribunal may order that the unsuccessful party should pay all or part of the successful party’s legal costs. In order to know what the winning party’s costs are a written submission completed by the winning party is filed (to the tribunal and unsuccessful party) setting out details of its costs. Some arbitration rules such as the ICC Rules and UNCITRAL Rules state that the costs of the arbitration should be fixed in the award. Parties may therefore be asked by the tribunal to provide details of their costs and expenses or the tribunal may deal with the matter later subject to a separate award. Counterclaim A claim brought by a party that was initially a defendant in an international arbitration. Curial Law See “Lex Arbitri”. Damages Depending on the type of dispute, the

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terms of the arbitration agreement, the lex arbitri and the laws governing the substance of the dispute a tribunal may award damages to the winning party which in simple terms means an amount of money owed by one party to compensate for the harm it has caused the other party. The specific rules of awarding damages will depend on the laws governing the substance of the dispute. For example under English law damages for breach of contract are subject to the principles of ‘remoteness’, ‘causation’ and ‘mitigation’ whereas certain losses (such as expectation loss) cannot be recovered in damages for tort.

to which each party must produce the documents under his control and relevant to the dispute irrespective of whether such documents are harmful or helpful to him. Disclosure is typically more limited in international arbitration than in common law litigation proceedings, however document production is nonetheless common in international arbitration and in particular a party must disclose those documents upon which it relies. Often parties to an international arbitration will choose to adopt the International Bar Association Rules on Taking Evidence which sets out specific guidelines and procedures for the disclosure of documents and evidence.

Default Award Decision of the arbitral tribunal when one party does not take part in the proceedings. In such circumstances the tribunal must make sure that every opportunity was afforded to the defaulting party to present its case and that the default award sets out the steps and efforts employed by the tribunal to this effect.

Emergency Arbitrator An arbitrator who is appointed according to certain arbitral institutions’ rules to decide on urgent orders before the constitution of an arbitral tribunal. For example a party may want to obtain an order or an interim award for interim measures to prevent the other party from ruining evidence or dissipating assets.

Defendant The person against whom relief or recovery is sought in an international arbitration/ lawsuit; the one that defends against an international arbitration/lawsuit. Also known as the Respondent.

Emergency Measures Orders made by an Emergency Arbitrator, before the constitution of an arbitral tribunal.

Desk Arbitration The parties submit their arguments and evidence to the arbitrator in writing. The arbitrator then makes an award based only on the written submissions. No Hearing is held. Disclosure/Discovery Common law legal concept according

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Enforcement Arbitral awards although final and binding on the parties to the arbitral proceedings require the enforcement powers of the national courts in order to give effect to the award. In order to enforce an award the national court must “recognise” the award which simply means accepting the foreign arbitral award as having the same effect as a domestic award. Once recognised the national court will enforce the foreign

award as though it were rendered as a domestic award. Enforcement is usually sought by the winning party in the country where the unsuccessful party has assets. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention, requires contracting states to give effect to recognise and enforce awards made in other contracting states (subject to very limited exceptions) and is regarded as the most foundational treaty in international arbitration in particular due to its wide adherence (currently 148 signatory states). The New York Convention specifies very limited grounds for refusing recognition and enforcement. The actual procedure for enforcing an award in a New York Convention state depends on the national laws of the country where enforcement is being sought, however the New York Convention simply states that a party must provide the national court with the original award (or certified copy), the original arbitration agreement (or certified copy), and a translation of the award (if necessary).

Evidentiary Hearing Hearing where both parties’ witnesses submit their oral evidence to the tribunal and may be cross examined by the opposing party’s legal counsel.

English Arbitration Act 1996 The main legislation of England and Wales relating to arbitration law and modelled on the UNCITRAL Model Law.

Final Award The last decision made by an arbitral tribunal on all the elements of the dispute. This may be preceded by one or multiple partial awards, for instance an award on jurisdiction. See also “Award”.

Escalation Clause Contractual term according to which parties should endeavour to amicably settle the dispute before submitting any Request for Arbitration. Estimated Cost Method Formula to calculate damages which takes into account the costs as forecasted.

Ex Aequo et Bono Decision-making based on equitable principles such as fairness and not purely on strict legal principles. Exequatur Procedure whereby the national courts make an arbitral award enforceable in the territory of that State. Parties to the New York Convention undertake not to refuse the enforcement of awards issued in other contracting States unless it is established that the foreign award does not comply with certain conditions, which should not be stricter than those provided by the New York Convention. See also “Enforcement”. Expropriation The act of taking privately owned property by a national government; frequently an issue in investor-State disputes.

Forum Latin term for a tribunal or a court. Fraud An international deception or representation known to not be true; to falsely represent facts, knowing them to be wrong for the purpose of gaining an advantage or

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another result; the use of an intentional misrepresentation in order to induce another person to act in reliance on that false information to his/her financial or other detriment. Proof of fraud in a commercial agreement may relieve the party who has been defrauded from obligations under the agreement. Proof of fraud may subject the party who has perpetrated the fraud to fines, penalties or criminal prosecutions. Hearing See “Arbitration Hearing”. Hong Kong International Arbitration Centre (HKIAC) Established in Hong Kong in 1985, the HKIAC is a leading arbitral institution in Asia. For many years, the HKIAC acted as an appointing authority and administering body for arbitrations under the UNCITRAL Arbitration Rules. Whilst it still acts as the appointing authority in ad hoc arbitrations the institution issued its own Honk Kong International Arbitration Centre Administered Arbitration Rules in 2008. IBA Guidelines on Conflict of Interest The International Bar Association (IBA) Guidelines on Conflicts of Interest in International Arbitration are non-compulsory rules often used by practitioners to identify what may constitute a conflict of interest and sets out examples of when arbitrators must disclose certain information as well as help parties to decide whether to challenge the appointment of an arbitrator. IBA Guidelines are aimed at achieving consistency within the international arbitration community as to the application of standards in making decisions concerning disclosure, objections and challenges of arbitrators.

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IBA Rules on the Taking of Evidence in International Arbitration Rules issued by the International Bar Association aimed at organising the presentation of evidence in international commercial arbitration, especially between parties belonging to different legal systems. Initially issued in 1999 as the Rules on the Taking of Evidence in International Commercial Arbitration, the IBA Rules were updated and re-issued by the International Bar Association in 2010. Even when the IBA Rules are not deemed directly applicable to the arbitration proceedings, they constitute an important set of guidelines for the majority of arbitrators. ICC Rules Define and regulate the conduct of cases submitted to the International Court of Arbitration of the ICC and amongst other matters, regulate the filing of claims, the constitution of arbitral tribunals, the conduct of proceedings, the rendering of decisions and the determination of costs. The current rules came into force 1 January 2012. See “International Chamber of Commerce” (ICC). Impasse A stalemate in negotiations whereby the parties are unable to move forward or refuse to make concessions or explore options that could lead to an agreement. An impasse in negotiations may be broken by mutual agreement, by bringing a mediator into the negotiation, or by suspending negotiations for a period of time while the parties explore or review their positions within their own organisations, governments, or corporations.

Independence and Impartiality An arbitrator must be “independent” and “impartial” meaning that he cannot be under the control of any party or be or act in a biased manner towards a party. The absence of these attributes may lead either to a challenge of the arbitrator, the setting aside of the award, or a refusal to enforce the award. Some arbitration rules require the arbitrators to provide the parties with a statement of independence whereby they must disclose any facts or circumstances which might be of such nature as to call into question the arbitrator’s independence in the eyes of the parties in order to allow a possible challenge before the proceedings begin. Institutional Arbitration Arbitration which proceeds under the supervision of an arbitral institution (such as the ICC, LCIA, SCC etc). It is to be contrasted with ad hoc arbitration (see Ad hoc Arbitration). Interim Agreement A partial agreement pending a final agreement. An interim agreement may be a partial agreement related to certain aspects of a complex negotiation. An interim agreement may bind the parties to certain conduct pending the outcome of an ongoing negotiation or dispute settlement proceeding. Interim Measure Is a type of order granted by the tribunal usually early in the arbitral proceedings in order to preserve the status quo or prevent dissipation of assets. Interim measures are often requested without notice and usually ordered on a provisional basis meaning that they are subject to later determination or

setting aside by the tribunal. International Arbitration The notion of international arbitration varies from country to country, and local arbitration law in each country usually treats international arbitration differently from domestic arbitration. International Centre for Settlement of Investment Disputes (ICSID) Arbitral institution established under the aegis of the World Bank by the Washington Convention of 18 March 1965 (“Convention for the Settlement of Investment Disputes between States and Nationals of other States”). ICSID offers conciliation and arbitration to resolve investment disputes between contracting States and nationals of other contracting states. International Chamber of Commerce (ICC) Arbitral institution established in 1923 headquartered in Paris. In spite of its name, the Court established by the ICC does not have any jurisdictional power; its mandate is to supervise international dispute resolution by the application of the ICC’s Rules of Arbitration. The ICC Court intervenes, among other things, to appoint the arbitrators and confirm those nominated by the parties, as well as to scrutinize draft awards before their final issuance by the arbitrators. To start an arbitration under the auspices and administration of the ICC a party sends a “Request for Arbitration” to the Secretariat of the ICC International Court of Arbitration who will then notify the respondent party. The costs of an ICC arbitration can be significant in high value disputes as the arbitrators (and ICC Court) are paid according to a scale of costs based

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on the monetary value of the relevant claim. Investment Arbitration or Investment Treaty Arbitration Arbitration between a State and a private party from another State relating to the treatment of an investment of the latter in the former. The jurisdiction of the arbitral tribunal arises from a treaty (often referred to as a bilateral investment treaty, or BIT) or provisions of a multilateral convention (often a regional free trade agreement, such as the North American Free Trade Agreement (“NAFTA”), or the Energy Charter Treaty (“ECT”)) addressing the promotion and protection of investment. Investment arbitrations can be conducted pursuant to the ICSID Convention, as institutional arbitrations supervised by other arbitral institutions, or as ad hoc arbitrations. Judgment The formal decision by a national court in a civil or commercial matter, and can also include an award in proceedings on an arbitration if the award has become enforceable in the territory of origin in the same manner as a judgment given by a court in that territory. Joinder The addition of a third party to an arbitration. Jurisdiction The legal right/entitlement of an authority to decide an issue. In arbitration, the arbitral tribunal’s jurisdiction depends entirely on the consent of the parties. See also “Kompetenz-Kompetenz”.

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Jurisdictional Objection Statement by a party that an authority is not entitled to decide an issue. Kompetenz-Kompetenz See “Competence”. Language of Arbitration Language used in the parties’ written and oral submissions, in the procedural orders and in the award(s) issued by the arbitrators. It is chosen based on joint agreement of the parties, usually in the arbitration agreement/clause, or is otherwise decided by the arbitral tribunal. Although rare, it is possible for an arbitration to proceed in several languages, for example, with each party expressing itself orally in its own language while the procedural orders and the award are drafted in only one language. It is also possible for the written submissions and the award to be drafted in two different languages. LCIA Rules The arbitration rules of the London Court of International Arbitration. See “London Court of International Arbitration”. Lex Arbitri See “Arbitration Law”. It is a latin term which means the law that governs the arbitration and the procedure of the arbitration, it is also known as the Curial Law by English lawyers. It is well established in international arbitration law that the lex arbitri is the law of the seat of the arbitration. Lex Fori Latin term referring to the law applicable in the seat of the arbitration.

Lex Mercatoria International trade usages and general principles of law developed by arbitral awards, resulting from the convergence of national laws, or stated by public or private international organisations.

countries may be able to rely on a most favoured nation clause to benefit from the same advantage.

Litigation Is the process of taking a case through a state’s national court system.

Motion An American term for a document filed with the court seeking to obtain a ruling or order from the court which is favourable to the party filing the motion.

Liquidated Damages A fixed sum agreed by parties to a contract to be payable in the case of a breach of contract. Mediation Involves the participation or inclusion of a neutral third party to help the parties to a conflict negotiate an agreement. The process of mediation is usually voluntary. The mediator has no decision-making authority and is less formal than arbitration. A successful mediation results in the parties reaching an agreement, usually made enforceable by a written agreement. The mediator helps the parties to negotiate an agreement but because of the voluntary nature of the process, a party may leave the mediation and pursue other remedies or recourse if desired. MFN Most favoured nation. Most Favoured Nation Clause In bilateral investment contracts, contractual provision according to which countries must be treated equally by the host country. If a host country offers to a trading partner more advantageous conditions, such as lower tax on a certain type of products, then other trading

Model Law See “UNCITRAL Model Law”.

Multi-Contract Arbitration Arbitral dispute where claims originate from several contracts. Multi-Party Arbitration Arbitration involving more than two parties. Multiparty arbitration can create procedural complications that need to be considered during the drafting of an arbitration clause or during the conduct of an arbitral proceeding. Multiparty arbitration does not pose significant problems when the parties consist of two, clearly-defined groups having common interests and a common procedural position (claimant or defendant), with each side being able to nominate an arbitrator. When this is not the case, difficulties can arise with respect to the constitution of the arbitral tribunal. Multi-Tiered Dispute Resolution Clause Contractual provision including additional stages that must be adhered to by the parties before initiating arbitration, such as first endeavouring to amicably settle their dispute or utilise other ADR procedures before resorting to international arbitration. New York Convention The “Convention on the Recognition

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and Enforcement of Foreign Arbitral Awards” issued in 1958 by an international conference under the aegis of the United Nations mainly aims at facilitating the enforcement of arbitral awards. The States Parties undertake to recognize and to enforce foreign arbitral awards issued in another State Party, unless the defendant in the enforcement action can establish the existence of one of the limited grounds established under the Convention for refusing to enforce the award. The Convention grounds exclude any review by the enforcement court of the merits of the dispute. See also “Enforcement”. Non-Binding Arbitration The parties agree in advance to submit their dispute to a non-binding arbitration. The arbitrator’s decision will not result in the losing party having to commit to any remedy. The purpose of a nonbinding arbitration is for parties to obtain a “preliminary view” of how the case might be handled by a court (judge) or a formal arbitration. A non-binding arbitration can be useful to educate the parties as to the relative value of a case for settlement purposes. Non-Negotiable Demand Offers or proposed solutions for which the party making the offer will accept no other solution. Non-negotiable demands are intended to give the counterpart no negotiating power. Also known as a “takeit-or-leave-it” offer. Offer A proposal, a presentation of an option or solution for settlement of a negotiation or a component of a negotiation.

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Opening Statement Means a preliminary statement or introduction of a party’s interests/case in a negotiation, mediation, arbitration, or a court proceeding. Options Possible solutions in a negotiation. By generating or creating multiple options the negotiators may create more opportunities for settling the dispute or solving the problem. A good negotiator will create or generate multiple options as part of the preparation and planning process. These options can then be presented for consideration at the negotiating table where one’s counterparts can also be invited to generate multiple options or solutions to the problem that is the subject of the negotiation. Partial Award Decision given by the arbitral tribunal on one or several specific issues, rendered prior to the final award, for instance on jurisdiction. Partial awards therefore dispose of some but not all of the issues in dispute and are enforceable in the same way as final awards. Party The person or organisation that participates in a negotiation or signs a contractual obligation. Pathological Clause Term used to describe an arbitration clause/agreement that fails (usually due to poor drafting) to afford the arbitrators the necessary powers to decide upon all the issues in dispute between the parties, or fails to exclude state court intervention (to the extent possible) or does not allow the

constitution of an arbitral tribunal or the appointment of a sole arbitrator without some form of intervention. The danger of pathological clauses is not only that parties become embroiled in expensive satellite disputes about the actual meaning of the arbitration agreement but ultimately also that a national court gains jurisdiction to settle the dispute. PCA Permanent Court of Arbitration headquartered in the Hague. The PCA will act as the appointing authority for arbitrations conducted pursuant to the UNCITRAL Rules adopted in 1976 and amended in 2010. The PCA also provides full administrative support in arbitrations under the UNCITRAL Arbitration Rules. The PCA is not an example of an institutional arbitration centre. Plaintiff An American term for the person who brings an action in court. Privilege A legal principle which entitles a party to withhold evidence from production to a third party, to a court or to an arbitral tribunal. The usual grounds for claiming privilege in England and Wales include “legal professional privilege” (confidential communications between lawyers and their clients made for the dominant purpose of seeking or giving legal advice) and “litigation privilege” (confidential communications between lawyers and their clients, which come into existence for the dominant purpose of being used in connection with actual or pending litigation). The scope of the principle of privilege will vary in different jurisdictions.

Procedural Measures The procedural powers or measures of the tribunal are the tools which enable it to discharge its duties to conduct arbitral proceedings. Procedural Order Order made by the arbitral tribunal concerning the conduct of the proceedings. For example the tribunal may wish to issue an order (or direction) on how oral evidence relied on is to be served with each pleading. Proposal An offer made in the negotiation process. A suggested solution or element of an agreement. A proposal is generally presented by one party to another for consideration or response. Provisional Measures Measures devoted to preserving a situation of fact or of law, usually to preserve evidence. See also “Conservatory Measures” and “Interim Measures”. Quantum Amount of money payable by the losing party. Quantum Meruit Latin expression meaning “the amount it deserves”. It is a method of assessing damages according to what appears reasonable in the circumstances. Reciprocity Equally binding obligations. For example if one party makes a concession on tariffs or terms of trade, the trading partner(s) is expected to make an equivalent concession or adjustment. The terms and conditions of a negotiated contract usually set forth

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reciprocal obligations, responsibilities, or duties. A quid pro quo is an exchange of items, services, conduct, or actions designed to compensate one’s counterpart for his/her actions, payments, contributions, etc. Recognition of Awards An arbitral award is given by a private tribunal whose authority is derived from the private agreement between the parties to submit their dispute to arbitration. Unlike public law authority and corresponding court judgments awards issued by a tribunal need official recognition by national courts in order to then by enforced. See also “Enforcement”. Redaction Deletion of parts of documents under for example the legal principle of privilege. See also “Privilege”. Redfern Schedule Standard schedule often used by parties and arbitral tribunals to manage and create a record of requests for disclosure. Remission Return of an award to an arbitral tribunal by a national court for a new decision. Reply Claimant’s pleading in response to a Respondent’s defence or a reply to a Respondent’s defence and counterclaim. Request for Arbitration The initial claim or writ filed by the Claimant that starts the arbitral proceedings; its form and content vary according to the applicable law, the provisions of the arbitration rules agreed by the parties, and the terms of the

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arbitration clause. Respondent A Respondent is the party against whom the claim is filed. If a Respondent states a claim in arbitration, it is called a counterclaim. Sanction The court’s imposition of a penalty on a party who violates or fails to observe an order or rule of the court. SCC Stockholm Chamber of Commerce which offers dispute resolution and arbitration services namely the “Arbitration Institute of the Stockholm Chamber of Commerce” which is part of but independent from the SCC. The SCC was recognised in the 1970’s by the United States and the USSR as a neutral entity for the resolution of East/ West trade disputes. SCC is an example of institutional arbitration which adopts its own set of institutional rules the “SCC Rules” which were updated in 2010. Scrutiny of Awards Service offered by certain arbitral institutions to review an award before it is approved to be sent to the parties. For example under the ICC Rules, the ICC Court will scrutinise all awards and has the power to order amendments to the form of the award and bring points of substance to the attention of the tribunal. Sealed Offer A sealed offer is an offer from one party to another to settle the arbitration which is made without prejudice (save as to costs).

Seat or Seat of Arbitration Means the legal “situs” i.e. place of the arbitration proceedings – which in turn links the arbitration procedure and the award rendered by the arbitral tribunal to particular, national legal system. The arbitration award is thus deemed rendered at the seat of the arbitration. The seat of arbitration is determined by the parties, usually in the arbitration agreement or, in the absence of party agreement, by the arbitral institution or the arbitration tribunal. The choice of the seat of arbitration involves important legal consequences. Among other things, the choice of the seat will determine whether national courts will support or interfere with the arbitral process, will determine whether the benefits of enforcement under the New York Convention will be available, and will determine the competent courts to hear any action to set aside the arbitral award. The seat of arbitration is not to be confused with the place where the parties decide the hearing should physically take place. Separability Legal principle according to which an arbitration clause is independent from the contract in which it appears. Thus, even if the contract is not valid, the arbitration clause will remain effective. Settlement The negotiated resolution of a dispute. An agreement reached between parties to a dispute that may include future obligations or commitments or one party having to pay the other a certain monetary amount. The settlement is usually recorded in writing i.e. in a settlement agreement. A settlement agreement can (and should) be issued by the tribunal in the form of an award so that it may be enforced like any other award -

see also “Enforcement”. Singapore International Arbitration Centre (SIAC) Established in 1991, the Singapore International Arbitration Centre has become a leading arbitral institution in Asia. SIACadministered arbitrations may apply the UNCITRAL Rules of Arbitration or SIAC’s own arbitration rules, which were last revised in 2010. Sole Arbitrator A single individual arbitrator, as opposed to an arbitral tribunal, to whom a dispute is submitted for resolution by arbitration. The arbitrator is nominated either by joint agreement of the parties, by the institution that the parties have identified in the arbitration agreement or by an “appointing authority”. Sole arbitrators are sometimes preferred when the amount in dispute is not considered to be particularly high or where the issues in dispute are relatively simple. Stalemate A moment in the process of negotiations when the parties can make no further progress. Statement of Claim First set of submissions/pleading filed by a Claimant. Statement of Defence First set of submissions filed by a Respondent, as a reply to a Claimant’s Statement of Claim. Statement of Reply Second set of submissions filed by a Claimant, as a reply to a Respondent’s

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Statement of Defence. Statement of Rejoinder Second set of submissions filed by a Respondent, as a reply to a Claimant’s Statement of Reply. Substantive Law The law governing the substantive issues which have been referred to arbitration is known as the “substantive law” or alternatively the “applicable law” or “governing law”. To determine what the substantive law is reference to the “choice of law clause” or “governing law” clause in the relevant contract should be made. The substantive law will be applied to the resolution of a dispute on its merits. If the substantive/applicable law has not been chosen by the parties, the arbitrators apply the substantive law they deem appropriate taking into account the reasonable expectations of the parties. The substantive law should not be confused with the “lex arbitri”. Supporting Judge A term to describe the judge who intervenes to lend support to an arbitration by resolving procedural difficulties, especially during the constitution of the arbitral tribunal (in connection with the appointment or challenge of an arbitrator), in evidentiary matters or to grant provisional and conservatory measures. Swiss Chambers’ Court of Arbitration and Mediation Swiss Chambers was founded in Basel 2004 by the Chambers of Commerce of Basel, Berne, Geneva, Lausanne, Lugano, Neuchâtel and Zurich. Swiss Chambers offer arbitration in accordance with the

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Swiss Rules of International Arbitration. Initially limited to arbitrations with their seat in Switzerland however, as of August 2004 arbitrations under the Swiss Rules can be seated anywhere in the world. Since 2007, the Swiss Chambers also offers services in Commercial Mediation applying the Swiss Rules of Commercial Mediation. Terms of Reference The terms of reference are a characteristic of ICC arbitration and certain other institutional arbitration. Under the ICC arbitration rules, the Terms of Reference are prepared by the arbitral tribunal and includes at a minimum: the parties’ and arbitrators’ names and addresses, a summary of the parties’ respective claims, the main rules applicable to the proceedings, the place of arbitration, and, if appropriate, a list of issues to be resolved. It is signed by the parties, unless one of them refuses to sign, in which case it is submitted for approval by the ICC International Court of Arbitration. The main purpose of terms of reference is to define the dispute clearly, such that the parties are not to present new claims beyond the limits of the terms of reference without the authorisation of the arbitrators. Trial De Novo A new trial or retrial during which a whole case is retried as if no trial ever occurred in the first place. Tribunal In the context of international arbitration means a private panel of arbitrators established for the purpose of determining a dispute which has arisen between parties and who have agreed to resolve their dispute by reference to arbitration.

The establishment of the tribunal may be a relatively lengthy process in particular if one party fails to appoint their choice of arbitrator. Trifurcation Division of the arbitral proceedings into three phases, each dealing with a different issue such as jurisdiction, liability or costs. Truncated Tribunal Arbitral tribunal where originally-appointed members have either been removed, have resigned or have passed away. UNCITRAL The United Nations Commission on International Trade Law, which is the principal legal organ of the United Nations in the field of international commercial law, empowered by the General Assembly to promote the progress of international commercial law’s harmonisation and unification. In this context, UNCITRAL has created several instruments in the field of arbitration, including arbitration rules applicable to ad hoc arbitrations and also used by certain arbitral institutions, and a model law on international commercial arbitration which has been totally or partially adopted by numerous States in their domestic laws (see “UNCITRAL Model Law”). UNCITRAL Model Law A model arbitration law produced by UNCITRAL with the aim of harmonising national arbitration laws. Many countries have adopted the Model Law, either entirely or in part. For example the English Arbitration Act 1996 is based on the UNCITRAL Model Law although not in its entirety.

UNCITRAL Rules The United Nations Commission on International Trade Law Arbitration Rules, adopted in 1976 and revised in 2010, is a body of rules established by UNCITRAL for arbitral proceedings and inter alia entrusts the Secretary-General of the PCA with the role of designating an “appointing authority” upon request of a party to arbitration proceedings. Without Prejudice Is a rule/principle which will generally prevent statements made in a genuine attempt to settle an existing dispute from being put before the court or the tribunal as evidence of admissions against the interest of the party who made them. One reason for the without prejudice rule is to encourage parties to settle their disputes out of court. Witness/Document Subpoena A document by which the court commands that a witness appear at a legal proceeding or by which the court orders that an individual appear at the proceeding with certain specified documents. Witness Statement Is a formal written statement which sets out the witness’ account of the facts relating to the issues arising in the dispute. To the extent possible, the statement should be concerned with facts and comments on opinion should be limited. The purpose of a witness statement is to enhance the respective party’s case and forms part of the evidence that may be heard at the hearing (in the case of arbitration) or trial (in the case of litigation).

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2013 - A Bird’s Eye View of International Arbitration in the Energy Industry We would like to conclude this handbook by providing a “bird’s eye” view of energy industry in the year 2013 and beyond. Some of the main features will be as follows:

• Oil at around US$ 112 a barrel in 2012 will, according to most forecasters fall to an average of US$ 105 plus a barrel in 2013. • As the search for more elusive and more costly oil and gas reserves continues more industry players will turn their attention to the potentials of the Arctic region despite the technical challenges and environmental concerns.

• Coal’s share of the worldwide energy mix is increasing with the fuel being set to close in on oil to become the world’s top energy source by 2017. Whilst countries such as China and India are leading the growth of coal consumption, US coal use is falling as a result of cheap new gas supplies. • Crude oil production in the US will rise sharply over the next decade due to improved technology with an annual growth averaging 234,000 barrels per day (bpd) from 2011 - 2019 when production reaches 7.5mn bpd. • The US will become a larger exporter of natural gas sooner than previously forecasted with production of natural gas outpacing domestic consumption by 2020. It is further predicted that the US will become an exporter of LNG by 2016. • As unconventional gas production increases in the US, Henry Hub prices will continue to decrease. Prices already plunged from over $13 million British thermal Units (Btu) in August 2008 to as low as $2 million Btu in May 2012.1 • Following the Fukushima nuclear disaster in Japan 2011, the country is hoping to meet energy demand by reducing its huge LNG import bills (Japan imported 87 million tonnes a year of LNG in 2012 up from 79 million in 2011) by sourcing LNG directly from North American shale developments and whilst most of the country’s nuclear capacity remains offline amidst declarations from the previous government that nuclear energy would be completely phased out, the new government (elected in December 2012) is reportedly considering a full restart of nuclear capability which pre2011 provided the country with 30% of its electricity demand.2

1 Petroleum Economist, January 2013. 2 Ibid.

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LXL LLP 08.08.2014. No part of this manuscript may be copied or reproduced without the consent of the author