1. law, govt and politics

28.03.15 Procedural Challenges in International
Commercial Arbitration
Cambridge Arbitration Day: International Commercial and Investment Arbitration
Professor Doug Jones AO
www.dougjones.info
University of Cambridge
14 March 2015
Professor Doug Jones AO
www.dougjones.info
Overview
•  Costs
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Predictability
Managing predictability
Costs follow the event and cost capping
Party Conduct
•  Designing the process
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Second Procedural Meeting
•  Experts
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Party-appointed experts
International standards and tools
Professor Doug Jones AO
www.dougjones.info
1 28.03.15 Costs (1)
Costs is a topic of perennial concern in international commercial and
investor-state arbitration.
Great diversity in approach to the question of costs in different
jurisdictions:
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Some parties do not even consider making a claim for costs, while others
make detailed submissions accompanied by detailed supporting
documentation.
Similarly, while many awards contain no more than a few lines on the
question of costs, in some cases costs will be the subject of a separate
final award.
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General practice is costs are often dealt with at a late stage of the
arbitration, often after the final award has been delivered.
Cost awards can therefore ambush parties with consequences that
were not previously foreseen.
Therefore, there is a need for procedural harmonisation to
ameliorate predictability of costs earlier in the proceeding.
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Professor Doug Jones AO
www.dougjones.info
Managing predictability of costs: guidelines (2)
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Managing the predictability of costs at the outset and early guidance by arbitral
tribunals on the principles to be applied will encourage efficient conduct and
transparency in arbitral proceedings:
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Cautionary impact on parties' conduct and the manner in which the parties present
their cases.
Avoid unnecessary disappointment by parties.
Important in order to reach a levelled playing field between the parties in
international commercial and investment arbitrations:
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In order for parties to understand their risk and make economic, legal and
political plans accordingly. A process that seems arbitrary or unpredictable,
may generate concerns and sustainability issues.
ICC Commission Report on "Techniques for Controlling Time and Costs in
Arbitrations" (2007)
•  Paragraph 85 Costs
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"The allocation of costs can be a useful tool to encourage efficient behaviour
and discourage unreasonable behaviour… The tribunal should consider
informing the parties at the outset of the arbitration (eg at the case
management conference) that it intends to take into account the manner in
which each party has conducted the proceedings and to sanction any
unreasonable behaviour by a party when deciding on costs…
Professor Doug Jones AO
www.dougjones.info
2 28.03.15 Costs follow the event (3)
•  Costs follow the event:
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"Winner takes all, the loser pays all costs". Loser pays all costs of arbitration and all
opposing costs of party representation and the successful party should ordinarily
recover its reasonable costs.
This approach is increasingly common in international commercial and investment
arbitration.
Advantages:
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Encourages a reasonable approach to settlement.
Encourages impecunious parties to pursue genuine claims, as they will recover
legal costs expended in the pursuit of justice.
Likewise, deters parties from pursuing frivolous claims and imposing financial
hardship on parties who will be forced to obtain legal representation.
International laws and institutional rules grant wide discretion upon the tribunal in
making award to costs.
Disadvantages:
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Consequences of an adverse costs award lead parties to engage in lengthy cost
submissions which can unduly prolong proceedings.
Professor Doug Jones AO
www.dougjones.info
Costs follow the event: provisions (4)
•  English Arbitration Act 1996 - Section 61 Award of costs
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(2) Unless the parties otherwise agree, the tribunal shall award costs on the
general principle that costs should follow the event except where it appears to the
tribunal that in the circumstances that is not appropriate in relation to the whole or
part of the costs.
•  LCIA Arbitration Rules 2014 - Article 28
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(4) The Arbitral Tribunal shall make its decisions on both Arbitration Costs and
Legal Costs on the general principle that costs should reflect the parties' relative
success and failure in the arbitral award or arbitration or under different issues…
The Arbitral Tribunal may also take into account the parties' conduct in the
arbitration, including any co-operation in facilitating the proceedings as to time
and cost and any non-co-operation resulting in undue delay and unnecessary
expense.
•  UNCITRAL Arbitration Rules - Article 42
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1. The costs of the arbitration shall in principle be borne by the unsuccessful party
or parties…
Professor Doug Jones AO
www.dougjones.info
3 28.03.15 Cost capping and provisions (5)
•  Cost capping?
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English Act - s 65 Power to limit recoverable costs
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Capping the amount that the arbitral tribunal may award to the prevailing party or
excluding any alternative fee arrangement exceeding an identified amount.
Discourages those with deep pockets from intimidating their opponents into giving up
through fear of incurring liability for costs beyond their means.
However, an arbitrator who imposes a costs cap has to decide what amount of costs
is proportionate to the arbitration before the relevant costs are incurred are not
afterwards - therefore difficult to determine what is a reasonable cost cap amount.
(1) Unless otherwise agreed by the parties, the tribunal may direct that the recoverable costs of
the arbitration, or any part of the arbitral proceedings, shall be limited to a specified amount.
UK Commercial Court, Practice Direction to Civil Procedure Rules 2015 - PD 3F Costs
Capping
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1.2 An application for costs capping order must be made as soon as possible, preferably before
or at the first case management hearing or shortly afterwards. The stage which the proceedings
have reached at the time of the application will be one of the factors the court will consider
when deciding whether to make a costs capping order.
4.1 … When considering a party's budget of the costs they are likely to incur in the future
conduct of the proceedings, the court may also take into account a reasonable allowance on
costs for contingencies.
Professor Doug Jones AO
www.dougjones.info
Costs: Party Conduct (6)
Party Conduct:
•  Costs as a sanction?
•  Partial Awards?
•  Fixing costs consequences at the time.
Professor Doug Jones AO
www.dougjones.info
4 28.03.15 Designing the Process
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Second procedural meeting
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At a time when the Parties' Cases have been exchanged.
Where parties and the tribunal discuss the key issues in the case and
contested factual and expert issues.
Processes for proof established and consideration of critical legal
issues.
Adjustments to the procedural timetable with steps then appropriate
identified.
Drafting of Procedural Order no. 2.
Rationale
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Designing efficient conduct of arbitral procedure.
Aligning parties with that process.
Tribunal keeping finger on the pulse.
Professor Doug Jones AO
www.dougjones.info
Experts (1)
Party-appointed experts
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Rooted in the common law tradition, the use of party-appointed expert
witnesses is common in international arbitration, yet lamentably the
efficient use of these experts is far less common.
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Advantages
•  Presents multiple perspectives on a complex technical fact which
represent a genuine divergence of opinion within an expert's field.
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Disadvantages
•  Main issues have centred around the impartiality of expert witnesses,
as well as the need to reduce associated costs and time delays.
Professor Doug Jones AO
www.dougjones.info
5 28.03.15 Party-appointed experts: Challenges (2)
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Challenges related to party-appointed experts:
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Experts as "hired guns"?
•  Tendency for experts to view themselves as being within the 'camp'
of the party by whom they are appointed and renumerated.
•  Leading to tailoring of their evidence to support the interests of the
party by whom they were appointed.
•  Situation is exacerbated when parties and tribunals operate on an
implicit understanding that this, indeed, is their role.
Expert shopping.
Uncontrolled proliferation of expert evidence - major contributing factor to
lengthy delays and high costs of arbitration.
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Increasing focus on quantity of expert evidence, as opposed to its
quality - hiring multiple experts hoping to strengthen a weak case causing unnecessary delay and an unjust outcome where there is
financial inequality between parties.
Professor Doug Jones AO
www.dougjones.info
Party-appointed experts: International standards (3)
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IBA Rules of Taking of Evidence 2010
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CIArb Protocol for the Use of Party-Appointed Expert Witnesses
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Article 2(1) - expressly provide for consultation between tribunal and parties
at the earliest appropriate time "with a view to agreeing on an efficient,
economical and fair process for the taking of evidence".
Article 4 - independence of witnesses.
Article 6 - experts must enter a discussion to identify issues upon which
they are to provide an opinion and also identify tests and analyses that
need to be conducted and where possible, reach agreement on those
issues.
IBA Guidelines on Party Representation in International Arbitration 2013
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Article 5 - now require the party-appointed expert's report to contain a
statement of independence from parties, from their legal advisors and from
the arbitral tribunal.
Professor Doug Jones AO
www.dougjones.info
6 28.03.15 Party-appointed experts: Practical tools (4)
Further best practices:
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Early identification of areas of expertise, the experts, the
questions to be answered.
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Joint, then individual, reports.
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Close review of process by the Tribunal.
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'Hot-tubbing' and witness conferencing.
Professor Doug Jones AO
www.dougjones.info
Professor Doug Jones AO
Email: [email protected]
www.dougjones.info
Professor Doug Jones AO
www.dougjones.info
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