AMENDMENTS TO THE ICC RULES OF ARBITRATION: AUTOMATIC EXPEDITED ARBITRATION PROCESS FOR CLAIMS WORTH LESS THAN US $2 MILLION

by Mark Davison and Katherine McKenna

On 20 October 2016, the ICC Executive Board approved changes to their Rules which will be effective as of 1 March 2017.[1]

Within the amended rules, the ICC has followed other arbitration centres such as SIAC in implementing an expedited process for lower value disputes.  However, the ICC has gone a step further and has provided that all disputes which are less than US $2 million will automatically need to be administered under the new expedited process unless the parties have expressly agreed to opt-out of this process in their arbitration agreements.  Parties with claims greater than US $2 million will have the option to opt-in to the new expedited process.

Under the expedited procedure:

  • the ICC has the discretion to appoint a sole arbitrator even if the parties have agreed otherwise in their arbitration agreement;
  • there is no requirement to prepare terms of reference;
  • the tribunal shall have discretion after consulting with the parties as to procedural measures it adopts – i.e. the tribunal may decide to dispense or limit document production, limit the length and scope of written submissions and witness evidence and even determine whether or not it should dispense with a formal hearing where witnesses are cross examined;
  • tribunals are required to issue awards within six months of the date of the case management conference being held; only in limited and justified circumstances will the ICC grant tribunals extensions.  The ICC Court and its Secretariat will maintain their roles in the quality control of awards made.

In return for using the expedited procedures, the ICC arbitration fees will be significantly reduced for the expedited procedure although it will still be calculated on a scale of the amounts in dispute.

It is likely that the amendments will be welcomed in the market.  With other arbitration centres and even courts invoking expedited procedures[2], it is clear that market users want to create environments where they can resolve their disputes quickly and cheaply.  Forcing users with small disputes to use the expedited process may convince those users that expedited processes may be suitable in certain circumstances to larger disputes.

[1] http://www.iccwbo.org/News/Articles/2016/ICC-Court-amends-its-Rules-to-enhance-transparency-and-efficiency/

[2] For example, the English Commercial Court has recently handed down its first decision under the High Court’s Shorter Trials Scheme, where a judgment was made totalling US $68 million. This had been determined within seven months of the claim being issued and with total costs on both sides of £350,000 (National Bank of Abu Dhabi PJSC v BP Oil International Limited [2016] EWHC 2892 (Comm): the judgment is here).

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THE FUTURE OF INTERNATIONAL ARBITRATION IN THE TMT SECTOR: VIEWS ON QMUL’S 2016 INTERNATIONAL DISPUTE RESOLUTION SURVEY

The Queen Mary University of London (“QMUL“) recently released its International Dispute Resolution Survey relating to Technology, Media and Telecoms (“TMT“) disputes.

The comprehensive survey was conducted over 2 phases and involved a variety of respondents, including private practitioners, in-house lawyers to respondent companies from more than 13 TMT-related sectors.

We have summarised the survey’s key findings, distilled the TMT sector’s general perceptions of international arbitration, and drawn some broad conclusions on the way forward below.

What are the most common types of TMT disputes and where / in which sectors do they take place?

The respondents cited intellectual property (“IP“) disputes as the most common (50%), with joint venture / partnership collaboration disputes (39%) and licensing disputes following closely behind (37%).

  • The rise in IP-related disputes could be attributed to IT implementation programmes, data related issues, reputation management issues and outsourcing programmes.
  • The rise in joint venture / collaboration disputes reflects the general increase in start-ups, digital disruption and the general need within the TMT industry to work with other businesses.

The Telecoms sector was the most contentious, with 71% of respondents experiencing more than 20 disputes and 83% indicating that their largest disputes were at the highest end of the scale (i.e. more than US$100m).

Asia reported the highest incidence of disputes, with 37% experiencing more than 20 disputes and 25% experiencing a dispute at the highest end of the scale.

Predicted future areas for disputes are: IP, collaborations and data / security issues.

What are the in-house Dispute Resolution (“DR“) policies and preferences?

75% of the organisations surveyed had a DR policy and within such policies, mediation is the most preferred mechanism (50%), followed by arbitration (47%).

However, within specific sectors, the responses were varied:

  • The Telecoms sector showed a preference for expert determination / adjudication, whilst no respondent actually encouraged litigation.
  • The IT sector saw litigation as the most encouraged mechanism (50%) with arbitration falling some distance behind (27%).
  • The Energy, Construction and Manufacturing industries all rated arbitration as the most encouraged DR mechanism.

When all respondents (including private practitioners and other dispute resolution practitioners) were assessed on their personally preferred DR mechanism, most stated a strong preference for arbitration (43%) over litigation (15%).

What are the top considerations affecting an organisation’s DR policy to international arbitration?

While various factors were cited as important to an organisation’s DR policy on international arbitration, the top two factors are (1) choice of institution and (2) seat of the arbitration.

Unsurprisingly, these are important elements for a well-drafted arbitration clause, and are usually provided for in the model clauses of most major arbitral institutions, such as the Singapore International Arbitration Centre (“SIAC“), London Court of International Arbitration (“LCIA“) and the International Court of Arbitration (“ICC“).

Whilst 40% of respondents expressed a preference towards mediation, there is “no common view” as to what form mediation should take. Overall, there is a lack of familiarity with mediation, particularly in civil law jurisdictions. Whilst respondents from the civil law jurisdictions tend to view mediation as an evaluative process, those from the common law jurisdictions essentially saw mediation as “facilitated negotiation“.

DR mechanisms in practice: preference vs reality

Not all disputes progress to a binding decision with 41% being settled.

Whilst most respondents indicated a strong personal preference for arbitration, the most commonly used DR mechanism over the past 5 years was in fact litigation (litigation : arbitration / 44% : 35%). This could be attributed to the following:

  • Many disputes emerge more than 5 years after the contract is drafted. These disputes may involve contracts written before the surge in popularity in arbitration over the last decade.
  • Customers and suppliers tend to have differing views about arbitration, and this could explain a lack of agreement to arbitration in the DR provisions at the contract drafting stage.
  • Litigation may be the default position, particularly for disputes that do not involve contracting parties, i.e. IP, competition, data protection / security disputes.
  • At the procurement stage, parties may have given little attention to the DR provisions, either to time constraints or because neither anticipates a major dispute arising.

The key to greater inclusion of international arbitration into DR clauses appears to lie in educating the Board of Directors, Senior Executive or CEO of the organisation (57%), as they tend to be the main decision-makers on whether to introduce formal legal proceedings.

While General Counsel or Head of Legal are the second most common decision-makers (36%), the survey appears to indicate that most are well-acquainted with and/or generally aware of the advantages of arbitration.

The future of international arbitration and TMT disputes – advantages, weaknesses and ways to improve

A “striking majority” of respondents (92%) indicated that international arbitration is well-suited for TMT disputes, and 82% anticipate that there will be a general increase in its use to resolve TMT disputes.

The oft-cited advantages of arbitration include:

  • The procedural flexibility available to arbitration as compared to court procedures;
  • Confidentiality;
  • Enforceability in multiple jurisdictions.
  • The uncertain political climate (i.e. Brexit) is another reason why respondents chose international arbitration over court proceedings.

Some perceived weaknesses / disadvantages of arbitration are:

  • The difficulty in obtaining injunctive relief;
  • Prohibitive costs of arbitration; and
  • The lack of arbitrators with TMT expertise.

Whilst lower costs are the most obvious way to improving arbitration (58%), a need for specialist knowledge of the TMT sector was also highlighted:

  • A main reason cited for the reluctance to use arbitration is the lack of specialist arbitrators with TMT expertise.
  • Technical knowledge and sector expertise are ranked highly when it comes to choosing external counsel and arbitrators.
  • Key ways of improving arbitration for TMT disputes include: (1) the creation of a neutral system for the accreditation of specialist arbitrators; (2) having a specialised roster of arbitrators for TMT disputes; and (3) the appointment of more industry experts.

TMT disputes and arbitral institutions

The ICC, World Intellectual Property Organisation (“WIPO“), LCIA, International Centre for Dispute Resolution (“ICDR“) and SIAC were ranked amongst the top five most preferred arbitral institutions for TMT disputes.

  • In the United States, the ICDR was the most preferred choice at 55%.
  • In the EU, the ICC came in highest at 74%.
  • In Asia, the SIAC was most popular at 67%, followed closely by the ICC at 61%.
  • WIPO is more favoured for IP disputes.

Conclusion

TMT disputes tend to be high risk and high-value, with many involving sums in excess of US$100m.

Asia was the most contentious region surveyed, although Europe and North America had the most claims at the highest end of the scale.

The future of international arbitration in the TMT sector is bright, with most within the industry predicting its use to increase.

Key ways of exploiting this advantage include:

  • gaining greater buy-in from the Boards of TMT organisations;
  • advising on its inclusion in DR clauses for TMT contracts;
  • gaining industry confidence by building up more specialist TMT arbitrators and counsel.

 

With thanks to Lakshanthi Fernando.

 

 

Posted in Arbitration, TMT | 1 Comment

THIRD PARTY FUNDING – A STEP IN THE RIGHT DIRECTION FOR SINGAPORE?

Over the past few years, companies have begin to view Singapore as an attractive regional business hub as evident by the increase in the number of global companies who have decided to set up and/or relocate their Asia headquarters to Singapore in a bid to expand their regional presence and capabilities. Indeed, this position is consistent with the findings of Consultancy firm, PwC in a recent survey (“Cities of Opportunities 7, 2016“) which saw Singapore being placed 2nd (out of 30 global cities and after London) as the world’s best business hub.

This, coupled with the increase of economic activity within Asia (particularly Singapore) and the need to ensure that Singapore maintains its competitive edge as (rightly described by the Singapore Ministry of Law) the “key seat of arbitration in Asia“, has propelled the Singapore Ministry of Law to propose changes under the Civil Law (Amendment) Bill 2016 (“Funding Bill“).

The Funding Bill which was submitted for First Reading before the Singapore Parliament on 7 November 2016 essentially seeks to enact a framework and legalise third party funding for international arbitration and related litigation proceedings in Singapore.  The Funding Bill is expected to proceed for a second reading and if approved, to be enacted in early 2017.

Given the recent developments, here is an overview of what you need to know of the impending change:

Question Answer Did you know?

 

What is third party funding?

 

Third party funding is an alternative mode of financing a party’s legal proceedings.

It is where a third party entity, that is entirely not involved in and/or connected to a dispute, provides funds to one party (usually the Claimant) for a return of financial gains (e.g. a share of damages awarded) in the event a claim is successful.

Also commonly referred to as “litigation funding“, “specialist funding” and “legal financing“.
What is the current position in Singapore?

 

Third party funding is not allowed in Singapore under the common law tort of champerty and maintenance.

Similarly, third party funding agreements are not enforceable in Singapore.

 

Both Singapore and Hong Kong have yet to legalise third party funding in arbitration. However,

  • The Law Reform Commission (Hong Kong) has recently proposed for the legalisation of third party funding under the Arbitration Ordinance; and
  • Unlike Hong Kong, there are currently no professional third party funders based in Singapore.
What are the proposed changes?

 

Four (4) key changes:

(i)        Abolish the common law tort of chamberty and maintenance in Singapore;

(ii)       Third Party Funding contracts can be valid and enforceable in “certain prescribed categories of proceedings” such as international arbitration and related legal proceedings in Singapore;

(iii)     Third Party funders will be subject to certain prescribed qualification or requirements; and

(iv)     Through a related amendment under the Legal Professions Act (Cap. 161), lawyers can introduce / refer funders to clients as long as there is no direct financial benefit derived. They can also advise clients on third party funding contracts and any disputes arising out thereof.

The proposed amendments were open for public consultation between 30 June 2016 to 29 July 2016 and received feedback from the Law Society, lawyers, in-house counsel, professional funders and other agencies.

If approved, these changes will take the form of amendments to the Civil Law Act (Cap 43 of the 1999 Revised Edition).

 

 

 

 

What preparatory steps can your company take?

 

In anticipation of the prospects of legalised third party funding in Singapore:

(i)         Know your third party funders – are they reputable and experienced?

(ii)        Know the qualifying criteria you need to meet to be eligible for third party funding.

In the UK, there is a self regulatory body called the Association of Litigation Funders which also sets standards (in the form of a Code of Conduct) for which its funder members must abide by.

 What does this mean for Singapore?

Adopting a more “light touch” approach means it remains uncertain if Singapore will extend the legalisation of third party funding to cover domestic arbitration and court litigation in Singapore.

For the moment, the current changes (if allowed) will still be a significant development in Singapore’s positioning as the dispute resolution hub of choice for cross-border disputes in Asia. It brings Singapore more in line with other major arbitration centres, such as London, and provides commercial parties with yet another reason to choose arbitration to resolve their disputes.

 

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COSTS AND DURATION OF ARBITRATIONS: A COMPARISON OF THE SIAC AND LCIA STUDIES

The SIAC Study

On 10 October 2016, the Singapore International Arbitration Centre (“SIAC“) released its inaugural Costs and Duration Study (the “SIAC Study“) based on actual cases filed with the SIAC under the 5th edition of the SIAC Rules (“SIAC Rules 2013“, which came into effect on 1 April 2013). The data set was taken from 98 cases administered under the SIAC Rules 2013 from the period 1 April 2013 to 31 July 2016 where a final award had been issued.

Some noteworthy statistics from the SIAC Study:

  • The mean duration of an SIAC arbitration is 8 months, whereas the median duration is 11.7 months.
  • The mean total costs of an SIAC arbitration is USD 80,337, as compared to the median total costs, which is USD 29,567.

The above figures are fairly impressive given that, according to Gary Born, President of the Court of Arbitration of the SIAC, the “average sum in dispute in the past three years is more than USD 16 million“.

The LCIA Study

In a similar costs and duration study released in November 2015 (“LCIA Study“), the London Court of International Arbitration (“LCIA“) published data on LCIA arbitrations completed between 1 January 2013 to 15 June 2015.

The LCIA Study shows, among other things, that:

  • The mean duration of an LCIA arbitration is 20 months, whereas the median duration is 16 months.
  • The mean costs of an LCIA arbitration is USD 192,000, whereas the median costs is USD 99,000.

The LCIA Study also compared the LCIA’s statistics with the mean and median costs of arbitrations commenced under three (3) other established arbitral institutions, namely, the International Chamber of Commerce (“ICC“), the SIAC and the Hong Kong International Arbitration Centre (“HKIAC“).

Interestingly, based on the LCIA Study, the estimated mean costs of an SIAC arbitration amounted to USD 250,000, while the median costs was approximately USD 140,000.

The main takeaway from the LCIA Study was that LCIA arbitrations were generally more affordable than ICC and SIAC arbitrations; HKIAC arbitrations have the distinction of being the cheapest. However, according to the LCIA Study, the costs of LCIA arbitrations are comparable to that of HKIAC arbitrations for high-value disputes worth more than USD 1 million.

The LCIA uses the hourly rate system to compute the costs of its arbitrations, as opposed to the ad valorem system used by the ICC and the SIAC. (The HKIAC uses both systems, giving parties a choice between the two.) The ad valorem system fixes the costs of an arbitration based on the value of a claim and within limits provided by each institution’s costs scales.

Disparities in data collection

A comparison of the data taken from both studies reveals a significant disparity between the LCIA’s estimated cost of an SIAC arbitration and the SIAC’s own numbers. For example, the median costs of an SIAC arbitration under the LCIA Study was USD 140,000, as compared to USD 29,567 under the SIAC Study. Given that the two studies were conducted only a year apart, the disparity cannot be easily explained away by just the passage of time.

However, the figures obtained by the SIAC Study – which appear to be based on actual costs incurred in real cases – may arguably be more accurate than the numbers published by the LCIA Study, which were derived from estimates using the SIAC’s costs calculator.

Efficiency of SIAC arbitrations

While a close comparison of the two studies would cast some doubt as to the actual mean / median costs of an SIAC arbitration, the efficiency of an SIAC arbitration looks set to continue to improve with the introduction of the 6th edition of the SIAC’s Arbitration Rules, which came into effect on 1 August 2016 (“SIAC Rules 2016“).

In particular, with the introduction of the early dismissal rules as well as enhancements to the Emergency Arbitrator and Expedited Procedure provisions, the median duration of an SIAC arbitration is expected to continue to shorten. At 11.7 months, the median duration of an SIAC arbitration is already shorter than that of an LCIA arbitration, which comes in at 16 months.

The enhanced speed of SIAC arbitrations is likely to be an attractive feature for commercial parties on the lookout for the most expeditious (and inexpensive) method of resolving their commercial disputes.

Conclusion

  • Based on data collected from both studies, SIAC arbitrations are generally resolved more quickly than LCIA arbitrations.
  • The duration of SIAC arbitrations is likely to continue to shorten with the new provisions found in the SIAC Rules 2016.
  • The actual median costs of an SIAC arbitration appears to be subject to dispute, with the LCIA Study yielding very different estimates from the SIAC Study’s published figures.
  • Ultimately, neither study is comprehensive enough to accurately determine whether the ad valorem system or hourly rate system is more cost-efficient.
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SINGAPORE HIGH COURT SETS ASIDE ARBITRAL AWARD FOR BREACH OF NATURAL JUSTICE

In the recent decision of JVL Agro Industries Ltd v Agritrade International Pte Ltd [2016] SGHC 126, the Singapore High Court set aside an arbitration award in favour of the defendant, Agritrade International Pte Ltd (“Agritrade”), on the basis that there had been a breach of the rules of natural justice.

In brief, the Court found (amongst other grounds) that:

  • The arbitral tribunal had reached its determination on the basis of an issue which Agritrade had not advanced in the proceedings; and
  • In doing so, the tribunal had failed to grant the plaintiff, JVL Agro Industries Ltd (“JVL“), a fair hearing.

This is a significant decision in Singapore, an arbitration-friendly jurisdiction where the local courts rarely intervene in the decisions of arbitrators.

The background

  • JVL entered into a series of 29 contracts to buy palm oil from Agritrade between July and November 2008.
  • In the second half of 2008, the market price of palm oil fell significantly below the parties’ contractually agreed prices.
  • JVL approached Agritrade to have a price-averaging arrangement (“PAA”) to allow JVL more time to discharge its contractual obligations and to average down the unit price of the palm oil. Meanwhile, JVL continued entering into new contracts with Agritrade to buy palm oil at the prevailing market price.
  • Eventually, JVL discharged almost all its purchase obligations, save for five (5) undischarged market price contracts (the “disputed contracts“).
  • By June 2010, the market price of palm oil had risen significantly. The parties were unable to agree on the prices to be reflected in the disputed contracts. As a result, JVL served a notice of default on Agritrade that it would purchase the remaining palm oil from the market and claim the difference against Agritrade.

The arbitration proceedings

  • In April 2011, JVL commenced arbitration against Agritrade at the Singapore International Arbitration Centre (“SIAC“).
  • JVL’s pleaded position was that Agritrade had failed to perform any of the disputed contracts despite promises to do so.
  • Agritrade’s main defences were that:
    • the PAA resulted in the disputed contracts being void for uncertainty (“Uncertainty Defence“); or
    • Even if the disputed contracts were not void, they had been mutually terminated (“Mutual Termination Defence”).
  • Agritrade abandoned its Mutual Termination Defence on the first day of the arbitration proceedings, resulting in its sole defence at the arbitration being the Uncertainty Defence.
  • Agritrade did not address the parol evidence rule at all in its defence. It was the tribunal that directed parties to address this issue.
    • The parol evidence rule provides that a party to a contract which has been reduced to writing cannot (unless one of a limited number of exceptions applies) rely on extrinsic evidence to vary, contradict, add or subtract from the contract.
  • The tribunal issued its award in October 2013, dismissing JVL’s claim with all three arbitrators agreeing that their decision turned on the issue of whether the PAA amounted to a collateral contract:
    • The majority found that the PAA amounted to a collateral contract that was capable of varying the parties’ obligations under the disputed contracts.
    • In a nutshell, the tribunal’s determination of Agritrade’s liability depended primarily on its determination of whether the PAA was a collateral contract falling within the exception of the parol evidence rule.

JVL’s application to set aside the award

Dissatisfied with the outcome, in January 2014, JVL applied to the Singapore High Court to set aside the arbitral award. JVL’s primary grounds were:

  • There was a breach of the rules of natural justice in the tribunal’s making of the award;
  • The arbitral tribunal’s decision on certain issues went beyond the scope of the arbitration; and
  • There was apparent bias on the part of the tribunal towards JVL.

Having heard the parties, the High Court suspended JVL’s application to set aside the award (i.e. exercising the Court’s power under Art 34(4) of the UNCITRAL Model Law), remitting the award back to the tribunal for it to consider whether it was necessary or desirable to receive further evidence or submissions on (amongst other things) whether the PAA amounted to a collateral contract. The tribunal declined to receive further submissions or evidence and rendered an addendum reaffirming its decision. JVL’s application to set aside the award resumed before the High Court after six (6) months.

The High Court’s decision

  • The Honourable Justice Vinodh Coomaraswamy observed that:
    • JVL and Agritrade failed to raise or address the parol evidence rule in their respective cases.
    • Although the parol evidence rule was addressed in the parties’ first exchange of written submissions (at the direction of the tribunal):
      • Agritrade chose not rely on the collateral contract defence as an exception to the parol evidence rule (“collateral contract exception”) despite having at least five (5) opportunities to do so; and
      • Neither party was directed to specifically address the collateral contract exception.
  • The Court allowed JVL’s application, holding that:
    • there was an insufficient nexus between the tribunal’s chain of reasoning and the cases advanced by the parties.
    • Significantly, the Court found that Agritrade’s defence was not merely silent on the collateral contract exception, but had implicitly rejected it.
    • As such, the majority of the tribunal had breached the rules of natural justice by depriving JVL of a fair hearing.
    • In particular, the Court found that the majority had exercised “unreasonable initiative” by impermissibly relieving Agritrade of the burden of establishing its defence.

Key takeaways

This decision is unlikely to open the floodgates. It affirms the trite legal principles that:

  • there should be a sufficient nexus between the reasoning which the tribunal adopts and the cases advanced by the parties. [In this case, neither party had advanced the collateral contract issue.]
  • each party should be given a fair and reasonable opportunity to present its case. [The court found that JVL had been deprived of a reasonable opportunity to present its case, particularly on an issue that turned out to be the determinative issue in the tribunal’s ultimate award, i.e. the collateral contract issue.]
  • an arbitral tribunal has the power to undertake inquisitorial processes under s. 12(3) of the International Arbitration Act (Cap. 143A). Once issues have been raised by the tribunal, the tribunal can incorporate those issues into its reasoning provided that the parties have been given the opportunity to address such issues. [In this case, the tribunal had raised the collateral contract exception on its own accord (possibly to avoid an “unattractive” outcome) and adopted a chain of reasoning that had no connection with the cases advanced by either party.]

Ultimately, this decision validates Singapore as a neutral, fair seat where the Courts – while known for their pro-arbitration stance – will adopt a robust approach when there has been a clear breach of the rules of natural justice. The courts at the seat of the arbitration proceedings have supervisory jurisdiction over the arbitration process and the parties should be secure and confident that such powers will be exercised when required.

 

With thanks to Lakshanthi Fernando.

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An overview: How do the key changes to the SIAC Rules compare with some of the other major arbitral institutions?

 

SIAC (2016 rules) ICC LCIA HKIAC
Consolidation of multi-contract disputes
Joinder of parties and non-parties

(Non-parties disallowed)

Early dismissal of claims/ defences

Delocalising the Seat of Arbitration

(Default seat is London if parties have not agreed; Parties can subsequently request another seat)

(Default seat is Hong Kong if parties have not agreed)

Remedy against non-paying party for unpaid deposits

Expedited procedure may be heard solely on documentary evidence

(Expedited procedure unavailable)

(Appears to be silent)

Emergency arbitration proceedings (appointment of arbitrator in 1 day)

(Appointment within 2 days)

(Appointment within 3 days)

(Appointment within 2 days)

Arbitrator’s appointment can be challenged; A reasoned decision to any challenge will be given and a fee is payable

(The former arbitrator’s fees are not fixed)

With thanks to Lakshanthi Fernando.

Posted in Arbitration, Asean, Dispute Resolution, Hong Kong, ICC, London, SIAC, Singapore | Leave a comment

SIAC 2016 Rules: The key changes

On 1 July 2016, the Singapore International Arbitration Centre (“SIAC“) published the latest revised set of SIAC Rules (“SIAC 2016 Rules“), which will come into effect on 1 August 2016. The SIAC 2016 Rules are available here.

The SIAC’s draft revised rules were released for public comment on 18 January 2016. In a previous blog post, we highlighted some of the key proposed changes relating to Multiple Contracts and Consolidation, Joinder of Additional Parties and the enhanced Emergency Arbitration Proceedings, which have since been finalised.

An Overview of the Key Changes

A. Consolidation of multi-contract disputes (Rules 6 and 8):

Rule 6 [Multiple Contracts]

  • At the time of arbitration proceedings, the claimant can choose to either:
    • File a Notice of Arbitration in respect of each arbitration agreement invoked and concurrently submit an application for consolidation of the arbitrations under Rule 8.1; or
    • File a single Notice of Arbitration in respect of all the arbitration agreements invoked, including:
      • A statement identifying each contract and arbitration invoked; and
      • A description of how the applicable criteria under Rule 8.1 are satisfied.

Note: By filing a single Notice of Arbitration, the claimant is deemed to have:

  • commenced multiple arbitrations (one for each arbitration agreement invoked); and
  • applied to consolidate all such arbitrations under Rule 8.1.

Rule 8 [Consolidation]

  • Complements Rule 6.
  • Prior to the constitution of the Tribunal, a party may apply for two or more pending arbitrations to be consolidated into a single arbitration, subject to any of the following criteria being satisfied:
    • The parties’ consent;
    • The claims are made under the same arbitration agreement; or
    • The compatibility of the arbitration agreements and the disputes arise out of:
      • the same legal relationship(s); or
      • contracts consisting of a principal contract and its ancillary contract(s); or
      • the disputes arise out of the same transaction or series of transactions.
  • After the constitution of the Tribunal, a party may apply to consolidate two or more pending arbitrations into a single arbitration. The same criteria as above applies with some additions:
    • The same Tribunal should have been constituted in each of the arbitrations; or
    • There is no Tribunal constituted in the other arbitration(s).

Who does a party apply to?

  • The Court of Arbitration of SIAC (“SIAC Court“) [if application is made before the Tribunal is constituted]; or
  • The Tribunal [after the Tribunal has been constituted].

Why is this significant?

  • Previous SIAC Rules were silent on the administration of multi-contract disputes.
  • SIAC 2016 Rules provide a streamlined process for managing disputes arising out of or in connection with multiple contracts/arbitration agreement.

B. Joinder of Additional Parties (Rule 7):

  • Parties and non-parties may apply to be joined in a pending arbitration.
  • Joinder application may be made before or after the Tribunal is constituted.
  • Criteria to be considered:
    • The additional party to be joined is prima facie (i.e. on the face of it) bound by the arbitration agreement; or
    • All parties (including the additional party) consent to the joinder.

Why is this significant?

  • Previous rules (SIAC 2013 Rules) only allowed a third party to be joined to the arbitration if the third party:
    • was a party to the arbitration agreement; and
    • provided written consent to be joined.

C. Early dismissal of Claims and Defences (Rule 29):

  • A claim or a defence may be dismissed early if it is “manifestly”:
    • without legal merit; or
    • outside the jurisdiction of the Tribunal.
  • Application is to be made to the Tribunal.
  • The Tribunal has the discretion whether to allow it.
  • If the Tribunal allows an application for early dismissal to proceed, it must issue an order or Award:
    • with reasons (which may be in summary form); and
    • within 60 days of filing of the application [unless (in exceptional circumstances) the Registrar extends the time].

Why is this significant?

  • While early dismissal proceedings are common in court litigation, SIAC is the first major commercial arbitration centre to introduce such a procedure.

D. Seat of the Arbitration delocalised (Rule 21):

  • If the parties have not / are unable to agree on the seat of the arbitration, the Tribunal shall determine the seat having regard to all the circumstances of the case.

Why is this significant?

  • Previously, if the parties have not or were unable to agree on the seat, the seat was (by default) Singapore [unless the Tribunal determined otherwise].
  • Parties who do not expressly state the seat of arbitration in their arbitration clauses should take note of this change.

[As covered in a previous post, the seat of the arbitration is important for a number of reasons, for instance the seat determines the procedural law and the courts which have supervisory jurisdiction over the arbitral proceedings.]

E. Remedy against a Non-Paying Party (Rule 27):

  • The Tribunal has the power to issue an order or award for the reimbursement of unpaid deposits towards the costs of the arbitration.

Why is this significant?

  • The previous rules (SIAC 2013 Rules) merely allowed the Tribunal to issue an award for unpaid costs of the arbitration.
  • The new rule addresses a significant practical issue for parties (usually the Claimants) who need to pay the required deposits towards the costs of the arbitration when a counterparty fails or refuses to pay its share.

F. Expedited Procedure (Rule 5):

  • The amount in dispute (i.e. the aggregate of the claim, counterclaim and any defence of set-off) for the expedited procedure to be invoked has been increased from S$5,000,000 to S$6,000,000.
  • The Tribunal now has the discretion to determine whether an Expedited Procedure case can be decided on the basis of documentary evidence only as long as this is done in consultation with the parties.

Why is this significant?

  • Previously, the parties’ agreement was required for an Expedited Procedure case to be decided based only on documentary evidence (i.e. without a hearing).
  • The increase of the monetary threshold will enable more cases to benefit from the expedited procedure.
  • The Tribunal’s expanded discretion on dispensation of a hearing may increase the efficiency and speed at which a decision is made.

G. Emergency Arbitration Proceedings (Rule 30; Schedule 1; and Schedule of Fees):

  • New timeline for appointment of Emergency Arbitrator: Within 1 day (instead of 1 business day) of receipt of application for emergency interim relief and payment of administration fee and deposits.
  • New time limit for issuance of interim award / award: Within 14 days from the date of Emergency Arbitrator’s appointment [unless, in exceptional circumstances, the Registrar extends time].
  • Fixed fees: S$ 25,000 (unless the Registrar determines otherwise).

Why is this significant?

  • Faster relief.
  • Certainty on fees.

H. Challenge of Arbitrators (Rules 14 to 16; and Schedule of Fees):

  • A fixed “challenge fee” of S$8,000 (or S$8,560 for Singapore parties) is set; and
  • A reasoned decision of the SIAC Court will be issued.

Previously, there was:

  • no fee payable for submitting a notice of challenge; and
  • no requirement for the SIAC Court to provide reasons for its decision.

Why is this significant?

  • In our view, the requirement to pay a “challenge fee” may discourage frivolous or unmeritorious applications designed to delay the proceedings.
  • Greater clarity for the parties on the reasoning behind any decision by the SIAC Court on such challenges.

Conclusion

With the launch of the 6th edition of its rules (the last version being only 3 years ago), the SIAC has once again showcased its proactive and robust approach to refreshing, reviewing and streamlining its procedures to meet the commercial demands of its users.

With thanks to Lakshanthi Fernando.

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Tackling law and jurisdiction in Asia deals

Transactional lawyers can spend a lot of time negotiating liability clauses, indemnities, warranties and termination rights.  However, governing law and jurisdiction often ends up being a short debate towards the end of the negotiation about “home territory”, without clear justification on either side for a particular approach. Disputes lawyers can recall countless occasions where they have seen all of the effort on liability, indemnities, warranties and termination rights defeated by a poorly-drafted governing law and jurisdiction clause. In fact, when it comes to Asia deals, we think it might just be the most overlooked boilerplate clause of all.

So how should you negotiate a governing law and jurisdiction clause in an Asia transaction? Here are our top tips.

What are the pitfalls?

Here are some points to watch out for:

  1. Postponing the discussion for later in the negotiation. This needs to be tackled up-front, as it may affect your whole approach to the remainder of the negotiation. It is one of the first clauses a litigator will look at in the event of a dispute, and it should be one of the first clauses to be dealt with in a negotiation.
  2. Always pushing for your own local law and courts. The single biggest misconception where cross-border Asia deals are concerned is to assume that to secure your home law and courts is a “win”. It’s usually not. A contract that is subject to your home law and courts might run into serious enforceability issues in many jurisdictions in Asia, where foreign judgments are not always enforced. Let’s say you’re a UK company signing a partnership deal with an Indonesian counterparty. You might assume that English law and English courts would be a big win, whereas the reality is that even if you get a favourable judgment in the English courts, that might be worth no more than the paper it is written on when you try to enforce it through the Indonesian courts. So what is the solution? The most effective dispute resolution mechanism, and increasingly the market practice, is to go with arbitration. Why? Because arbitral awards are usually enforced in countries that have signed up to the New York Convention (and that is 156 countries, including most in Asia) and arbitration (which is confidential in nature) is fast becoming the regional standard, although other options are also available and a strategic approach is needed.
  3. Accepting any element of a dispute resolution clause that relies on an agreement to agree. A good example is a clause that requires the parties to agree upon the venue and/or number of arbitrators. This is usually a bad idea as it is unlikely for parties to agree on anything once a dispute has arisen and it is difficult to advise on contract drafting and interpretation if the governing law has not been agreed. It’s best not to leave these kinds of decisions to be made later – avoid the risk of being held hostage.
  4. Getting drawn into a “my law” versus “your law” debate. Inevitably in international contract negotiations, there will be some trickier conversations about laws and jurisdictions that are perceived to be less attractive than others.  Unfortunately, this is a necessary conversation which must often be dealt with in a sensitive and delicate manner. Without naming them here, there are jurisdictions whose court processes are best avoided. Equally, we have seen offence caused when an international company suggests that the laws of their local partner are unreliable (which is a particularly difficult argument to make when that international company has chosen to do business in the country in question). Try to keep the discussion constructive and “win-win” for both parties by considering the following:
    1. Could a neutral law (e.g. English or Singapore law) be better for both parties?
    2. Could a neutral forum (e.g. arbitration in Singapore or London) be better for both parties?
    3. What is the market practice in the region?
    4. Could arbitration work better for reasons of confidentiality?

What is best practice?

Just as there is no one-size-fits all commercial contract, there is no one-size-fits-all governing law and jurisdiction clause.  However, there are some basic rules to follow to get you off on the right foot.

  1. If the parties are in the same jurisdiction: Unless it is a trickier jurisdiction (see above), the courts of that country are usually ok and the governing law of that country is usually ok.  However, you should still consider whether it would be best to opt for a neutral law and/or arbitration e.g. if you prefer disputes to be confidential, or if the counterparty is a state-owned enterprise and you prefer to draw a line between it and the local courts.
  2. If the parties are in different jurisdictions: Neutral law is usually the best compromise. Singapore law, Hong Kong law and English law are popular choices.  Do bear in mind that selecting the courts of one or other of the jurisdictions might be a bad idea when it comes to enforceability (see our second common pitfall, above).
  3. Specialist contracts.  The two rules above apply to common commercial contracts (e.g. licences, services, franchises and joint ventures).  However, there are certain specialist contracts (e.g. contracts with consumers, contracts relating to real estate and employment contracts) where special rules may apply.  Contacts with consumers should normally be governed by the laws of the jurisdiction where the consumer is based and the local courts should usually have jurisdiction to resolve disputes.  Clauses that require consumers to go to court overseas may be struck down as unfair (e.g. under consumer protection legislation).  Employment contracts are similarly usually governed by local laws and local courts (or employment tribunals if they exist) will usually hear any related disputes.  Finally, contracts involving land are usually governed by the laws of the relevant jurisdiction where the rights in land exist.

Practical takeaways

Any organisation is wise to build a contractual protocol for governing law and jurisdiction clauses. This can be done in six easy steps:

Step 1: Identify your key territories and build a matrix of positions – consider your preferred, fallback and dealbreaker positions for each territory.

Step 2: Build a clause library which covers all of your preferred and fallback positions, mapped to the matrix from Step 1.

Step 3: Building country and/or regional template contracts – for example, consider whether local laws might require a translation of the contracts in order for it to be enforceable.

Step 4: Consult with local lawyers in key territories on approach(es) and market / best practices, and get their input on your matrix and clause library.

Step 5: Capture data and review (preferably on at least a yearly basis). For example, if you’ve agreed to Singapore law and arbitration as a fallback in >50% of cases, consider whether to build it into your template so as to save time on negotiation.

Step 6: Have a plan for the unexpected with an appropriate internal sign-off process. Remember, this really could be the most important clause in the contract.

With thanks to Lakshanthi Fernando and Matthew Hunter.

*Originally posted on Connected Asia

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SINGAPORE CONFIRMS STATUS AS ASIA’S MOST SOUGHT-AFTER DISPUTE RESOLUTION HUB

Singapore has once again confirmed its status as Asia’s leading dispute resolution hub.

The ICC 2015 Report

The International Court of Arbitration of the International Chamber of Commerce (“ICC“) announced strong growth in Asia in 2015, with Singapore retaining her ranking as the number one seat of ICC Arbitration in Asia.

Key takeaways:

  • Singapore has been consistently ranked as the number one seat of ICC arbitration in Asia for the last 5 years.
  • Singapore has been ranked in the top 5 most preferred seats of ICC Arbitration in the world for the last 10 years.
    • In 2015, Singapore was the 4th most preferred seat globally for ICC Arbitration, with more than 6% of new ICC cases last year naming Singapore as the seat of arbitration.
  • An increase in the number of foreign parties choosing Singapore as a seat for arbitration.
    • In over 71% of Singapore-seated arbitrations filed in 2015, one or more of the parties was not Singaporean.
    • In almost 50% of these cases, a non-Singapore arbitrator was appointed.
  • The ICC recorded the second-highest number of new cases in its 93-year history.
    • 801 cases were filed in 2015.
    • The average monetary value of disputes submitted to the ICC in 2015 rose to US$84 million, with the largest dispute valued at over US$1 billion. The aggregate value of all disputes pending before the Court at the end of 2015 stood at US$286 million.

The Seat of Arbitration – Why is it important?

The choice of the seat is important for the following reasons:

  • The seat determines the law of the arbitration procedure and the courts of the seat have supervisory jurisdiction over the arbitral proceedings (including the right to intervene in the proceedings).
  • The law of the seat governs key issues such as how an award may be challenged, and whether an arbitrator has jurisdiction to hear a particular case.
  • Parties usually go to the courts of the seat to seek interim relief.
  • “Arbitration-friendly” seats tend to give parties a high degree of procedural autonomy, thereby facilitating the smooth progress of the arbitral process.

Points to note:

  • Identification of the seat is one of the most important features of an arbitration clause.
  • The seat of the arbitration can differ from the venue of the arbitration [i.e. location where the hearings may take place].
  • When choosing a seat, it is important to consider:
    • The effect of the local law of the seat on the conduct of the arbitration and the enforceability of the ultimate award; and
    • Whether the local courts are “arbitration-friendly” [for e.g. in less arbitration-friendly countries, the courts can have wider powers / discretion to control the arbitration process and tend to be more interventionist].

Comment

The ICC and SIAC statistics for 2015 reaffirm Singapore as the forum of choice for dispute resolution in Asia, with the Financial Times (FT) recently pronouncing that Singapore is becoming a world leader in arbitration.

As the FT noted, Singapore has a growing menu of options for sorting out disputes without litigation. Apart from ICC Arbitration, parties seeking to adjudicate their disputes in Singapore are spoiled for choice. Depending on their preferred choice of dispute resolution mechanism, parties can now elect to have their cases heard at the Singapore International Arbitration Centre (SIAC), the Singapore International Mediation Centre (SIMC), and the newly established Singapore International Commercial Court (SICC). Each of these institutions boasts a well-respected panel of arbitrators, mediators and judges of international calibre, from which parties can choose.

In the 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration, Singapore was named as the most improved arbitral seat. The survey is a positive endorsement of Singapore’s formal legal infrastructure, as it is based on factors such as: the neutrality and impartiality of the legal system; the national arbitration law; and its track record for enforcing agreements to arbitrate and arbitral awards.

The survey respondents also voted the SIAC as the second most improved arbitral institution, a testament to the quality of its administration and its reputation and recognition by the international community for its “internationalism“.

Posted in Arbitration, Asean, ICC, SIAC, SICC, SIMC, Singapore | 1 Comment

ARB-MED-ARB: THE FUTURE OF DISPUTE RESOLUTION?

What is Arb-Med-Arb?

Preserving relationships and maintaining confidentiality during a dispute has increasingly become a priority for savvy commercial parties.

Parties are therefore constantly exploring fresh avenues of Alternative Dispute Resolution (“ADR“) in order to minimise legal costs, preserve commercial relationships and achieve an expeditious resolution.

The Singapore International Arbitration Centre (“SIAC“) has collaborated with the Singapore International Mediation Centre (“SIMC“) to offer parties the Arb-Med-Arb Protocol (“AMA Protocol“), an attractive ADR option.

Under the AMA Protocol, parties who have commenced arbitration are to refer their dispute to mediation. If the mediation is successful, parties can then record their settlement agreement before the arbitral tribunal as an enforceable consent award.

The Stages

The AMA Protocol is relatively straightforward and easy to follow:

  1. Party A commences arbitration by filing a Notice of Arbitration (“NOA“) against Party B under the auspices of the SIAC.
  2. Party B files a Response to the NOA.
  3. The arbitral tribunal (“Tribunal“) is constituted.
  4. The Tribunal stays the arbitral proceedings and the dispute is referred to mediation under the SIMC.
  5. The SIMC mediation is to be completed within 8 weeks from the mediation commencement date.
  6. If the dispute is settled at mediation, parties can request that the Tribunal record their settlement in the form of a consent award.
  7. If the dispute is not resolved at mediation, the arbitral proceedings will resume.

Benefits of AMA

  1. The AMA process combines the advantages of mediation and arbitration into one to provide parties with an affordable and potentially expeditious ADR option.
  2. AMA allows parties to enjoy the confidentiality that arbitration provides, whilst retaining the flexibility of mediation so that parties can preserve their commercial relationships. This has taken on additional relevance in the present legal landscape as many contemporary contracts contain multi-tiered dispute resolution clauses obligating parties to use their “best endeavours” to resolve disputes before resorting to legal proceedings.
  3. The AMA Protocol provides parties with the option of recording their settlement agreement as a consent award, which is treated as an arbitral award and enforced in the same manner. This aids in the enforcement of settlement agreements as SIAC awards are recognised under the New York Convention.
  4. Mediation can help parties to avoid the pitfalls of interlocutory applications that frequently arise in arbitration / court proceedings, and to focus instead on the crux of the dispute and parties’ commercial interests.
  5. Under the AMA Protocol, the arbitrator(s) and mediator(s) are separately and independently appointed under the relevant arbitration and mediation rules to avoid issues of potential conflict of interests.
  6. SIMC’s mediators are independently certified by the Singapore International Mediation Institute (SIMI). The SIMC’s panel of mediators therefore meets the requisite high professional standards required to mediate complex cross-border disputes. The SIMC also has a panel of technical experts who can assist mediators in cases involving highly technical issues.

Model Clause

The SIMC and SIAC provide parties with Arb-Med-Arb Model Clauses that could be incorporated into their contractual agreements.

FAQ

Q: Are parties free to select the mediator(s) of their preference or are there any restrictions placed on the choice of mediators?

A: Yes. Parties are free to decide on their mediator(s) of choice from SIMC’s panel of mediators or any other mediator. If they cannot agree, a mediator will be appointed by the SIMC.

At last count, the SIMC’s panel of mediators consists of more than 65 mediators across multiple jurisdictions, with expertise in different areas of commercial practice, language skills and mediation styles. The aim is presumably to provide parties with the most appropriate mediator for their case.

 

Q: Are there any restrictions on the number of mediators that parties/the SIMC can appoint?

A: There is no prescription as to the number of mediators parties may wish to appoint. Notwithstanding so, generally, a single mediator is jointly appointed by the parties. If parties cannot agree, the SIMC will appoint a mediator on their behalf.

 

Q: How would mediation affect the timelines of an arbitration?

A: No impact. Once the mediation commences, the arbitral proceedings will be stayed.

If no final settlement is reached at mediation, the arbitral proceedings will resume.

 

Q: Must the AMA Clause be contained in the original contract between parties? Can parties choose to adopt the AMA Protocol later on down the road?

A: The AMA Clause does not necessarily need to be contained in the original contract between parties.

Parties can also adopt the AMA Protocol after a dispute has arisen. Both parties’ consent would be required.

Other Highlights

  • Since its launch in November 2014, the SIMC has received nine (9) cases, where the disputed sums range from just under SGD 1.5 million to more than SGD 600 million. These cases cover multiple sectors, including construction, oil and gas, shipping, aviation and sale/supply of goods and services.
  • The parties involved include companies from Singapore, the Cayman Islands, Germany, India, Korea, Laos, Macau, Malaysia, Myanmar, Taiwan, Thailand, the United States and Vietnam.
  • Three (3) of the nine (9) cases have been commenced under the AMA Protocol. Of these, two (2) cases proceeded for SIMC mediation after the commencement of arbitration; the other case went through the AMA process after the AMA clause in the parties’ original contract was triggered.

 

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