International Dispute Resolution in United Kingdom UK
International Dispute Resolution in United Kingdom UK
World of Arbitration In a civilised society, citizens look to the courts to settle their disputes. The courts put judges at the disposal of the parties, the courts determine the substantive and procedural law which is to be applied and the courts enforce their own orders through court officers, when necessary. It is a one-stop shop.
For those engaged in alternative dispute resolution – ADR, the courts are available not merely to enforce decisions and awards but also to supervise and control the chosen ADR procedures, should matters go awry.
Where disputes arise in the international arena, the picture is a little different because national courts are rarely acceptable to both sides. Disputes between states or between an individual and a foreign state or between an individual and an international organisation may be regarded as being in a special category, where the aggrieved party may have recourse to treaty arbitration. Examples are arbitration before the PCA1 and arbitration under the auspices of ICSID2. Beyond that special category, the parties must make express provision for dispute resolution in their agreement, failing which the aggrieved party will be left to seek his remedy from the domestic courts of one country or another, depending upon which will assume jurisdiction.
The result is a contrast. Whereas national courts often represent a convenient and acceptable means of dispute resolution for parties to a dispute which has no international element, there is no international equivalent. In consequence, most international disputes fall to be resolved through a process or by a tribunal which is essentially consensual in origin.
This paper is concerned with the resolution of disputes arising under international construction contracts. The purpose is to survey the available alternatives and to identify some of the considerations to be borne in mind by those concerned. In this last context, the emphasis is on two key considerations, being enforcement and applicable law.
Enforcement
It is convenient to note at this stage that there is more than one aspect to enforcement. Thus, we may distinguish between enforcement in the sense of ensuring implementation of the chosen disputes resolution procedure, on the one hand, and enforcement in the sense of giving effect to the resulting award or decision, on the other.
There are various conventions which bear upon enforcement. However, on the international stage, it is the New York Convention which is of most significance. Replacing the Geneva Convention of 1927, the New York Convention provides a simple and effective method of obtaining recognition and enforcement of foreign arbitral awards. By Article II, Contracting States agree to recognise arbitration agreements in writing and undertake that their courts, if seized of an action in respect of which the parties have made an arbitration agreement in writing, will, in principle, refer the parties to arbitration. Further, By Article III, awards made in the territory of a Contracting State, provided that they are made pursuant to an arbitration agreement in writing, are to be recognised and enforced by another Contracting State. Limited grounds for refusal of recognition and enforcement are set out in Article V. These are as follows:
Article V(1) (Conflict with the law of the State where the award was made or where the arbitration proceedings took place)
1. Incapacity of parties and invalidity of arbitration agreement.
2. Inadequate notice.
3. Excess of jurisdiction.
4. Improperly constituted tribunal procedure.
5. Award not yet binding or already set aside or suspended.
Article V(2) (Conflict with the law of the State where recognition or enforcement is sought)
1. Dispute not capable of settlement by arbitration.
2. Recognition or enforcement contrary to public policy.
In applying such grounds for refusal of enforcement, it is customary for the courts of contracting states to allow a margin of appreciation in recognition of the fact that the award was made in another jurisdiction. For example, although ad hoc arbitration agreements are void under the PRC Arbitration Act 1995, the courts of the PRC have nevertheless chosen to enforce arbitration awards rendered by ad hoc tribunals in foreign jurisdictions, rather than invoking the public policy ground set out in Article V(ii)(b)5.
Applicable Law
The second key consideration concerns the applicable law. It is in the context of arbitration that the need to ascertain the applicable law is most acute. It has been said that, without undue sophistication, there are at least five different systems of law which may have a bearing on an international commercial arbitration6. Allowing for the fact that this paper is concerned not only with arbitration but also with other forms of ADR, the five may be expressed as follows:
1. The law governing the parties’ capacity to enter into an dispute resolution agreement;
2. The law which governs the dispute resolution agreement and its performance;
3. The law which governs the existence and proceedings of the mediator, conciliator or tribunal – sometimes known in the context of arbitration as the lex arbitri;
4. The law governing the substantive issues in dispute, generally described as the applicable law, the governing law, the substantive law or the proper law of the contract;
5. The law governing recognition and enforcement of the award or decision (which may in practice be more than one, if the attempt to enforce has to be made in more than one jurisdiction).
Having noted above a distinction between enforcement in different senses, it is to be observed that enforcement in the sense of ensuring implementation of the chosen disputes resolution procedure is governed by the law at (2) above, whilst enforcement in the sense of giving effect to the resulting award or decision is governed by the law at (5).
Mediation and Conciliation
The parties to an international dispute may embark on mediation or conciliation. If they do it will either be because the contract calls for it or because they have agreed to do so on an ad hoc basis. Various institutions involved in international dispute resolution have published protocols providing for mediation or conciliation, such as the ICE7, the ICC8, the LCIA9 and the HKIAC10.
Since such procedures depend largely for their success upon the parties reaching consensus, the fact that the dispute has an international element tends to have relatively little bearing on the proceedings, save that, for one party or the other (and perhaps both) the applicable substantive law may be foreign. However, the international element cannot wholly be overlooked. Those involved will wish to bear in mind the effect of anything said and done in the context of a mediation upon any subsequent means of dispute resolution to be undertaken if the mediation fails. For example:
1. The privilege against disclosure and production of documents which common lawyers associate with the epithet without prejudice is unknown in Greek law. Accordingly, if the ultimate arbitration is to be conducted according to Greek procedural law, the parties to any mediation process should be aware that any documents disclosed may ultimately come to the attention of the arbitral tribunal even if the parties purport to conduct the mediation on a without prejudice basis.
2. Parties who succeed in settling their dispute in mediation do well to include in the settlement agreement not only a term which identifies the law which governs the settlement agreement itself but also a term (if it can be agreed) to the effect that in the event of dispute both parties agree to submit to the jurisdiction of a particular national court.
It may also be necessary to have the law applicable to enforcement in mind when considering the possibility of dispensing with mediation even though it is expressly provided for. Thus, if the disputes resolution procedure laid down by the contract makes mediation a condition precedent to arbitration, the party who fails to cooperate in mediation may do so at its peril. The court from whom enforcement is sought might decline to do so under Article V of the New York Convention, either upon the basis that the arbitral procedure was not in accordance with the agreement of the parties (Article V(1)(d)) or on the basis that enforcement would be contrary to public policy (Article V(2)(b)).
A similar problem might arise in with the process sometimes known as “Med-Arb”. In, for example, the PRC an arbitral tribunal may well find itself acting as mediator and conciliator. In that jurisdiction, there is no objection to the tribunal subsequently resumed its arbitral function, provided that the award is rendered promptly. But, whereas such a procedure would be regarded as quite normal in the PRC, it might not be seen in the same light elsewhere. Accordingly, there is a risk that if enforcement were sought in some other jurisdiction, it might well be resisted under the New York Convention on public policy grounds.
Disputes Boards
For a project of any size involving contracting parties of different national origins, the contract which provides for the interim resolution of disputes on referral by a Disputes Board11 is now the rule rather than the exception. The rules under which such a body operates tend to vary from project to project. However, a degree of standardisation has been introduced as a result of the publication of standard rules both by the ICC12 and by FIDIC13.
Typically, the Disputes Board is appointed at the commencement of the project; its members are required to visit the site periodically and to familiarise themselves with the works; disputes come before the Disputes Board only upon referral by one or other of the parties; and the Disputes Board’s decision (or “recommendation”) binds the parties, subject to review by an Arbitral Tribunal (or, more rarely, by the courts).
Once again, the international element of the dispute tends to have little bearing on the proceedings conducted before the Disputes Board. However, practitioners still need to take into account the effect of different systems of law. Thus:
1. The enforceability of the Disputes Board procedure will be governed by the law which governs the disputes resolution provisions generally.
2. The enforceability of the Disputes Board’s decision will be governed by the law of the state in which enforcement is sought.
Let it be supposed that a substantial infrastructure is part complete when a dispute over valuation arises, leading the contractor to issue a threat to suspend all work on the relevant part of the project unless its demands for payment are met. Let it be supposed further that the employer then seeks injunctive relief to restrain the contractor from carrying out its threat. The contractor maintains that the court ought to decline jurisdiction in favour of the Disputes Board constituted in accordance with the Disputes Resolution provisions. The issue for the court is whether or not to enforce the contractual procedure. Many will recognise these as the outline facts of the Channel Tunnel case14. As is well known, the House of Lords preferred to enforce the contractual disputes resolution procedure. In doing so, it may be regarded as having applied the law governing the dispute resolution agreement and its performance.15
The moral of the tale is that the practitioner should keep well in mind the likely attitude of the courts in the state in which enforcement action might be taken.
Treaty Arbitration
The PCA situated at The Hague was established by the Convention for the Pacific Settlement of International Disputes included at The Hague in 1899 and revised in 1907. Where the relevant state is a party to one or other of the two Hague Conventions, a dispute may be referred to the PCA where at least one party is a state, state entity or an intergovernmental organisation.
ICSID was established by the Washington Convention of 1965,16 better known as the ICSID Convention. It gives both private individuals and corporations who are “investors” in a foreign state the right to bring legal proceedings against that state before an international arbitral tribunal. “Investors” in this context include a foreign contractor implementing a construction project in the territory of the state in question. Here, the source of authority to arbitrate is a bilateral investment treaty. For the contractor who qualifies as an “investor”, this offers the opportunity to institute proceedings before an international Arbitral Tribunal administered by ICSID in Washington. The advantages to the “investor” are that there is no fear of the outcome being influenced by the Respondent state as there might be if the dispute could only be litigated or arbitrated within the borders of that state. Furthermore, state immunity is much restricted.
A full review of ICSID arbitration is beyond the scope of this paper. However, a particular problem to be noted is that which can arise where the underlying construction contract itself provides for the arbitration of disputes. In such a case, what sometimes appears to be a contest between two tribunals can arise in the event that one party purports to refer to a dispute to the contract tribunal, whilst the other purports to refer the same dispute to a tribunal constituted by ICSID.17
Arbitration pursuant to Agreement
Turning to arbitration pursuant to agreement, there is a distinction between an arbitration agreement incorporated into the contract at the outset and an arbitration agreement which is concluded ad hoc. But, either way, the threshold questions concern what is agreed or provided for as to the constitution of the Tribunal and what procedural law is be applied.
Parties commonly agree that the dispute is to be arbitrated in accordance with specified institutional rules such as those of UNCITRAL,18 the ICC,19 the Stockholm Chamber of Commerce,20 the HKIAC,21 CIETAC,22 SIAC23 and the Swiss Chambers of Commerce.24 In such a case, these threshold questions are likely to be provided for, if not agreed.
Where the parties do not adopt institutional rules, matters such as the constitution of the tribunal and the choice of procedural law fall to be settled in the event of dispute by the courts of the state in which the arbitration takes place. In English law, the approach would be to resolve such disputes by reference to the law which governs the arbitration agreement.
Thus, in the Star International case,25 the contractual arbitration clause was silent as to the procedural rules to be followed. After the award had been published, the unsuccessful party sought to challenge it on the basis that no oral hearing had been held. The court, applying English law, held that the absence of a hearing did not amount to unfairness and declined to interfere with the award.
Once the tribunal has been constituted and the procedural rules identified, practitioners are likely to find it necessary to refer to any one or more of a number of different systems of law.
Let it be supposed, for example, that the claimant seeks interim conservatory relief, perhaps an order that an area of allegedly defective flooring be preserved so that forensic tests can be conducted. In the first instance, there is a question whether the tribunal has jurisdiction to make such an order. The answer to that question will depend on the lex arbitri. In many cases, institutional rules expressly confer jurisdiction upon the tribunal to make such an order. Beyond that, if the tribunal does make an order, there is a question whether the local court should enforce it. The answer to that question will depend in part on the lex arbitri, in that the court would be unlikely to enforce an order made without jurisdiction. But it may depend also on the law of the state in which enforcement is sought. In the PRC, for example, it is unlikely that such an order would be enforced, since it seems that it is only the court which is regarded as having power to order interim relief.
Then again, let it be supposed that, following publication of the award, the losing party seeks to challenge it. The question whether or not the award can be challenged may depend in part on the lex arbitri. Thus, for example, the ICC Rules are regarded at least in England and Wales as excluding appeals26. But if the institutional rules are silent on the point, the question of challenge may depend on the law of the place of the arbitration. So, if such a situation were to arise in a case where the arbitration took place in, say, South Korea, the court would be likely to assume jurisdiction to set aside the award on grounds similar to those given in Article V of the New York Convention for refusing enforcement, provided that an order for enforcement has not already been made.27
In the same way, there are a number of circumstances in which the practitioner will wish to have in mind not only the lex arbitri but also the law of the state in which the arbitration takes place. These include where a party seeks to restrain the tribunal from proceeding at all, where a party seeks security for costs,28 where a party seeks to sub-poena witnesses; where a party seeks an order for disclosure of documents from a non-party; where a party seeks to challenge an award for lack of due process,29 and so on.
Discusion about this paper in Keating Chambers – United Kingdom – International Dispute Resolution website:
Article by John Marrin QC
United Kingdom: International Dispute Resolution.
http://www.mondaq.com/article.asp?articleid=44022&searchresults=1
