THEARBITER. Hugs All Round: Have you been Sufficiently Friendly to the Other Side? IN THIS ISSUE INTERNATIONAL DISPUTES NEWSWIRE AUTUMN 2014

Transcription

1 THEARBITER INTERNATIONAL DISPUTES NEWSWIRE AUTUMN 2014 IN THIS ISSUE 1 Hugs all round: have you been sufficiently friendly to the other side? 6 Can your emergency wait 17 days? 9 Witnesses say the funniest things. Hugs All Round: Have you been Sufficiently Friendly to the Other Side? by Markus Esly In a recent decision, the Commercial Court held that a clause requiring the par es to seek to resolve any disputes by engaging in friendly discussions before commencing arbitra on proceedings was enforceable: it prevented anyone from commencing formal proceedings unless and un l they had, in effect, had a sufficiently friendly discussion with the other side. These kinds of provisions, requiring discussions or nego a ons or a empts to reach an amicable se lement, are some mes found in ered dispute resolu on clauses as the first step in the contractual mechanism. Un l fairly recently, the This publica on may cons tute A orney Adver sing in some jurisdic ons.

2 received wisdom was that English law tended to be against trea ng such clauses as imposing binding condi ons precedent - though, as ever in the law of contract, everything depends on the wording of the clause in ques on. However, in Emirates Trading Agency Llc v Prime Mineral Exports Private Ltd [2014] EWHC 2104, Teare J upheld such a clause, disagreeing with a number of decisions at first instance that went the other way. The judge reviewed the conduct of the par es during nego a ons about their claims, to see whether they had been sufficiently friendly before calling in the arbitrators. One may ask how this can be. Isn t English commercial law supposed to be coldblooded, ra onal and unimpressed by warm and fuzzy no ons of this sort? The answer lies in the resurgence of the duty to act in good faith. Such a duty can be legally binding even in commercial contracts if it is expressly incorporated. The ques on, however, is whether the Commercial Court in Emirates went too far in applying this concept to a dispute resolu on provision. The old school of thought - certainty is key English law requires contracts and their terms to be (sufficiently) certain for them to be enforceable. It has o en been said that an agreement to nego ate, or an agreement to agree something in the future, lack such certainty. In the words of Lord Denning (Courtney & Fairbairn Ltd v Tolaini Bros. (Hotels) Ltd [1975] 1 WLR 297): If the law does not recognise a contract to enter into a contract (when there is a fundamental term yet to be agreed) it seems to me it cannot recognise a contract to nego ate. The reason is because it is too uncertain to have any binding force. No court could es mate the damages because no one can tell whether the nego a ons would be successful or would fall through: or if successful, what the result would be. It seems to me that a contract to nego ate, like a contract to enter into a contract, it is not a contract known to the law. Consistent with this approach, English law generally accepts that in commercial nego a ons, the par es are essen ally trying to get the best deal they can for themselves and owe no du es to their counterparty. Short of fraud and dishonesty, anything goes in nego a ons. In a famous decision by the House of Lords (Walford v Miles [1992] 2 AC 126), Lord Ackner noted that: While nego a ons are in existence either party is en tled to withdraw from those nego a ons at any me and for any reason. There can thus be no obliga on to con nue to nego ate un l there is a proper reason to withdraw. Accordingly, a bare agreement to nego a on has no legal content. The decision of the House of Lords in Walford v Miles has frequently been referred to as confirming the principle that there can be no agreement to agree. So if final dra s of agreements are on the table, ready for signature following months of protracted, expensive nego a ons, and you do not like the colour of the e worn by the other party s CEO to the comple on mee ng, feel free to walk out on the deal. There should be no legal consequences under English law. The first subtle signs of changes to come? Such statements of principle are, however, all concerned with the ques on whether there is a binding contract at all. As the Court of Appeal noted almost 10 years ago, an agreement to nego ate in good faith contained in a fully dra ed contract is likely to be enforceable (Petromec Inc v Petroleo Brasileiro SA Petrobras [2005] EWCA Civ 891). That case concerned a clause under which the par- es had agreed to nego ate in good faith as regards the reasonable costs that one of them would incur in rela on to upgrade works to a chartered vessel. The provision was part of a complex agreement dra ed by well-known City of London solicitors. The inten- on behind the clause was that, once the reasonable costs had been agreed or established, the party incurring these costs ought to be compensated appropriately by the counterparty. English law has, of course, never had any trouble with iden fying reasonable costs. The Court of Appeal noted that it would not be unduly difficult to determine to what extent the party seeking to recover the reasonable costs of the upgrade works in ques on might be en tled to any upli. Equally, a judge could also determine whether nego a ons were terminated in bad faith. Mance LJ perhaps sowed the first seeds of the change in approach that we will come on to, by hin ng that Walford v Miles might eventually be reconsidered at the highest level of the English Courts: It would be a strong thing to declare unenforceable a clause into which the par es have deliberately and expressly entered. I have already observed that it is of compara vely narrow scope. To decide that it has no legal content to use Lord Ackner's phrase would be for the law deliberately to defeat the reasonable expecta ons of honest men, to adapt slightly the tle of Lord Steyn's Sultan Azlan Shah lecture delivered in Kuala Lumpur on 24th October 1996 (113 LQR 433 (1977)). At page 439 Lord Steyn hoped that the House of Lords might reconsider Walford v Miles with the benefit of fuller argument. That is not an op on open to this court. I would only say that I do not consider that Walford v Miles binds us to hold that the express obliga on to nego ate as contained in clause 12.4 of the Supervision Agreement is completely without legal substance. Three examples of dispute resolu on clauses that failed for want of certainty English law draws no dis nc on between contractual obliga ons rela ng to the substance of the par es rights and dispute resolu- on clauses. All contractual terms are governed by the same basic principles of contract law. A good example of the general principles as expounded by Lord Denning and Lord Ackner being applied in the context of ered 2 THE ARBITER AUTUMN 2014

3 dispute resolu on clauses can be found in the decision of Colman J in Cable & Wireless Plc v IBM United Kingdom Ltd [2002] EWHC The learned judge was asked to order a stay because a provision requiring media on had not been complied with. In that context, Colman J held that: There is an obvious lack of certainty in a mere undertaking to nego ate a contract or se lement agreement, just as there is in an agreement to strive to se le a dispute amicably That is because a court would have insufficient objec ve criteria to decide whether one or both par es were in compliance or breach of such a provision. No doubt, therefore, if in the present case the [clause]had simply provided that the par es should a empt in good faith to resolve the dispute or claim, that would not have been enforceable. The relevant clause however went further, and provided for media on pursuant to the rules of a well-known ins tu on administering media on services. These media on rules set out precisely how a mediator ought to be selected, required the par es to set out their posi ons in media on statements and to a end in person before the mediator on the appointed day. There was no difficulty at all in determining whether a party had followed that procedure. There is nothing in the judgment to suggest that a party could not, if they wished, spend the en re media on sat in silence. They would s ll have sa sfied the condi on precedent that Colman J found existed. Two years ago, a less well-dra ed media on clause led to a decision by the Court of Appeal that seemed to se le the law on this point. In Sulamérica CIA Nacional de Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638, the clause in ques on provided: 11. Media on If any dispute or difference of whatsoever nature arises out of or in connec on with this Policy including any ques on regarding its existence, validity or termina on, herea er termed as Dispute, the par es undertake that, prior to a reference to arbitra on, they will seek to have the Dispute resolved amicably by media on. The media on may be terminated should any party so wish by wri en no ce to the appointed mediator and to the other party to that effect. No ce to terminate may be served at any me a er the first mee ng or discussion has taken place in media on. If the Dispute has not been resolved to the sa sfac on of either party within 90 days of service of the no ce ini a ng media on, or if either party fails or refuses to par cipate in the media on, of if either party serves wri en no ce termina ng the media on under this clause, then either party may refer to the Dispute to arbitra on. The Court of Appeal was invited to uphold the clause, on the basis that it iden fied at least three clear condi ons precedent to commencing arbitra on proceedings, in the form of a no ce sta ng that a dispute would be referred to media on, and either (based on the final paragraph of the clause): - a failure to reach a se lement a er 90 days; - party failing or refusing to par cipate in the media on; or - either party serving no ce that the media on is terminated (having par cipated to some extent). The Court of Appeal found that the clause was unenforceable, despite acknowledging that whoever dra ed the clause had plainly intended for it to be enforceable, and had very probably thought that this had been achieved. The key factor that swayed the Court of Appeal to reach its conclusion was that no media on provider was iden fied, and there was no procedure for a mediator to be selected: The most that might be said is that it imposes on any party who is contempla ng referring a dispute to arbitra on an obliga on to invite the other to join in an ad hoc media on, but the content of even such a limited obliga on is so uncertain as to render it impossible of enforcement in the absence of some defined media on process. The clause therefore had no legal effect whatsoever: it did not require either party to serve a no ce, nor did it require the par es to simply wait for 90 days before going to arbitra on. Not long a er Sulamérica was decided, the High Court had occasion to review another clause, which on its face required discussions at the management level before a dispute could be referred to arbitra on. In Wah v Grant Thornton Interna onal Limited [2012] EWHC 3198, a number of par es had entered into a partnership agreement to establish a partnership governed by Hong Kong law. That partnership became a member of Grant Thornton s interna onal network of offices. Grant Thornton Interna onal Limited ( GTIL ) was the umbrella organisa on overseeing that network. GTIL expelled the Hong Kong partnership, which led to li ga on. All par es to the claim, including GTIL, had agreed to the following as part of dispute resolu on procedure in the contract: (a) Any dispute or difference shall in the first instance be referred to the Chief Execu ve in an a empt to se le such dispute or difference by amicable concilia on or an informal nature. The concilia on provided for in this Sec on shall be applicable notwithstanding that GTIL may be a party to the dispute or difference in ques on. (b) The Chief Execu ve shall a empt to resolve the dispute or difference in an amicable fashion. Any party may submit a request for such concilia on regarding any such THE ARBITER AUTUMN

4 dispute or difference, and the Chief Execu ve shall have up to one (1) month a er receipt of such request to a empt to resolve it. (c) If the dispute or difference shall not have been resolved within one (1) month following submissions to the Chief Execu ve, it shall be referred to a Panel of three (3) members of the Board to be selected by the Board, none of whom shall be associated with or in any other way related to the Member Firm or Member Firms who are par es to the dispute or difference. The Panel shall have up to one (1) month to a empt to resolve the dispute or difference. (d) Un l the earlier of (i) such date as the Panel shall determine that it cannot resolve the dispute or difference, or (ii) the date one (1) month a er the request for concilia on of the dispute or difference has been referred to it, no party may commence any arbitra on procedures in accordance with this Agreement. Hildyard J held that this clause was unenforceable, describing the process that it envisaged as even less certain than an agreement to nego ate, which is plainly unenforceable. Considering that the clause had been carefully dra ed out, with the inten on that it should be mandatory, it is interes ng to see just how the learned judge arrived at this conclusion. Having reviewed the authori es concerning dispute resolu on provisions that provide for media on, concilia on or nego a on, Hildyard J commented that while the courts would strive to give effect to clauses that the par es wanted to be binding, there was o en a difficulty in taking what they had agreed and giving it some objec ve and legally controllable substance. Agreements to agree, or to nego ate in good faith, were unenforceable, because their content cannot be sufficient defined. The only excep on to this is where a clause provided for agreement on a reasonable price. Ul mately, the ques on was whether each par cular clause was sufficiently certain. As regards a dispute resolu on clause: In the context of a posi ve obliga on to a empt to resolve a dispute or difference amicably before referring a ma er to arbitra on or bringing proceedings the test is whether the provision prescribes, without the need for further agreement, (a) a sufficiently certain and unequivocal commitment to commence a process (b) from which may be discerned what steps each party is required to take to put the process in place and which is (c) sufficiently clearly defined to enable the Court to determine objec vely (i) what under that process is the minimum required of the par es to the dispute in terms of their par cipa on in it and (ii) when or how the process will be exhausted or properly terminable without breach. The clause in ques on did not pass that test. The learned judge found that the process of dispute resolu on that the Chief Execu- ve was to undertake was insufficiently certain. It was not enough to prescribe that he or she should a empt to resolve the dispute in an amicable fashion. One was le not knowing precisely what that meant: for example, were the par es to par cipate in this, and if so, how? The next step, also described in insufficiently certain terms, was the reference to the Panel. Again, the clause made reference to a empts to resolve the dispute, but did not go on to explain the nature and quality of the a empts that should be made in this context. The new approach in Emirates Against that background, on 1 July 2014, Teare J handed down his judgment in Emirates, finding that the following provision was sufficiently certain to be enforceable: 11.1 In case of any dispute or claim arising out of or in connec on with or under this [agreement]... the Par es shall first seek to resolve the dispute or claim by friendly discussion. Any party may no fy the other Party of its desire to enter into consultc on [sic] to resolve a dispute or claim. If no solu on can be arrived at in between the Par es for a con nuous period of 4 (four) weeks then the non-defaul ng party can invoke the arbitra on clause and refer the disputes to arbitra on. The dispute arose under a contract for the sale of iron ore. The claimants, the buyers, failed to take delivery of agreed quan es under the contract on several occasions. On 1 December 2009, the sellers served no ce of termina on by reason of the buyer s failure to take delivery goods (or pay the price), and claimed the sum of US$ 45.4 million in liquidated damages under the contract for sale. In June 2010, the sellers referred the ma er to arbitra on. The buyers objected, arguing that the tribunal had no jurisdic on because the sellers had not engaged in friendly discussions between December 2009 and June The sellers, in turn, argued that the clause in ques on was incapable of giving rise to any enforceable obliga on. As the learned judge noted, the buyers set out to persuade him not to follow what appeared to be the se led state of English law - and they succeeded. Teare J undertook a full review of the authori- es, including Australian and Singaporean decisions. One par cular decision of the New South Wales Court of Appeal (United Group Rail Services v Rail Corpora on New South Wales (2009) 127 Con LR 202), considering a clause requiring a genuine and good faith nego a on with a view to resolving the dispute, was expressly at loggerheads with Lord Ackner and Walford v Miles, but was nonetheless quoted extensively by the Commercial Court in Emirates. A number of proposi ons from this Australian decision were referred to with apparent approval by Teare J (who described them as cogent reasoning ). One par cular passage (striking at least to any English contract lawyer with a tradi onal outlook) noted that an obliga on to undertake honest and genuine discussions about 4 THE ARBITER AUTUMN 2014

5 something in an a empt to reach an iden fied result was not incomplete. Courts could assess the value of nego a ons (which might turn out to be successful or unsuccessful), just as they can assess the value of a lost commercial opportunity, as illustrated by Chaplin v Hicks [1911] 2 KB 786, where damages were awarded for the lost opportunity to appear in a beauty contest. It is to be noted that the beauty contest in Chaplin v Hicks would have been decided, and a winner declared, through the relevant procedure. The outcome of commercial nego a ons on the other hand depends on agreement, and one party can always (even unreasonably) refuse to agree something. In the context of good faith nego a ons to resolve a commercial dispute, however, a party did not have complete freedom to disagree. Such nego a ons were limited and defined (and par es were constrained) by the underlying bargain as embodied by their contract. As the New South Wales Court of Appeal noted: the constraint arises from the bargain the par es have willingly entered into. It requires the honest and genuine assessment of rights and obliga ons and it requires that a party nego ate by reference to such. A party, for instance, may well not be en tled to threaten a future breach of contract in order to bargain for a lower se lement sum than it genuinely recognises as due. That would not, in all likelihood, reflect a fidelity to the bargain. A party would not be en tled to pretend to nego ate, having decided not to se le what is recognised to be a good claim, in order to drive the other party into an expensive arbitra on that it believes the other party cannot afford. If a party recognises, without qualifica on, that a claim or some material part of it is due, fidelity to the bargain may well require its payment. That, however, is only to say that a party should perform what it knows, without qualifica- on, to be its obliga ons under a contract. Illustra ng this by way of an example, if a party in the course of good faith nego a ons demanded 1 million, having been advised or otherwise believing that it was only due 500,000, then it would be in breach of any obliga on to nego ate in that manner. That was not quite, however, how Teare J saw it. Having concluded that the obliga on to seek to resolve disputes by friendly discussions was really the same as an obliga on to seek to do so in good faith (referring to the masterly discussion by Legga J in Yam Seng Pte Ltd. v Interna onal Trade Corpora on Ltd. [2013] EWHC 111 (QB) on such implied du es of good faith in English law), Teare J concluded that a party nego a ng with a view to a se lement in good faith was en tled to take into account not just its en tlement under the contract, but also its wider commercial interest. In his view, the passage cited above from the judgment of the New South Wales Court of Appeal about constraints in nego a ons imposed by the underlying bargain was unrealis cally narrow, and in English law, the ma ers that par es could take into account (or legi mately raise ) when nego a ng a poten al se lement in good faith were unlimited (though presumably honesty or a genuine belief in an en tlement would always be required). In conclusion Teare J disagreed with a number of decisions at first instance, including Wah v Grant Thornton, and summarised his reasoning as follows: The agreement is not incomplete; no term is missing. Nor is it uncertain; an obliga on to seek to resolve a dispute by friendly discussions in good faith has an iden fiable standard, namely, fair, honest and genuine discussions aimed at resolving a dispute. Difficulty of proving a breach in some cases should not be confused with a sugges on that the clause lacks certainty. In the context of a dispute resolu on clause pursuant to which the par es have voluntarily accepted a restric on upon their freedom not to nego ate it is not appropriate to suggest that the obliga on is inconsistent with the posi on of a nego a ng party. Enforcement of such an agreement when found as part of a dispute resolu on clause is in the public interest, first, because commercial men expect the court to enforce obliga ons which they have freely undertaken and, second, because the object of the agreement is to avoid what might otherwise be an expensive and me consuming arbitra on. On that basis, the judge found that the clause prohibited arbitra- on proceedings unless friendly discussions had taken place and the dispute was not resolved a er a period of four weeks had elapsed since the commencement of such discussions. The Commercial Court then went on to consider, on the facts, whether the par es had, in effect, been sufficiently friendly. To succeed, the buyers needed to take the posi on that they had been friendly (ac ng in good faith), but that the sellers had not. The judgment does not contain much in terms of detail of what was said during the relevant mee ngs about the liquidated damages claim for US$ 45 million. The judge did not review the arguments for and against that claim, nor was there any discussions of what specific proposals or counterproposals were made, or should have been made as reasonable or friendly, bearing in mind the par es contractual en tlements or their commercial impera ves. The absence of such discussion in the judgment may be a reflec on of the claim in ques on having been fairly simple in legal terms: it does not seem that the buyers had a good reason for not taking delivery of the goods, other than their apparent inability to pay. The gist of the judge s findings on the facts was that the buyers had genuinely sought to find other par es who could take the shipment and somehow pay for it, but had ul mately failed to do so. Had such other willing buyers been found, the contract would have con nued - either on the assump on that there would have been some kind of on-sale, or that the new buyers might have taken over the contract. It appears to have been common ground that mee ngs in December 2009 were friendly. There were then further mee ngs and discussions between the par es prior to the reference to arbitra on THE ARBITER AUTUMN

6 in June 2010, and there was no indica on that the sellers had acted in bad faith during those mee ngs. Having won an impressive victory on the law, the buyers lost on the facts. A cri cal review: did Emirates go too far? The decision in Emirates has given rise to considerable debate. It undoubtedly represents a departure from other decisions on similar clauses. The decision of the House of Lords in Walford v Miles was dis nguished, on the basis that their Lordships were concerned with the ques on whether an agreement to agree could ever lead to a binding contract (the en re course of discussions was subject to contract ). In Emirates, there was already a binding contract in place. That may be a dis nc on that can be drawn, but there is something to be said for the view that the principle of certainty should apply to each and every clause in a contract. If ten clauses in an agreement are properly dra ed, and are certain and enforceable, that of itself may not be a good reason why an eleventh provision, which is missing a key term, ought to be treated differently. It is also not obvious that the decision of the Court of Appeal in Sulamérica le Teare J a great deal of room for reaching his conclusion, as he in fact decided. Both Cooke J at first instance and the Court of Appeal noted that the clause in Sulamérica lacked a defini- ve or unequivocal undertaking to refer ma ers to media on - the clause only said that they will seek to have the Dispute resolved amicably by media on. As the Court of Appeal put it: The most that might be said is that it imposes on any party who is contempla ng referring a dispute to arbitra on an obliga on to invite the other to join in an ad hoc media on, but the content of even such a limited obliga on is so uncertain as to render it impossible of enforcement in the absence of some defined media on process. The clause in Emirates referred to seek[ing] to resolve the dispute or claim by friendly discussion. That wording ( seeking ) is not unequivocal or defini ve, but this did not cause Teare J concern. Since this point is one of construc on and depends on the wording of the par cular contract, in the final analysis Sulamérica would not have been binding on Teare J, though any dis nc on would be a fine one. The judge in Emirates decided that the dis nguishing factor in Sulamérica, which was fatal to that clause, was the absence of any way of determining the mediator. Since friendly discussions do not require any such third party to oversee them, Teare J felt able to uphold the clause in Emirates. At the same me, Teare J found that the reference to friendly in the clause imported an obliga on of good faith. Applying that approach to the clause in Sulamérica (which referred to an amicable media- on), it could be argued that the par es were obliged, in good faith, to ask any of the well-known media on ins tu ons to provide them with a mediator if they could not agree on one, so as not to frustrate the obvious inten on behind the clause. Teare J did not, however, proceed down that route. Arguably, on Teare J s reasoning, a clause providing for an amicable media on imposes restraints on the par es and ought to require them at least to pick up the phone to an appoin ng body to ask for a mediator, because the object of the agreement is to avoid what might otherwise be an expensive and me consuming arbitra on. Perhaps the most potent cri cism of the decision in Emirates is that it has undesirable prac cal consequences. If clauses are construed in this way, then this requires a review of evidence by the courts of what the par es said or did in se lement nego a ons. What if those discussions take place on a without prejudice basis so that no Court or tribunal ought ever to hear of the content of these discussions? Frank and open discussions during, and concession made in, without prejudice mee ngs may provide the best chances of reaching a commercial se lement. A party may either use the cloak of without prejudice discussions to hide nego a ons that are in bad faith, or may be prevented from rebu ng an allega- on that it was guilty of bad faith during without prejudice mee ngs. Either way, this presents difficul es. Finally, it is not at all clear how a review or analysis of whether on the facts of the case, a party in fact nego ated in good faith would proceed in circumstances where the claim is more complex than that in Emirates. Would the Court have to review the compara ve legal merits of posi ons taken? Suppose a party insists on its claim, makes no concessions and demands to be paid in full, genuinely believing that it has a cast iron claim. Does such a party run the risk of appearing to be unreasonable because of an underlying assump on that striving for a se lement in good faith brings with it a readiness to make at least some concession (a er all, the object is to avoid an expensive arbitra on, according to Teare J)? What if that party is subsequently en rely vindicated by the tribunal? Taking a step back, it does not seem desirable that a court or even a tribunal should be asked to consider the substance of what par es were saying to each other in any se lement discussions. Emirates seems to create more problems than it solves, and it remains to be seen whether other English Courts (including the Court of Appeal) will take the same view. Can your Emergency Wait 17 Days? by Robert Blacke The London Court of Interna onal Arbitra- on ( LCIA ) is one of a number of private ins tu ons which publishes rules for the conduct of arbitra ons and administers arbitra ons conducted under those rules. The LCIA does not itself determine disputes between the par es, which will instead be determined by an arbitrator, or a tribunal 6 THE ARBITER AUTUMN 2014

7 comprising three arbitrators, who are appointed by the LCIA. Though it describes itself as a court, the LCIA is not a public body. In 2013 a total of 290 arbitra ons were commenced under the LCIA Rules. Those Rules have been in effect since 1 January The LCIA has now published new Rules which will apply to arbitra- ons commenced a er 1 October This Ar cle looks at one of the new provisions, which allows for the appointment of an emergency arbitrator. Urgent applica ons under s.44 Arbitra on Act 1996 When looking at the new emergency arbitrator provision, it is useful to have in mind when emergency relief will be available from the English court. Sec on 44 of the Arbitra on Act 1996 sets out powers which the court can exercise in support of arbitra on proceedings as follows. (1) Unless otherwise agreed by the par es, the court has for the purposes of and in rela on to arbitral proceedings the same power of making orders about the ma ers listed below as it has for the purposes of and in rela on to legal proceedings. (2) Those ma ers are - (a) (b) the taking of the evidence of witnesses; the preserva on of evidence; (c) making orders rela ng to property which is the subject of the proceedings or as to which any ques on arises in the proceedings - (i) for the inspec on, photographing, preserva on, custody or deten on of the property, or (ii) ordering that samples be taken from, or any observa- on be made of or experiment conducted upon, the property; and for that purpose authorising any person to enter any premises in the possession or control of a party to the arbitra on; (d) the sale of any goods the subject of the proceedings; (e) the gran ng of an interim injunc on or the appointment of a receiver. It can be seen that a court can order some things which an arbitral tribunal cannot, because unlike an arbitral tribunal, a court does not just have jurisdic on over the par es to the arbitra on agreement, but can also make orders which affect third par es. A court can, therefore, order a witness to a end an arbitra on hearing. A court can also make a freezing order that a party s assets not be moved or disposed of which will be binding not just on the party but, also, on others such as that party s bankers. Sec on 44(3), (4) and (5) set out when these powers may be used: (3) If the case is one of urgency, the court may, on the applica on of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets. (4) If the case is not one of urgency, the court shall act only on the applica on of a party to the arbitral proceedings (upon no ce to the other par es and to the tribunal) made with the permission of the tribunal or the agreement in wri ng of the other par es. (5) In any case the court shall act only if or to the extent that the arbitral tribunal, and any arbitral or other ins tu on or person vested by the par es with power in that regard, has no power or is unable for the me being to act effec vely. When the relief sought is aimed at preven ng a party moving or disposing of assets or evidence, the applica on would usually be frustrated if the other party were to be pped-off to the applica- on before the order was granted. For this reason, such applica- ons are usually heard by the court ex parte (i.e. without any no- ce to the party against which the order is being sought). If the ex parte applica on is granted, a with-no ce hearing will usually take place within a few days to decide whether the order should be con nued. Emergency arbitrators in the new LCIA Rules Many ins tu onal rules (e.g. the ICC, SIAC and HKIAC) provide a procedure whereby a party can ask the ins tu on to temporarily appoint an emergency arbitrator, who can then hear applica ons for urgent relief in the period before the tribunal has been appointed. Historically, the LCIA Rules did not make any provision for the temporary appointment of an emergency arbitrator. Rather, since 1998, they have instead allowed for the expedited forma on of the tribunal. In a normal case which is subject to the LCIA rules, a party will submit its Request for Arbitra on, the Respondent will then have 28 days to submit its response, and the LCIA Court will appoint the Tribunal promptly a er receipt of the Response or, if no Response is received, a er 35 days from the Commencement Date. Ar cle 9 of the old rules provided that, in cases of excep onal urgency, on or a er the commencement of the arbitra on, any party could apply to the LCIA Court for the expedited forma on of the Arbitral Tribunal. The LCIA Court could then abridge or curtail THE ARBITER AUTUMN

8 the usual me limits for the appointment of the tribunal. In 2012 it was reported that, since the introduc on of that Ar cle 9 in 1998, there had been 95 applica ons for expedited forma on, 44 of which were granted, 27 rejected and 24 did not require determina on. 95 applica ons in 14 years, for an ins tu on which presently handles just under 300 cases per year, shows the procedure is used rela vely rarely. The new 2014 rules retain the provision for expedited forma on, in what is now Ar cle 9A, but introduce a new Ar cle 9B which provides for an emergency arbitrator procedure. Some points to note about this procedure are: The emergency arbitrator procedure applies by default whenever the par es have agreed that the LCIA Rules will apply, but par es can agree that the emergency arbitrator procedure will not apply. Ar cle 9B is without prejudice to any party s right to apply to a court for interim or conservatory measures. An emergency arbitrator may only be appointed in case of emergency. The party seeking to have an emergency arbitrator appointed must apply to the LCIA Court in wri ng and, at the same me, pay a special fee. The LCIA will then determine the applica on as soon as possible in the circumstances. If the applica on is granted, an Emergency Arbitrator shall be appointed by the LCIA Court within three days of the Registrar s receipt of the applica on (or as soon as possible therea er). The Emergency Arbitrator may conduct the emergency proceedings in any manner determined by the Emergency Arbitrator to be appropriate in the circumstances, taking account of the nature of such emergency proceedings, the need to afford to each party, if possible, an opportunity to be consulted on the claim for emergency relief (whether or not it avails itself of such opportunity), the claim and reasons for emergency relief and the par- es further submissions (if any). The Emergency Arbitrator is not required to hold any hearing with the par es (whether in person, by telephone or otherwise) and may decide the claim for emergency relief on available documenta on. In the event of a hearing, Ar cles 16.3 [hearing to be at any convenient geographical place], 19.2 [conduct of hearing to be organised in advance], 19.3 [reasonable no ce of hearing] and 19.4 [hearing to be in private] shall apply. The Emergency Arbitrator shall decide the claim for emergency relief as soon as possible, but no later than 14 days following the Emergency Arbitrator s appointment. The emergency arbitrator may make any order or award which the Arbitral Tribunal could make but Any order or award of the Emergency Arbitrator may be confirmed, varied, discharged or revoked, in whole or in part by order or award made by the Arbitral Tribunal Orders and awards The fact that the emergency arbitrator can make an award serves to differen ate the LCIA s emergency arbitrator procedure from that in the ICC Rules. Under the ICC Rules the emergency arbitrator s decision shall take the form of an order and the par- es undertake to comply with any order made by the emergency arbitrator. The wording of the ICC Rules has given rise to an issue about whether an order issued by an emergency arbitrator under those rules is enforceable in the same way that an award is, because the ICC Rules appear to draw a deliberate dis nc on between awards and orders, and it is only awards which are enforceable under the New York Conven on. By making clear that the emergency arbitrator can issue an award, the LCIA avoids this issue. The emergency arbitrator s award is an award, and is enforceable in the usual way (albeit that it is a provisional award, for the purposes of s.39 of the Arbitra on Act 1996, since the LCIA Rules contemplate that the emergency arbitrator s award can be set aside by the full tribunal). How significant is the introduc on of an emergency arbitrator procedure? The possibility of appoin ng an emergency arbitrator poten ally reduces the situa ons in which an arbitral tribunal has no power or is for the me being unable to act effec vely, and so some applica ons which could previously have been made to the court under sec on 44 would instead have to be made to an emergency arbitrator. The emergency arbitrator cannot make an order which binds third par es, and the rules would not seem to allow for the possibility of an ex parte applica on. Also, while the rules provide for the ins tu on to appoint an arbitrator within a period of 3 days, and for the arbitrator to make a decision within 14 days of appointment - a total of 17 days - in a real emergency, one could go to court and obtain a decision at much shorter no ce. As such, there will s ll be many applica ons which would have to be made to the court under s.44. In fact, it would seem that only a narrow range of interim relief applica ons would fall to be heard by an emergency arbitrator. The applica on must not be an applica on for a freezing order or similar relief which is only meaningful if made ex parte, and the ma er must not be so urgent as to require an immediate decision. In either of those scenarios, it would be necessary to apply to the court under sec on 44. But the applica on must s ll be urgent enough that the applicant cannot wait for the full tribunal to be cons tuted, either under the normal procedure (28+ days or 35+ days) or under the expedited procedure. It needs to be borne in mind that there will also be many cases where a respondent will be prepared to agree to refrain from doing whatever it is that the claimant wishes to prevent it from doing un l the full tribunal has been appointed and can de- 8 THE ARBITER AUTUMN 2014

9 cide the issue - thus avoiding the need for an emergency arbitrator to be appointed, or for expedited forma on. For these reasons, one might have thought that there would be rela vely li le demand for emergency arbitrators and, of course, the LCIA has managed without them un l now, and with rela vely few par es using the exis ng expedited forma on procedure. As such, while it is important to be aware that the procedure is available, it is unlikely to be something which one will have to deal with every day. Witnesses Say the Funniest Things by Melanie Willems Complex commercial disputes, whether they are heard in the Commercial Court or before interna onal arbitra on tribunals, regularly feature extensive witness evidence. Without wishing to tar all witnesses with the same brush, statements are frequently argumenta- ve, lengthy and feature, surprisingly o en, thinly disguised legal argument. One witness, for example, dis nctly recalled that the implied representa ons had been made to him, and that he promptly proceeded reasonably to rely on them, having thereby been induced to enter into the contract. What is more, witness statements are o en dra ed in impeccable English, even where the witness expresses himself or herself in a very different manner (or where he or she is not a na ve English speaker). Such beau ful prose is a reflec on of the reality that witness statements are dra ed by lawyers. It would be prac cally unheard of for counsel in a complex commercial dispute to tell the witness to go away and come back when they have wri en their statement. Providing the right assistance to witnesses, however, should not be frowned upon. One should not veer from one extreme of using a witness as an unwi ng extra advocate to throwing them to the wolves - par cularly in an adversarial se ng. This ar cle looks at the approach that judges and arbitrators take to witness evidence, and suggests what the proper role of witnesses should be. Dos and don ts for witnesses Witnesses of fact should only ever tes fy as to relevant facts of which they have personal knowledge, and which they can recall. While the proper role of witnesses can be described succinctly in this way, there are many more ways in which they can stumble when giving evidence. Witnesses should always refrain from: - Not telling the truth, or presen ng a selec ve version of the truth. That goes for everything a witness says under oath. There is no such thing as a white lie when giving evidence. - Advancing or defending their own case (or worse, arguing what they think their case is, or should be). Their role is not that of an advocate. - Expressing an opinion, unless they have the necessary qualifica- ons and experience to do so (they o en don t), and the opinion actually goes to an issue in the case (it usually doesn t). - Specula ng as to the mo va ons of others. - Appearing, or being, arrogant, condescending or aloof. - Refusing to accept when the opposing party has made a reasonable point. - Engaging in argument or discussion with the lawyer who is crossexamining them. - Refusing to answer ques ons asked of them directly, and to the point. - Embellishing their evidence, giving speeches or iden fying what they think is the real issue that the tribunal needs to know about (it usually isn t). Witnesses who appear in court or before arbitral tribunals must be prepared for the tribunal of fact to assess their credibility a er they have given evidence. Here is an example of what a judge might say a er a disastrous performance in the witness box (Berezovsky v Abramovich (Rev 1) [2012] EWHC 2463 (Comm)): I found [X] an unimpressive, and inherently unreliable, witness, who regarded truth as a transitory, flexible concept, which could be molded to suit his current purposes. At mes, the evidence which he gave was deliberately dishonest; some- mes he was clearly making his evidence up as he went along in response to the perceived difficulty in answering the ques- ons in a manner consistent with his case; at other mes, I gained the impression that he was not necessarily being deliberately dishonest, but had deluded himself into believing his own version of events. On occasions he tried to avoid answering ques ons by making long and irrelevant speeches, or by professing to have forgo en facts which he had been happy to record in his pleadings or witness statements. He embroidered and supplemented statements in his witness statements, or directly contradicted them. He departed from his own previous oral evidence, some mes within minutes of having given it. When the evidence presented problems, [X] simply changed his case so as to dovetail it in with the new facts, as best he could. He repeatedly sought to distance himself from statements in pleadings and in witness statements which he had signed or approved, blaming the interpreta on of his lawyers, as if this somehow diminished his personal responsibility for accounts of the facts, which must have been derived from him and which he had verified as his own. THE ARBITER AUTUMN

10 And this is how you do it: Mr. [Y] indeed gave careful and though ul answers, which were focused on the specific issues about which he was being ques oned. At all mes, he was concerned to ensure that he understood the precise ques on, and the precise premise underlying the ques on which he was being asked. He was me culous in making sure that, despite the difficul es of the transla on process, he understood the sense of the ques ons which were being put to him. To a certain extent that difference, no doubt, reflected the different personali es of the two men, for which I gave every allowance possible to Mr. [X]. But it also reflected Mr. [Y] s responsible approach to giving answers which he could honestly support. Where he had relevant knowledge, he was able to give full and detailed answers; he took care to dis nguish between his own knowledge, reconstructed assump ons and specula on. He was not afraid to give answers which a less scrupulous witness would have considered unhelpful to his case. How do courts and tribunals assess credibility? Having seen the result of an experienced judge s assessment of the credibility of witnesses, we turn to how judges or arbitrators approach that exercise. There are a number of factors in play. The first is that some people are simply rather good at lying. It has been said that: The ability to tell a coherent, plausible and assured story, embellished with snippets of circumstan al detail and laced with occasional shots of life-like forge ulness, is very likely to impress any tribunal of fact. But it is also the hallmark of the confidence trickster down the ages. (Lord Bingham, The Business of Judging (2000)). The second factor is that when witnesses give evidence as to past events, they make use of their recollec on. Human memory is anything but infallible. Our brains do not create an objec ve record of what was said and done which remains at our finger ps to be recalled. Recollec on can become warped and be influenced by subsequent events, statements made by others or by emo ons. This means that a witness may end up honestly believing something that never happened. As Lord Bingham said: the human capacity for honestly believing something which bears no rela on to what actually happened is unlimited. It is therefore recognised that deciding whether a witness is telling the truth is not an easy exercise. The risk of being faced with conflic ng accounts from two apparently honest witnesses means that tribunals may, in prac ce, prefer documentary evidence. As Lord Goff acknowledged in Grace Shipping v Sharp & Co [1987] 1 Lloyd s Rep 207: It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objec- ve facts and documents, to the witnesses mo ves, and to the overall probabili es, can be of very great assistance to a Judge in ascertaining the truth. Lord Pearce in Onassis and Calogeropoulos v Vergo s [1968] 2 Lloyd s Rep 403 iden fied a number of ques ons that judges may ask themselves when considering whether a witness is telling the truth. Credibility is not just about the witnesses demeanour, so how they act and comport themselves when giving evidence, or whether they appear to be telling the truth as they now believe it. - Does the witness come across as a truthful or untruthful person? - If the witness is generally truthful, are they also being truthful in their evidence on a par cular ma er? - If the witness has been untruthful, are they nonetheless telling the truth on a par cular ma er? - If a witness has been untruthful or inconsistent, even on a rela- vely unimportant ma er, this will colour the tribunal s impression. The evidence of that witness will be less likely to be accepted even if they are in fact telling the truth on the most important point in the case. It is therefore paramount that a witness remains truthful throughout, even as to what they might perceive to be minor ma ers. - Has the witness correctly understood the relevant events on which they are giving evidence? - Can the witness s ll accurately remember the events in ques- on? With every day that passes the memory becomes fainter and the imagina on becomes more ac ve. - Has the recollec on of the witness been affected and altered subsequently, whether by unconscious bias, wishful thinking or intense discussion with others? - Is the witness emo onally affected, perhaps because they genuinely believe they have a legal right and are trying to have it enforced? In conclusion, bearing in mind human nature, the importance of contemporaneous documentary evidence can hardly be overstated, as Lord Pearce stated: For that reason a witness, however honest, rarely persuades a Judge that his present recollec on is preferable to that which was taken down in wri ng immediately a er the accident occurred. Therefore, contemporary documents are always of the utmost importance. And lastly, although the honest witness believes he heard or saw this or that, it is so improbable that it is on balance more likely that he was mistaken? On this point it is essen al that the balance of probability is put correctly into the scales in weighing the credibility of a witness. And mo ve is one aspect of probability. All these problems compendiously are entailed when a Judge 10 THE ARBITER AUTUMN 2014