International Commercial Arbitration
27th May 2021
The New Zealand company and the Japanese case company are considered to be operating within the international arbitration in Australia given that they originate from different countries but agree to operate according to the Australian Law. NZCo might have a good case and a good claim, probably from what the company has lost so far from its dealings with the Japanese company based on the defective materials that have been in use in their joint venture. The New Zealand company has taken the right course of action by filing a notice of arbitration with ACICA, seeing that the latter is the appointing authority and administering body under the UNCITRAL Arbitration Rules, to which the parties agreed to within the dispute resolution clause they have detailed out. This, therefore, means that the administration of arbitration is to be done by the Australian Centre for International Commercial Arbitration (ACICA).
As such, from the case between NZCo and JCo., there are a number of identifiable problems. Looking at the NZCo case, the first issue arises from their party-appointed arbitrator, Ms. Kamala Harris SC. When it comes to this appointment, it is important to point out the fact that Ms. Kamala Harris NZCo’s subsidiary in the United States had her appointment as an expert witness previously and in two arbitrations concluded four years before this case. It is important to note that an arbitrator can practice on account of their experience, like in the case of Ms Kamala. At the same time, she cannot be restricted from acting as the arbitrator on the basis of her nationality, especially since she is an expert in foreign law. This would definitely come in handy in the case of the New Zealand and Japan companies operating on Australian soil. However, there is one important consideration for appointing an arbitrator and that is their need to be independent and/or impartial (Article 12(2), Model Law). This calls for disclosure of such circumstances that would give rise to justifiable doubt on the matter of their independence and/or impartiality during the appointment procedure or during the arbitration proceedings (Article 12(1), Model Law). In this case, bias is definitely a possibility (Section 18A (1), IAA). This only means that there already exists some form of conflict of interest between the New Zealand company and Ms. Kamala Harris which would easily give this company the upper hand. On this note, there is justifiable doubt of Ms. Kamala’s independence and/or impartiality. This then calls for the arbitrator being removed from this position or having their position challenged by the respondent. At the same time, there is also the need for the arbitrator (Ms. Kamala Harris) to recuse herself from the arbitration to eliminate cases of bias.
The Dispute Resolution clause is yet another section that has presenting problems. It is important to first note that the New Zealand and the Japanese companies have taken right courses of action in considering amicability in their negotiations in case a dispute arises. This means that in the event of a legal or non-legal matter, a good-natured approach will be applied in their negotiations. In the event of a non-legal matter that is technical, then mediation is a good approach while in the case of a technical and legal matter, then arbitration is the way to go. It is worth noting that even if the courts of Japan hold non-exclusive jurisdiction in consideration of dispute resolution operating under the UNCITRAL rules, if both parties agree to resolve their issues through arbitration, then both parties are held by the arbitration rules. This is especially in consideration of UNCITRAL rules being required by their administering body, ACICA.
Further, there arises an issue in their clause. The arbitrators are required to mediate in a facilitative style. However, there is a confusion between mediation and arbitration. In mediation, the mediator is required to mediate facilitatively. This means that the mediator is not tasked with giving a ruling or an award, which then means that the mediation process is non-binding. It ends up being a win-win situation since both parties are taken into consideration. It would, however, make sense to have the NZCo and JCo case handled through mediation in the technical, non-legal case since the parties are not equal. However, given the circumstances of the claim made by NZCo and the arbitration clause, then it makes sense to handle the claim through arbitration. This calls for the elimination of mediation when handling the claim case. The arbitrator(s) will be required to listen to the parties and then make a final and binding decision. At the same time, the parties are not supposed to meet the arbitrator(s) anywhere other than in the presence of either party. Any disclosure ought to be done in the presence of the opposing party before arbitration begins or during the proceedings, thus eliminating the need for separate meetings.
Dissenting opinions in arbitral awards may or may not be allowed in international arbitration cases. The UNCITRAL arbitration rules allow for concurring and dissenting opinions to be used by the Tribunal. In this regard, the dissenting awards are not allowed, thus leaving concurring opinions in play. In another case, considering that the arbitration proceedings are taking place in Australia, while involving an English-speaking country and a Japanese-speaking country, then it is only sensible that both English and Japanese languages be used during arbitration as a balance. This is as opposed to putting more weight on Japan while putting little consideration on the English language in such a scenario. The parties ought to be equally represented in the arbitration process. This is yet another presenting problem.
Looking at the case of JCo filing a lawsuit for non-payment, while joining the Japanese company responsible for the supply of the said materials, JCo files the lawsuit in a Japanese District Court. The claim is worth A$1 million. It is important to note that the Japanese company files this lawsuit in a Japanese court with the awareness of a dispute resolution clause, for which the New Zealand and Japanese company are party to. The arbitration process does not go together with the court process while there exists an arbitration clause. On this note, it is up to the New Zealand company to go to the Tokyo District Court in Japan. Once there, then it ought to mention that the Japanese company ought to resist from engaging in the court proceedings on the basis of the existing arbitration clause that the companies are party to. As long as there is an operational arbitration clause, then there ceases to be court proceedings. It ought to be clear to the Japanese company that given their existing clause, then their disputes ought to be amicably resolved in the presence of an arbitrator or arbitrators as opposed to seeking another option, the arbitration proceedings have already begun, but which have not in this case. Courts can intervene in limited cases, but this case would be considered to be an abuse of the process. Applying to the courts, in instance, would be done during the arbitration proceedings if one or both of the parties are unsatisfied with matters revolving around the arbitration or after the arbitral award. It is, therefore, important to note that there are potential problems in the appointment of the arbitrator in the NZCo case, in the dispute resolution clause, as well as in JCo’s filing of the lawsuit.
The arbitral award is final and binding on the parties to the dispute. This is made possible by the signing by the majority of the arbitral tribunal as well as by ACICA while it ought to be made in writing. The basis of the award is given as well as detailing the date and the seat of the arbitration proceedings. However, in the event that the resulting award aggrieves one of the parties, then they may apply for the award to be set aside. Up until the point to which the arbitral tribunal finalizes on the arbitration with the award, then the award is final and binding on the parties and the parties would be expected to have the award carried out without delay. In this case, JCo has a right to apply to the courts in Sydney to have the award set aside since the Japanese company feels aggrieved by the results of the arbitration. In this case, it could be a good guess that the process has been unfair and in support of the New Zealand company, despite the multiple mishaps and guerrilla tactics the latter company applied during the arbitration proceedings, thus giving JCo the right to make an application to the courts.
On this note, a good reminder is that the companies have a dispute resolution clause operating within the Australian Law. However, it is important to remember that the parties are dealing with a foreign award. JCo, still, ought to apply to the court after notifying the tribunal and NZCo of their intention to apply to the court. Normally, appeals from arbitral awards are not allowed under the UNCITRAL Model Law, which is the law within which these parties are operating. This is based on their questioning of the arbitral award awarded in favor of the New Zealand company, despite a number of mishaps that have arisen on the part of New Zealand company during the arbitration proceedings. For such international arbitration proceedings that are in operation within Australia and between international companies, an application to set aside the award is the only available recourse. The Japanese company’s application to the courts may be possible. Since the companies have previously agreed (at least within the dispute resolution clause) to have the contract governed by the UNCITRAL rules, then it is only right that the UNCITRAL Model Law is considered in the process of setting aside of the award, thus applying the process of setting aside of the award as it appears in the law. This is based on Article 34 of the Model law. Finding a remedy to have the setting aside of a foreign award is impossible.
Unfortunately, the courts in Australia do not hold as much power as would be expected in conducting reviews of such awards. The Australian courts, therefore, will only be able to refuse the application of an award enforcement especially when the enforcement is challenged by the debtor of the award. This means that in this case, the New Zealand company would be the debtor. This means that the award can be set aside as detailed on the challenge by the award debtor. Upon the request by one of the parties, in this case NZCo, the court applied to can decide to have the grounds on which the setting aside happened eliminated. This is a possible scenario for the award by the tribunal in the New Zealand and Japanese case. On agreement, the International Arbitration Act (IAA) prohibits parties from excluding the setting aside of an award. From the date on which the Japanese company received the award from the tribunal, the company only has three months to take action by applying for the setting aside of the award. Once the parties are in agreement of the application for the setting aside of the award, then the Japanese company can detail the reasoning behind the application based on the occurrences during the arbitration proceedings.
Looking at the setting aside portion of the arbitration process involving NZCo and JCo, there are a number of obvious issues that have so far cropped up and are of essence, not only to the Japanese company, but to the two companies’ business interaction going forward, given their joint venture contract already in play. When it comes to the determination of where or how the hearing is going to be held, it is almost obvious that the most effective option is an in-person hearing. However, in the days that the COVID-19 pandemic has been around, in-person meetings and, thus hearings are not longer a necessity. In this regard, holding the hearing remotely for the parties and the tribunal makes the most sense and is the safest bet. In different circumstances, then the face-to-face option would be a necessary approach to consider.
Now considering the multiple issues that ought to be addressed once a case has been made in line with setting aside of the award, there are several issues that rear their heads. In the second case, following the issue that had been brought up on how and where the hearing was going to be held, there comes up an issue during the first procedural hearing. Harajuku LLP has been found to not be in a position that warrants them a place as counsel for the Japan company based on previous interactions with the President of the Tribunal. What transpires is the exclusion of Harajuku LLP from taking part any further in the arbitration proceedings. There ought to be two resulting scenarios that could be considered. It is clear that the conflict of interest appears between JCo’s counsel and the President of the Tribunal. The first scenario could be having the president recuse himself from the process to ensure that the proceedings are free from bias, thus eliminating a case of justifiable doubt of the president’s impartiality and/or independence. This would be one of the solutions. The other solution would be the withdrawing of the company’s counsel from the arbitration process on the basis of eliminating bias in light of justifiable doubt of Mr. Antony Blinken QC’s impartiality and/or independence. It would be, as a matter of speaking, a way of “cleansing” the proceedings. Seeing that JCo’s counsel are excluded from further participation, the best way forward for JCo is bringing in a new counsel to represent them during the arbitration proceedings and having the proceedings carry on.
In the third scenario following the first procedural hearing, the Tribunal requires access to the communication that has previously occurred between JCo and its Japanese legal counsel. There is consideration of the legal professional privilege that the legal counsel enjoys under Japanese law. It is first important to note the confidentiality that ought to exist in such proceedings which means that this action would be considered a breach of confidentiality on the part of the tribunal against JCo and their legal counsel. In short, this would easily be termed as one of the guerilla tactics in use by the tribunal in its actions during the proceedings. Confidentiality in this case means that the relationship between the client and the counsel ought to be respected enough not to have “intrusion”. It is considered as “pillow talk” meaning that it is communication takes place intimately or privately between these two parties and most importantly, based on the rule of without prejudice. The latter means that such communication, if it were acquired, considering that it has occurred between the client and the counsel, cannot be referred to in court or within the arbitration proceedings. JCo would have good grounds of having a good case that would easily be a reason for the setting aside of the award given the actions of the Tribunal.
Further still, another issue crops up. NZCo’s legal counsel engages in ex parte communications with NZCo without the knowledge of JCo, on top of sharing with NZCo, the deliberations that have taken place during the discussions with the Tribunal. This is yet another presenting issue; another guerilla tactic applied during the arbitration proceedings in this case. The process is already very faulty and flawed as it is. This is an unlawful practice. No such discussions ought to be taking place in the absence of al the parties party to the arbitration. This means that the JCo’s counsel, JCo, the President of the Tribunal all ought to be present when NZCo’s counsel’s communication with NZCo is taking place. In such a scenario, it would be bets for the arbitrator to recuse himself from the arbitration proceedings due to the engagement in unlawful practices that go against what the arbitration process stands for. Communications ought to only occur with agreement from the rest of the parties who are party to the arbitration proceedings. The ex parte communications are only allowed in the event that the arbitrator is still under nomination while trying to have them join the proceedings, during the selection process, communicate with a presiding arbitrator on their qualifications and willingness, thus eliminating matters about the dispute. With such an issue, it is sensible that the judge in court would consider setting aside the award given the unlawfulness and unfairness towards JCo.
NZCo, yet again, engages in leaking the draft award to the media so that it ends up being widely reported. This is a breach of confidentiality on the part of the New Zealand company. The action that can be taken in such a case is expecting the arbitrator to recuse himself, yet again, for an unlawful practice, if involved in the matter. This would provide grounds for the setting aside of the award without question.
In consideration in all the above-mentioned presenting issues, it can be said that JCo has a strong case against NZCo given that the issues are either stemming from NZCo or their counsel, or stemming from the Tribunal that ends up awarding NZCo, that ought to show impartiality and/or independence is giving the award. Their call for a claim might even come to question. At the same time, apart from applying for the award to be set aside, the parties can decide to get into arbitration afresh, thus doing away with the previous proceedings. However, given the occurrences within the arbitration proceedings that have already happened, this might be a repetition of occurrence. The other option might be the parties deciding to settle out of court, thus deciding to get into negotiations with each other instead and agreeing on what works for both parties. This would work without pressure from external parties, if any. However, it would be a requirement that neither party tries to take advantage of the other.
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