International Arbitration

Streamlining, While Competition Heats Up

THE US

Over the past few years, US courts have rendered several decisions in which they have demonstrated a pro-arbitration trend, reinforcing the jurisdiction’s position as a leading forum for international arbitration.

Judicial review of arbitral awards

In Hall Street Associates LLC v Mattel Inc, the US Supreme Court held that parties cannot expand the grounds for judicial review of arbitral awards beyond the provisions contained in section 10 of the Federal Arbitration Act (FAA) (section 10) (128 S.Ct. 1396 (2008)). The court refused to give effect to the terms of an arbitration agreement that purported to entitle a court to vacate, modify or correct any award where the arbitrator’s conclusions of law were erroneous. The court also touched on the controversial common law ground for vacating an award for “manifest disregard of the law”, querying, among other things, whether that term was intended to refer to the section 10 grounds collectively or was meant to be a new ground for review. Lower courts remain divided on this issue.

Discovery

Section 1782 of the US Code (section 1782) allows parties to obtain discovery of evidence in the US for use in proceedings before foreign or international tribunals. Since the US Supreme Court’s decision in Intel Corp v Advanced Micro Devices Inc, in which it was suggested that section 1782 can be invoked in aid of international arbitration proceedings, several federal courts have extended the application of section 1782 from tribunals established by governments to non-sovereign tribunals, including private commercial arbitrations (542 U.S. 241 (2004)). To date, section 1782 has been applied by federal courts in Connecticut, Delaware, Massachusetts and Minnesota with respect to private commercial arbitrations, and by federal courts in a number of states, including New York and California, with respect to investment treaty arbitrations. However, other federal courts in Illinois, Texas and Florida have not been willing to extend section 1782 to private arbitral tribunals.

Competence-competence

In Rent-A-Center West v Jackson, the US Supreme Court considered whether courts are required to hear claims that an arbitration agreement subject to the FAA is unconscionable, even when the parties have clearly and unmistakably assigned that decision to the arbitrator (130 S.Ct. 2772 (2010)). The court held that, under the FAA, a challenge to the validity of an arbitration agreement that contains a provision delegating that authority to the arbitrator is to be decided by the arbitrator and not a court. This reinforces the principle of competence-competence (that is, that an arbitral tribunal has the power to rule on its own jurisdiction). However, the court also held that, because an arbitration agreement is severable from the remainder of the contract, a specific challenge to the enforceability of the arbitration agreement must be considered by a court.

Class action arbitration

In Stolt-Nielsen SA v AnimalFeeds International Corp, the US Supreme Court held that, under the FAA, parties cannot be compelled to submit to class arbitration if their arbitration agreement is silent on the subject (130 S.Ct. 1758 (2010)). Class arbitration is a recent phenomenon in the US, coming to the fore following Green Tree Financial Corp v Bazzle, where the Supreme Court held that it is for arbitrators rather than courts to decide whether a silent clause permits class arbitration (123 S.Ct. 2402 (2003)). The recent rise in US class arbitrations is illustrated by the American Arbitration Association’s (AAA) figures: it administered nearly 300 class arbitrations between 2004 and 2009, approximately 76% of which arose out of consumer, employment and franchise disputes. In many of these cases, a silent arbitration clause was presumed to permit class arbitration. However, since Stolt-Nielsen, it is expected that class arbitrations will become more of a rarity.

ASIA

The 2010 survey suggests that Asia has become a more familiar, trusted and frequently-used region for parties involved in international arbitration proceedings. Even parties from outside Asia now often choose arbitration in the well-established forums of Hong Kong and Singapore. According to the 2010 survey, Singapore became the most favoured arbitral seat in Asia in 2010, moving slightly ahead of Hong Kong.

Reform

Around Asia in 2010, countries and arbitral bodies have been revising and enhancing laws and institutional rules applicable to international arbitration. In Hong Kong, a new Arbitration Ordinance was passed on 10 November 2010 (the ordinance), which, among other things, abolishes the distinction between domestic and international arbitration, and provides for a new unitary regime based on the UNCITRAL model law. It also makes clear that courts may intervene in the arbitral process only in circumstances expressly set out in the ordinance. In practice, this means that minor, procedural hearings, such as those for challenges to arbitrator appointments and orders to extend time for arbitral proceedings, are not subject to appeal.

The Singapore International Arbitration Centre (SIAC) published a revised version of its arbitration rules in 2010, which enable the adoption of streamlined procedures for limited-value disputes of $5 million or less, and expedited arbitrator-issued interim remedies in cases of genuine urgency. Additionally, the requirement for a memorandum of issues to be drawn up and agreed between the parties (defining the issues in dispute at an early stage) has been abandoned.

Most arbitral institutions continue to use the 1976 UNCITRAL rules; however, the Kuala Lumpur Regional Centre for Arbitration in Malaysia was the first arbitral institution to adopt the new 2010 UNCITRAL rules.

These developments follow those in North Asia in recent years. In late 2009, the Japanese Commercial Arbitration Association amended its arbitration rules by adopting the UNCITRAL rules. Earlier, in 2007, the Korean Commercial Arbitration Board (KCAB) implemented an entirely separate set of international arbitration rules (the KCAB international rules), which now exist alongside the KCAB arbitration rules. The KCAB international rules, modelled closely on the ICC rules, apply to international arbitrations under the auspices of the KCAB, provided that parties expressly adopt them in their arbitration agreements.

An emerging judicial consensus?

Courts in the region have continued to contribute to legal certainty in a range of pro-arbitration rulings. For example, in 2010, the Tokyo High Court held that the public policy exception in Article 44(1) of the Japanese Arbitration Law was not intended to allow courts to set aside awards in cases where tribunals have made mistakes (even if unreasonable) in their findings of fact or law (Decision No. 3 of 2009). Rather, it was to enable setting aside where the effect of an award is contrary to the public policy of Japan: a much higher hurdle. While the number of cases handled by the Japan Commercial Arbitration Association remains relatively low, the approach adopted by the Japanese courts is now consistent with international expectations of non-interference with the arbitral process.