A particularly striking illustration of this was an arbitration I worked on while in a Swiss law firm. Lined up against them was an English law firm who had instructed an English silk as counsel. The English team appointed an English arbitrator. In part, because the merits of the disputes was governed by English law, the Swiss firm also appointed an English arbitrator. The two English arbitrators in turn appointed – you may have guessed by now – an English arbitrator as president of the tribunal. The seat of the arbitration was … London.
In a procedural hearing, we were meant to discuss the time-table and whether post-hearing briefs were required. What might have initially been thought of as mundane affairs became a rather intriguing lesson in cultural diversity. Time is always short in international arbitrations and so the first order of business was to decide when hearings would start and end on each day. The Swiss proposed to start at eight or nine in the morning and sit until past six in the evenings if necessary. Having just spent the previous year working in London, where their Courts start at a very civilised 10.30am and finish no later than 4.30pm (especially in the chancery division), I predicted that the all-English tribunal would revolt. True enough, they ordered hearing days to start at 10am and finish by 5pm, with flexibility to sit longer if necessary.
Then came the more heated discussion on whether to have post-hearing briefs. The Swiss, who were not as used to closing oral submissions, were in favour of an exchange of post-hearing briefs to allow them to properly consider the evidence; whereas the English, more used to being on their feet, preferred oral closing submissions. The tribunal said that they would prefer oral closing submissions and deferred the decision as to whether to have post-hearing briefs to after the hearing.
This incident highlights an important but overlooked challenge in international arbitration – the need to take account of the legal traditions and practices of counsel and arbitrators in the process. Although the time at which hearings begin and end may seem somewhat trivial, it does affect the number of hours available for hearing each day. If, for example, parties were to run short of time and cross-examination had to be rushed, would that constitute a breach of the right to a fair hearing? This happens quite frequently in international arbitrations because it is extremely difficult to schedule another set of hearing dates. Perhaps more significantly, could a refusal to accept post-hearing briefs be construed as such a disadvantage to counsel who are not used to oral submissions that it could be said that his party was “unable to present his case”?
One can think of other examples. Cross-examination, though regularly employed to test the evidence of the other side in arbitration, is a technique more familiar to common lawyers than to civilian practitioners. There is gradually an understanding that one need not chase down every point of disagreement in cross-examination but someone unfamiliar with cross-examination may believe that it is necessary to do so, and could get frustrated when time is short. The practice of “pleadings” – and in particular, the way in which it is done in common law jurisdictions (namely, having to traverse every sentence) – is also something which English lawyers are more accustomed to.
This understanding has important implications not only during the process but in the review of arbitral awards by the Courts exercising their supervisory powers under art 34 of the Model Law or its enforcement powers under art 36 of the Model Law. The difference in approach to when a fact or legal conclusion ought to be pleaded was the subject of discussion by our Courts in PT Prima International Development v Kempinski Hotels SA[2012] 4 SLR 98. In that case, Kempinski Hotels SA had a contract to manage a hotel owned by PT Prima (the “Management Contract”) but their relationship soured subsequently. Prima gave written notice of termination citing breaches of obligations by Kempinski. In the intervening period, the Indonesian Ministry of Tourism had issued three decisions making it illegal for a foreign entity to manage hotels in Indonesia unless it set up a company incorporated in Indonesia or entered into a joint venture with Indonesian partners. Prima amended its pleadings to rely on these decisions on the grounds of supervening illegality or force majeure. The arbitrator ruled that the Ministry’s decisions did not prevent performance of the Management Contract but only prescribed a manner for its performance. The arbitrator issued a second award holding that there were alternative modes of performing the Management Contract that were consistent with the Ministry’s decisions. Subsequently, Prima discovered that Kempinski had entered into a new management contract with another hotel (the “New Management Contract”), and sent a letter to the arbitrator to seek “clarification” of the second award as to whether the alternative modes of performing the Management Contract were still possible in view of the New Management Contract, which, Prima contended, was in breach of the exclusivity clause in the Management Contract. The arbitrator subsequently issued the third interim award holding that the New Management Contract was inconsistent with the obligations under the Management Contract, and that, therefore, the methods of performance that remained open after the Ministry’s decisions were no longer possible. One of the contentions raised in setting aside proceedings was whether the arbitrator had acted outside the scope of the parties’ submissions as reliance on the New Management Contract had not been pleaded.
The High Court held that the New Management Contract should have been pleaded, with the result that Kempinski would have had the opportunity to respond. The Court of Appeal reversed this finding, holding that the High Court had adopted too narrow an approach. Instead, the Court of Appeal reasoned that it was sufficient that Kempinski had itself sought damages and specific performance for the allegedly wrongful termination, and that the New Management Contract would have prevented damages from accruing. Therefore, it fell within the scope of submission. The Court wrote, at [47]:
[A]ny new fact or change in the law arising after a submission to arbitration which is ancillary to the dispute submitted for arbitration and which is known to all the parties to the arbitration is part of that dispute and need not be specifically pleaded. It may be raised in the arbitration, as Prima did when it raised the New Management Contract as part of its force majeure defence to Kempinski’s claim. We should also point out that Kempinski was given sufficient notice of and opportunity to meet Prima’s force majeure defence.
The Court of Appeal’s focus on substance over form is probably the best approach to take. Counsel and arbitrators heralding from different legal traditions may not always have the same technical appreciation of certain practices – pleadings, cross-examination, and even submissions. But the fundamental principle of a fair hearing is one which everyone ought to understand and it is against this principle, rather than any technical rules, that a Court should test whether an award was issued in breach of the rules of natural justice.
Cultural values do not only influence procedure; they also determine substantive issues. A recent illustration of this is found in the two cases of HSBC Institutional Trust Services (Singapore) Ltd v Toshin Development Singapore Pte Ltd[2012] SGCA 48 and International Research Corp PLC v Lufthansa Systems Asia Pacific Pte Ltd and another[2012] SGHC 226, where the Courts affirmed the enforceability of dispute resolution clauses calling for good faith negotiations as a preliminary step or condition precedent to litigation or arbitration. Citing an article by Assoc Prof Philip J McConnaughay (“Rethinking the Role of Law and Contracts in East--West Commercial Relationships” (2000--2001) 41 Va J Int’l L427), the Courts based their reasoning on the following passage from the article:
A core term of many Asian commercial contracts – the “friendly negotiations” or “confer in good faith” clause – captures the essence of contractual obligation in the Asian tradition. Such clauses typically recite that, if differences or disputes arise during the course of the contractual relationship, the parties will discuss and resolve the matter amicably. The Western view of such clauses is that they impose no real obligation at all; at most, they represent a mechanism for making unenforceable requests for novation, or perhaps an initial formality in a multiple-step dispute resolution process culminating eventually in compulsory adjudication intended to enforce precise contractual terms. But these views presuppose a Western understanding of the contract itself, which is not shared in Asia. From a traditional Asian perspective, a “confer in good faith” or “friendly negotiation” clause represents an executory contractual promise no less substantive in content than a price, payment, or delivery term. It embodies and expresses the traditional Asian supposition that the written contract is tentative rather than final, unfolding rather than static, a source of guidance rather than determinative, and subordinate to other values – such as preserving the relationship, avoiding disputes, and reciprocating accommodations – that may control far more than the written contract itself how a commercial relationship adjusts to future contingencies. Characterizing a “confer in good faith” or “friendly negotiation” clause as a “dispute resolution” clause tempts a misapprehension of this essential nature, for no “dispute” exists if all of the parties to the contract share an Asian understanding of its evolving and responsive (through good faith conferences and friendly negotiations) nature.
International arbitration carries great promise to deliver an ideal forum for the resolution of disputes between commercial parties from different jurisdictions. But inherent in that is the challenge that comes with the inevitable cultural differences that its participants will bring to bear upon the process. The potential of international arbitration can thus only be realised if its participants (and the Courts) embrace this diversity.
► Paul Tan*
Partner
Rajah & Tann LLP
E-mail: [email protected]
* LLB (NUS)(First Class Hons.); BCL (Oxon)(Dist.)
Advocate and Solicitor, Singapore; Barrister, England and Wales