BAHR Dispute Resolution Insight - 03/23

Dispute Resolution Insight 03/23

Table of content Opening statement 04 Finding a home: The importance of seat-selection in arbitration 06 Picking up the pace — Institutional arbitration in Norway 14 Proceed with caution: What to include and avoid in arbitration agreements 20

BAHR

OPENING STATEMENT

<<<

4

BAHR

Dear friends, The past three months have been characterised by change and new beginnings. Since we returned to the office after the summer holidays, the predominant theme in BAHR’s dispute resolution department has been arbitration in all its forms — international and domestic, ad hoc and institutional. BAHR has had the privilege of arranging and hosting a series of lectures and professional gatherings with arbitration as a central theme. In recognition of BAHR’s continued focus on arbitration, we are excited to present this edition of BAHR Dispute Resolution Insight that takes a close look at trends and issues in arbitration from both an international and a Norwegian perspective.

At the beginning of September, BAHR, in collaboration with Wikborg Rein, hosted the inaugural BAHR/Wikborg Rein arbitration conference in BAHR’s auditorium. We were lucky to be able to invite and entertain leading practitioners in the field of arbitration for an evening of educational content and socialising.

During the discursive portion, the main topics of discussion were the culture and practice of ”Procedural Order No. 1,” which establishes the overall framework for the arbitration process, and the varied approaches of different jurisdictions to challenges against arbitral awards. These two issues provide a snapshot of the arbitral procedure, underpinning both the beginning and the end of the process.

One of the main takeaways from the discussions was the importance of selecting the appropriate arbitral seat for your purposes when entering into commercial arrangements, which we discuss in greater detail in our first article in this publication.

During the arbitration conference, participants also raised and noted the fact that arbitration in Norway has traditionally been in the form of ad hoc arbitration, taking cues from

Norwegian domestic court practice and Norwegian lawyers’ expectations in this regard.

That said, arbitration in Norway is at an inflexion point, with a greater degree of internationalisation and, consistent with that shift, a trend towards increased use of institutional arbitration. This development is of importance to commercial parties, as it signals a possible change in approach to the settlement of disputes, especially in the context of international and high-value conflicts. At the same time, the development raises issues of balancing traditional Norwegian expectations around dispute resolution against the desire to align Norwegian arbitration practice with the more-or-less established international approach.

In our second article, we examine this change in direction in arbitration in Norway and what we predict will be an eventual solidification of institutional arbitration as the default form of settlement of disputes through arbitration.

The overarching learning from the topics broached above is that focus on the fundamentals of arbitration is the key to a successful and effective mechanism for dispute resolution.

Bearing in mind, therefore, that arbitration is, at its core, a matter of contractual agreement, parties are encouraged to devote resources at an early stage to design the arbitral procedure in a rationale and suitable manner, primarily when drafting their arbitration agreements.

In our third article, we consider some common but less-than-obvious pitfalls parties may face when negotiating and agreeing arbitration clauses in their contracts, together with strategies parties should consider to mitigate the risk of problems and inconveniences when settling disputes through arbitration.

We hope that this edition of BAHR Dispute Resolut ion Insig ht w ill prov ide a n interesting read, as well as food for thought.

Atle Skaldebø-Rød

Partner / Head of Dispute Resolution E: atska@bahr.no, m: +47 922 87 727

5 >>>

BAHR

FINDING A HOME:

THE IMPORTANCE OF SEAT-SELECTION IN ARBITRATION On 7 September 2023, BAHR and Wikborg Rein collaborated to host the inaugural edition of the annual BAHR & Wikborg Rein Arbitration Conference at BAHR’s offices in Oslo. The purpose of this annual event is to provide a platform for leading arbitration practitioners and those in the Nordics interested in arbitration to gather on a regular basis for an evening of informative discussion and friendly socialising. The event was attended by a diverse cast of distinguished participants. The guest list featured reputable Scandinavian academics in the field of arbitration and private international law and esteemed judges from the Norwegian district courts, courts of appeal, and Supreme Court, as well as experienced arbitration practitioners from Norway, Sweden, Denmark, and Switzerland.

<<<

6

BAHR

All roads lead from seat The discursive portion of the conference was split into two panel discussions. The first panel discussion concerned the arbitral concept and practice of “Procedural Order No. 1” (“PO1”) in Norway, Denmark, and Sweden. PO1 is a well-known topic to arbitration practitioners and forms a critical part of arbitral procedure in establishing an overarching procedural framework for the arbitration. The second panel discussion covered challenges to the validity of arbitral awards from the perspectives of the Norwegian, Swedish, and Swiss legal systems. The topic of challenges to the validity of arbitral awards is crucial to the system of arbitration, as it directly concerns the finality and enforceability of arbitral awards through the lens of national courts’ scrutiny of arbitral decisions, thus influencing parties’ confidence in the ability to obtain equitable and effective relief through arbitration.

The discussions reinforced the notion that selection of arbitral seat is fundamental to parties’ experiences and expectations in arbitration. Beyond the obvious legal ramifications of identifying a country that has supervisory jurisdiction over an arbitration, selection of a particular seat is often an acknowledgement by parties that they are adopting that seat’s arbitral customs and culture. The two topics of discussion served as perfect illustrations of this, with an investigation into the cultural implications of seat selection as it relates to PO1 practice at the beginning of the arbitral process, and into the legal ramifications of seat selection as it relates to the framework for challenging arbitral awards towards the end of the arbitral process.

Below, we look at what was discussed on the day and the panels’ views on the two topics.

PO1 practice: A question of culture?

The function of PO1 is generally to decide procedural questions in the arbitration and case management issues, such as procedural deadlines, the form of legal submissions, how submissions are submitted and filed, the handling of document disclosure, expert

witnesses, and hearings. It is typical for PO1 to be discussed before and at the first case management conference (“CMC”), the first meeting between parties’ representatives and the tribunal to discuss and agree on a procedure for the arbitration moving forward.

The need for tribunals’ orders such as PO1 is borne out of the lack of procedural direction in many jurisdictions’ arbitration legislation and laws, which generally concern arbitral principles rather than how an arbitration plays out in practice. PO1 is intended to fill this gap.

Given that most arbitral legislation is silent on the details of arbitral procedure, the design of arbitral procedure has been largely influenced by customs and culture of arbitration practitioners in each seat, namely lawyers, arbitrators, and commercial parties themselves.

The culture and customs of different seats have adopted different approaches to the question of striking the balance between formal rulemaking in PO1s and maintaining flexibility in designing a procedure to address specific needs and difficulties that arise as an arbitration proceeds and develops. As discussed below, the panel explained that Sweden leans towards formality, Norway has historically favoured flexibility, and Denmark lies somewhere in the middle. It is important for commercial parties to appreciate relevant differences and determine which approach most suitably meets their expectations and commercial needs.

Sweden’s focus on formality Swedish practice has trended towards formal rulemaking in PO1. Swedish custom has become internationalised in this regard, largely due to Sweden’s popularity as an arbitral seat for disputes between East and West, as well as for investment disputes. Swedish practitioners consider PO1 to be important to fill the procedural and practical gaps left by domestic arbitration legislation. First, PO1 removes the need for tribunals to continuously make procedural decisions on an issue-by-issue basis throughout the course of the arbitration, thus lending predictability and effectiveness to the process. Second, PO1 places key issues in the

7 >>>

BAHR

parties’ minds at an early stage in the arbitration, which aids case management. Third, PO1 establishes objective cut-off deadlines for the submission of evidence and arguments so there is no confusion as to the last date by which they can raise new points in support of their case. Finally, PO1 adds clarity and sets expectations, which bridges cultural and customary differences between international parties and avoids situations where one party seeks to obstruct the proceedings by relying on the pretext of misunderstanding.

Norway’s focus on flexibility PO1 practice in Norway varies greatly.

When designing procedure, arbitral tribunals generally look to Norway’s long history of ad hoc arbitrations, characterised by less formal proceedings and passive tribunals, while also taking inspiration from court practice, as well as, more recently over the past fifteen years, from the development of institutional arbitration. The form and scope of PO1 is heavily influenced by the size and complexity of the dispute, whether the participants are domestic or international, and the identityof legal counsel and arbitrators.

Norway is currently at an inflexion point with respect to PO1 practice, where the practice is undergoing internationalisation, at least with respect to higher value disputes. As warned by the panel, practice in Norway runs the risk of becoming too rigid if its evolution is not appropriately navigated, thus leading to increased time and cost of running arbitrations, inappropriate handling of oral hearings and submission of arguments, and inf lexibilit y in determining suitable procedures for later stages in the arbitration when issuesin t he a rbit rat ion have

<<<

8

become better understood and might be better served by a nimbler approach.

The Danish middle ground Arbitral practice in Denmark sits somewhere between Norwegian informal practice and Sweden’s more formalistic rule-based practice but depends in large part on which Danish arbitral institution parties select. Arbitrations administered by the Danish Building and Construction Arbitration Board, used mainly for disputes in the construction industry, are typically characterised by detailed evidentiary procedures, which often lead to relatively drawn-out proceedings, whereas arbitrations administered by the Danish Institute of Arbitration more commonly adopt international procedural concepts. A key feature of Danish arbitration, which might be unfamiliar to many international practitioners, is the affordances regarding flexibility of adducing evidence and making arguments at all stages of the arbitration, all the way up to the end of the proceedings. In general, however, Danish arbitration mirrors international practice, in that Danish legislation does not govern t he specif ics of a rbitra l procedure, which is left to the agreement of the parties and orders issued by the tribunal.

Challenges to arbitral awards: How closely do courts look?

Finality and enforceability of arbitral awards are key concepts in international arbitration that have been central to the growth in popularity of arbitration by allowing parties to obtain the relief they seek in a predictable and timely manner. As such, the grounds for challenging the validity of arbitral awards are limited and largely concern procedural irregu-

BAHR

larities in the conduct of the arbitration or issues of fundamental public policy. For example, in the UNCITRAL Model Law the only available grounds for setting aside an award are those contained in the exhaustive list in Article 34(2):

i.

The arbitration agreement itself is invalid.

ii.

There was no proper notice of the appointment of an arbitrator or the arbitral proceedings, or a party was otherwise unable to present its case.

iii.

Issues decided by the tribunal fell outside the scope of submission to arbitration.

iv.

The composition of the tribunal or the arbitral procedure was not in accordance with the parties’ agreement (unless that agreement was itself in conflict with a non-derogable provision of the Model Law), or, if there was no such agreement, was not in accordance with the Model Law.

v.

The subject-matter of the dispute is not capable of settlement by arbitration under domestic law.

vi.

The award is contrary to the public policy of the jurisdiction in which it was issued.

Although the Model Law provides a framework for understanding challenges to arbitral awards, the courts of different jurisdictions apply

varying degrees of scrutiny when reviewing challenged awards. For example, the French courts have historically adopted a minimalist degree of scrutiny, deferring to the tribunal where it is found that the tribunal has requisite jurisdiction — although in recent years French courts have adopted a somewhat ultramaximalist approach where there are allegations of corruption, money laundering, or financial crime in general. The majority approach across most jurisdictions is a form of maximalism, where courts are generally empowered to review the context of the entire arbitration when assessing challenges to the validity of arbitral awards.

Commercial parties that prioritise finality of arbitration may prefer to use a seat that adopts minimalist intervention in arbitral awards, such as Switzerland. More generally, it is critical that commercial parties have an accurate idea of the potential hurdles each legal system may present when it comes to actually obtaining the relief that an arbitral award promises.

Norway’s historically middle approach — moving towards maximalism?

Norway adopts a system of review which sits somewhere between minimalism and maximalism. However, a recent decision of the Frostating Court of Appeal indicates a possible shift towards applying greater scrutiny when considering issues of public policy. In Fevamotinico S.à.r.l v Boa Imr AS (LF-2018-123987), the Frostating Court of Appeal held that Norwegian courts could consider subsidiary legal issues when assessing whether an award is contrary to public policy, such as violations of Norwegian company law. The panel expressed its displeasure with the decision, remarking that the ground of challenge on the basis that

9 >>>

BAHR

an award is contrary to public policy ought to be limited to the question of whether the award has led to an outcome that is itself contrary to public policy and not whether subsidiary issues themselves are inconsistent with public policy.

Sweden’s distinction between setting aside and invalidity In Sweden, the grounds for challenging an award are split into categories that are governed by different procedures under Swedish law: grounds relating to invalidity and grounds relating to setting aside. Invalidity grounds concern situations where the tribunal has decided an issue that, according to Swedish law, may not be decided by arbitrators, where the award is clearly incompatible with basic principles of the Swedish legal system, and where the award does not fulfil formal requirements with respect to form and signature in accordance with Swedish law. Setting aside grounds relate primarily to procedural issues in the arbitration itself and include grounds such as the lack of a valid arbitration agreement, the tribunal having exceeded its mandate, violation of the arbitration agreement, an arbitrator’s lack of capacity to act as an arbitrator, and general procedural irregularity.

The distinction between the two categories is important, as the Swedish courts are empowered to apply a far greater degree of scrutiny when considering invalidity grounds and apply a more minimalist approach when considering setting aside grounds.

The Swiss laissez-faire approach Switzerland has consciously positioned itself as an arbitration-friendly jurisdiction with minimal curial intervention by domestic courts.

Arbitration agreements are interpreted as a

<<<

10

BAHR

waiver of access to domestic courts. Consequently, parties challenging awards have limited recourse before domestic courts, with applications challenging awards brought directly before the Federal Supreme Court at first instance.

Parties challenging awards must rely on the five limited grounds of challenge, namely: that the tribunal was constituted in violation of the parties’ agreement, that the tribunal lacked jurisdiction or competence to determine the issues in question, that the issues fell outside the tribunal’s mandate, that the arbitration was conducted unfairly, and that the award is contrary to public policy. The threshold for establishing one of these grounds is high. As explained by the panel, there is only a 6–7% success rate in Switzerland for setting aside applications across all grounds and less than a 1% success rate for setting aside applications based on the public policy ground.

The reason for the low success rate regarding the public policy ground is that Switzerland adopts a strict international interpretation of public policy, where public policy refers to fundamental legal and moral rights recognised in every civilised legal system, as well as the fact that the challenging party must demonstrate that the award as a whole is contrary to public policy, not just that a subsidiary issue within the award is. Switzerland also applies a consistent limitation on the courts’ powers to scrutinise awards. For example, the courts are bound to accept the facts and background of the case as described by the tribunal in the award itself and may only consider other versions of events where there is new evidence, or the challenging party can demonstrate that the award contains a manifest error.

11 >>>

BAHR

<<<

12

BAHR

About the authors Daniel Steel

Managing Associate E: daste@bahr.no M: +47 93 04 87 34 Daniel is part of BAHR’s Dispute Resolution team. His practice focuses on international arbitration, cross-border litigation, and investigations & compliance. Daniel has over ten years of experience advising clients in arbitration matters under the ICC, LCIA, AAA/ICDR, SIAC, HKIAC, CIETAC, and UNCITRAL rules. His experience in contentious matters comprises a wide range of industries and areas, including oil & gas, renewable energy, pharmaceuticals, telecommunications, intellectual property, real estate, arbitration-related litigation, and shareholder disputes.

Fanny Bratfos

Managing Associate E: fabrat@bahr.no M: +47 906 96 963 Fanny is part of BAHR’s Dispute Resolution team and has extensive experience with litigation and civil procedure. She has served as a deputy judge in the district court, where she decided and mediated many complex commercial disputes.

Fanny holds an LL.M. degree in International Commercial Arbitration and International Contract Law.

Atle Skaldebø-Rød Partner

E: andah@bahr.no M: +47 922 87 727 Atle is admitted to the Supreme Court and has extensive experience across a broad range of complex commercial disputes.

His practice includes post-M&A, directors’ liability, shareholder disputes, company law, financial reporting and marine insurance as well as special forms of judicial proceedings, such as enforcement proceedings, preliminary injunctions and securing of evidence.

13 >>>

BAHR

PICKING UP THE PACE — INSTITUTIONAL ARBITRATION IN NORWAY The common impression is that fashion trends usually arrive in Norway’s neighbours Sweden and Denmark before they reach Norway. What you may not know is that Norway similarly lags behind when it comes to a legal trend: institutional arbitration. However, we believe that institutional arbitration is picking up the pace in Norway and we predict that it will become the trend in Norway going forward. In this article, we explain the reasons why.

Introduction Arbitration is a private alternative dispute resolution process in which the parties have freedom to regulate the process. Studies from 2021 show that international arbitration is the preferred method of resolving cross-border disputes worldwide. However, in Norway 52% of in-house lawyers still prefer litigation over arbitration1. The number is significantly higher than in our neighbouring countries, with the numbers being 25% in Denmark, 14% in Sweden and 7% in Finland2. In addition to preferring litigation, Norwegian lawyers have also traditionally preferred ad hoc arbitration over institutional arbitration.

prefer ad hoc arbitration over institutional arbitration. However, the survey indicates that institutional arbitration is progressing in Norway. We predict that arbitration in the future will be the preferred method of solving cross-border disputes in Norway, and that institutional arbitration in particular will increase in popularity.

Before getting into the reasons for our prediction, we discuss the characteristics of arbitration and which elements participants in arbitration find attractive about this form of dispute resolution.

Ad hoc arbitration – The Norwegian In the fall of 2022, BAHR’s Dispute Resolution default team conducted an informal survey that confirmed that Norwegian companies still 1 The sixth edition of the Roschier Disputes Index is published - Roschier 2 The sixth edition of the Roschier Disputes Index is published - Roschier

<<<

14

In ad hoc arbitration the parties do not use an institute to administer the arbitration. The

BAHR

process is controlled entirely by the parties, and the arbitral tribunal. There are no fees to be paid to an institute. The UNICTRAL Model Law on International Commercial Arbitration is a model law containing an ad hoc set of rules, which, to a large extent, has been adopted in the national arbitration legislation of approximately 70 countries, including Norway.

If structured well, ad hoc arbitration may provide for a simpler process by avoiding the involvement of an institute as a third-party and may be more flexible and cost-effective.

On the other hand, ad hoc arbitration is highly dependent on cooperation between the parties.

For instance, if one of the parties refuses to participate in the appointment of arbitrators, the other party must seek the national courts’ assistance. Typically, this process will be more

cumbersome and time-consuming than in institutional arbitration, where the arbitration institute typically can assist with appointing missing arbitrator(s).

Institutional arbitration – Improved efficiency?

In institutional arbitration, the parties have agreed that the arbitration shall be subject to the rules of a specialised arbitration institute, which also takes on the role of managing the administrative aspects of the arbitration process.

Usually there is a secretariat which will prepare and organise the incoming cases. There are approximately 1200 arbitration institutes worldwide.

Institutional arbitration has the advantages that the arbitration will be governed by tried-

15 >>>

BAHR

and-tested rules, and that the parties will receive administrative assistance from the institute. However, this comes at a cost in the form of administrative fees to the institute.

The administrative fees typically depend on the amount of dispute. For a dispute worth 100 million NOK, the administrative fee will typically be around 550 000 - 600 000 NOK excl. VAT. That said, the institute will often have regulations regarding arbitrators’ fees which can make the total costs more predictable.

Change of direction in Norway?

Looking back approximately 50 years, the main reason Norwegian companies chose arbitration over litigation was efficiency3.

In 2013, specialised judges was the main reason, with efficiency and technical/ commercial knowledge being the runner up4.

3 Tore Sandvik, Voldgifts- og domstolsbehandling, TfR 1979 p. 456.

4 In 2013, Ola Nisja and others conducted the same survey as Sandvik conducted in 1979.

<<<

16

One can speculate as to whether the flexibility afforded by ad hoc arbitration, which allows the parties to construct an arbitration process quite similar to ordinary court litigation proceedings, is attractive because it is familiar and feels “safe” to Norwegian parties.

Norwegian courts have seen a drop in incoming civil cases. Studies from The Norwegian Court Commission also indicate that Norwegian courts have become less attractive as a dispute resolution forum in commercial cases5. Since the courts have expressed their keenness and enthusiasm to maintain their position as the preferred dispute resolution forum for commercial actors, the courts have implemented active measures. These measures include shorter processing time, moderate specialisation of judges, as well as Oslo District Court’s new 5 NOU 2020: 11 p. 59-60.

BAHR

best practice document for resolving large commercial disputes. Since efficiency and specialised judges are the main reasons for choosing arbitration over litigation, these measures are cleverly targeted.

However, as mentioned above, we predict that arbitration will become the preferred method of solving cross-border disputes in Norway, and also that institutional arbitration will increase in popularity. There are several reasons for our prediction.

The first reason is that institutional arbitration is trending worldwide. Five important arbitral institutions – the International Chamber of Commerce, the Singapore International Arbitration Centre, the Hong Kong International arbitration Centre, the London Court of International Arbitration, and the China

International Economic and Trade Arbitration Commission - all reported increased caseloads and/or claim amounts in the recent years.

Taking this into account, and combining it with increasing internationalisation in Norwegian business, we believe that Norwegian companies will increasingly be influenced by the international legal community. Either forcefully, or voluntarily.

The increasing internationalisation in Norwegian business will probably also lead to a rise in cross-border disputes where crossborder recognition and enforceability of judg ments/awa rds becomes critica l.

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards has been adopted by 169 UN member states including Norway, making Norwegian arbitral awards enforceable in large portions of the

17 >>>

BAHR

world (and vice versa). By contrast, cross-border recognition and enforcement of judgments by Norwegian courts is limited outside of the European countries that are parties to the Lugano convention.

Another reason is the establishment of the Nordic Offshore and Maritime Arbitration Association (NOMA) in 2017. NOMA was founded on the Nordic consensus that neither ad hoc arbitration nor the existing arbitration institutes were suited for arbitration in the shipping and offshore industry. The NOMA Rules have proved to be popular in the industry.

The rules reflect what is considered “best practice” in arbitration and can also be used in industries other than offshore and maritime.

The attention the Rules are receiving is apt to contribute to a shift of preference from traditional ad hoc to arbitration under a pre-defined set of rules.

Further to this, the Oslo Chamber of Commerce (OCC) has modernised its set of rules for arbitration. The new modernised rules include, among other things, rules on the allocation of the parties’ costs of arbitration, as well as rules on the determination of the remuneration of the arbitral tribunal. Our survey indicates that increasing costs are still considered an important challenge in international arbitration.

As such, we believe that measures implemented to control, predict and lower costs could also contribute to the shift of preference from ad hoc to institutional arbitration.

<<<

18

Our survey also indicates that, in addition to the ability to selecting arbitrators, a majority still finds efficiency important when choosing arbitration over litigation. However, Norwegian courts have succeeded in reducing their time of processing cases and, as of now, cases in the first instance of the ordinary courts in Norway are, for the most part, just as quickly resolved as cases in arbitration. Efficiency is also one of the main advantages when choosing institutional arbitration over ad hoc arbitration, as the institutes have means to ensure efficiency.

The focus on efficiency may contribute to a preference for institutional arbitration in Norway going forward.

Also, in our experience representing both international and Norwegian clients, institutional arbitration seems to be trending already.

Overall, we believe that the efforts made by the Norwegian courts to maintain the position as the preferred dispute resolution forum may delay the progression of international arbitration. However, for the reasons mentioned above, we still predict that arbitration will be the preferred method of solving cross-border disputes in Norway in the future, and that institutional arbitration will increase in popularity.

BAHR

About the authors Daniel Sipos

Managing Associate E: dasip@bahr.no M: +47 928 55 425 Daniel is an experienced litigator, working primarily with finance related litigation. His experience includes assisting banks and bondholders with resolving disputes, recovering funds and protecting their legal positions in cases of default or insolvency. He also has experience assisting borrowers and issuers in disputes with their lenders. His recent matters includes damages claims, injunction proceedings, enforcement proceedings, appraisal proceedings, in addition to arbitration proceedings.

Lene Fjellstad Johnsen Senior Associate

E: lefjo@bahr.no M: +47 93 20 32 30 Lene is part of BAHR’s dispute resolution team. She works with general dispute resolution and litigation. Johnsen litigates cases before ordinary courts and arbitral tribunals. She has built up her expertise in dispute resolution and mediation through litigation of numerous cases as a judge and judicial mediator, as well as an attorney.

Simen Skjold Søgaard Partner

E: sss@bahr.no M: +47 900 21 287 Simen is admitted to the Supreme Court and rejoined BAHR as partner after six years at the Office of the Attorney General (Civil Affairs) in April 2022. Simen represents clients in all forms of commercial disputes with a particular focus on tax and VAT litigation and matters involving public authorities.

19 >>>

BAHR

PROCEED WITH CAUTION:

WHAT TO INCLUDE AND AVOID IN ARBITRATION AGREEMENTS Arbitration has seen a substantial rise in popularity over the past two decades. The trend is understandable given the obvious advantages arbitration offers versus litigation in domestic courts, such as widespread cross-border enforceability of arbitral awards, the generally confidential nature of the process, the ability to select arbitrators with specialised knowledge and expertise, and the flexibility to design proceedings suitable for any given case, to name a few. However, good drafting of arbitration clauses is essential to ensure an effective and predictable arbitral proceeding, and to avoid problematic situations and inconveniences. In this article, we take a closer look at a few less-than-obvious pitfalls in arbitration clause-drafting, and simple methods for avoiding undesirable outcomes.

<<<

20

BAHR

Equivocate at your own risk The decision to arbitrate is a matter of contractual agreement. Courts and tribunals often interpret an agreement to arbitrate as a waiver of the right to access the domestic court system. As access to court is commonly deemed a fundamental right of parties, the language used to demonstrate a true intention to remove a dispute from the purview of the court system needs to be unequivocal and unambiguous.

In some jurisdictions, such as England and Singapore, a distinction is made between mandatory references to arbitration and those which are merely permissive. This comes down to the specific use of words in the arbitration agreement. The UK Privy Council has interpreted the phrase “any party may submit a dispute to arbitration” as merely permissive and creating an option to arbitrate, meaning that either party is free to commence litigation in the domestic courts up until and only unless a party exercises its option to ventilate the dispute in arbitration.

In some other jurisdictions, such as in US federal courts and Hong Kong, case law has developed to interpret the use of the permissive word “may” as a mandatory reference to arbitration, although opposing outcomes have been reached in some cases in those jurisdictions. One should be aware that the question of whether such optional clauses are valid arbitration agreements varies across jurisdictions, and one should always obtain advice as to the idiosyncrasies of a given legal system on this point. It should also be noted that many jurisdictions’ courts have not yet considered the question of whether such optional clauses constitute valid and enforceable arbitration agreements.

The Norwegian Supreme Court has adopted a threshold for assessing the validity and enforceability of arbitration agreements through the lens of basic Norwegian contract law principles. The key question as a matter of Norwegian law is whether the arbitration agreement is formulated in terms of having “final and binding effect”. It is thus critical that parties include language that clarifies the final and binding effect of the arbitration agreement and consequent arbitration.

The solution to this issue is simple in theory: use mandatory language such as “shall” if you intend to submit all disputes to arbitration with no exception and be extremely cautious when adopting permissive language such as “may”, as this may be considered merely an option to arbitrate or an invalid reference to arbitration.

In our experience, parties are generally well-served by providing for mandatory arbitration, thus avoiding potential satellite disputes concerning what role parties intended arbitration would play. Although the solution is theoretically simple, we often see mistakes in complex agreements, especially those involving multi-tiered dispute resolution mechanisms. For example, parties may agree on an expert determination process to resolve an outstanding issue under a contract, providing that parties “may” submit disputes regarding the expert determination to arbitration since such linguistic usage is natural. However, the use of the word “may” here may lead to the consequence that the arbitration agreement is merely optional or that it is invalid, neither of which usually comports with the parties’ intentions. Do not be afraid to use the word “shall”.

21 >>>

BAHR

<<<

22

BAHR

Be clear on the governing law, even at because, applying French law, a party that had not signed the arbitration agreement would the risk of repeating yourself Governing law clauses are ubiquitous and are familiar to commercial parties. However, parties do not often appreciate the limitations of the governing law clause as it relates to the arbitration agreement. International arbitration contains a principle known as the “doctrine of separability”. Embodied most famously in the UNCITRAL Model Law, it provides that an arbitration agreement is treated as a distinct and separate agreement in circumstances when the validity of the main contract is challenged.

The upshot of this is that an arbitration agreement, being a separate agreement, could be governed by a law that is different to the law of the main contract in accordance with applicable choice of law rules, especially when the governing law of the main contract is different than the seat of arbitration. Some jurisdictions’ courts, such as England’s, have determined that the governing law of the arbitration agreement is impliedly that of the main contract, whereas other jurisdictions’ courts, such as France’s Cour de cassation, have determined that the governing law of arbitration is impliedly that of the seat of arbitration. We have written about developments of the English law on this point in previous newsletters.

This question might seem academic, but it has potentially serious practical consequences. For example, the background to the Cour de cassation’s decision involved a dispute as to whether French or English law governed an arbitration agreement providing for French seat contained in a main contract providing for English governing law. This was important

be deemed to be bound by the arbitration agreement and the arbitral award, whereas applying English law would lead to the opposite outcome. The English and French courts came to different conclusions on the issue of governing law of the arbitration agreement, leading to significant complications.

More broadly, we often see parties raise the argument that the law governing the arbitration agreement is different than that governing the main contract as a way of delaying the arbitration or claiming the arbitration agreement is invalid to frustrate a claimant’s ability to obtain timely relief. When drafting arbitration clauses, it is thus always helpful to specify the governing law of the arbitration clause to avoid this problem, even if this essentially repeats the governing law clause of the main contract.

Although the Norwegian courts have not expressed a view on the debate outlined above, the Norwegian Arbitration Act recognises the doctrine of separability, thus making the above dilemma a possibility in the Norwegian context.

As we cannot predict how a Norwegian court would determine this issue, it is never a bad idea to expressly provide for the governing law of the arbitration agreement itself.

Be consistent across your agreements In recent years, international arbitration has witnessed the introduction of several tools to make arbitration more eff icient and cost-effective. One such development relates to the conduct of arbitrations arising under several related agreements.

23 >>>

BAHR

Arbitration proceedings are generally tied to the specific, single contract under which the dispute arises. However, this does not adequately mirror commercial practice. Commercial parties often enter into a multitude of agreements with respect to a single deal or transaction. Disputes that arise in such contexts often touch upon multiple contracts. Historically, parties would need to commence separate arbitration proceedings for each contract under which the dispute arose, often needing to constitute multiple, separate tribunals comprised of different arbitrators. Naturally, this was frustrating and could often potentially derail proceedings. Party-demand materialised for a more elegant means of determining multiple disputes across related contracts.

In response to this, several arbitral institutions have introduced rules allowing for the consolidation of disputes arising across multiple contracts. Although the specific requirements for allowing consolidation varies across the different rules, the rulesets of the major global institutions incorporate in some capacity the requirement that the arbitration clauses across the multiple contracts must be compatible.

Thus, to take advantage of this useful tool in arbitration, contracting parties should ensure that each of the arbitration agreements in their related contracts is compatible with the others — preferably identical.

One should be aware that the two main local/ regional arbitral institutions in Norway, the Oslo Chamber of Commerce and the Nordic Offshore & Maritime Arbitration Association, do not currently offer default consolidation provisions in their rules. Thus, it is necessary

<<<

24

for parties to specifically agree to the option of consolidation in multi-contract contexts.

Keep it secret, and make sure the other side does too The popularity of arbitration stems in part from the fact that arbitration proceedings are generally confidential. However, there are some issues to bear in mind in this regard. First, although most major global institutions provide for some form of confidentiality obligation in their rules, not all impose an obligation on the parties to keep the arbitration confidential.

Second, confidentiality obligations vary across jurisdictions. Third, the ability to agree to confidentiality may be limited by local law. For example, the Norwegian Arbitration Act provides that any standing agreement on the confidentiality of arbitration is unenforceable, requiring instead that parties agree to confidentiality for each arbitration individually as and when it arises.

Thus, we often recommend that parties consider specific needs concerning confidentiality when drafting arbitration agreements. This often means drafting a suitable confidentiality clause as part of the arbitration agreement. Of course, in the Norwegian context, parties will need to consider confidentiality obligations as and when a dispute arises on a case-by-case basis.

Parties in Norway might also consider entering into an “agreement to agree” that obliges parties to enter into a confidentiality agreement when each arbitration arises. However, the validity of such “agreements to agree” in Norway is unclear.

BAHR

About the authors Daniel Steel

Managing Associate E: daste@bahr.no M: +47 93 04 87 34 Daniel is part of BAHR’s Dispute Resolution team. His practice focuses on international arbitration, cross-border litigation, and investigations & compliance. Daniel has over ten years of experience advising clients in arbitration matters under the ICC, LCIA, AAA/ICDR, SIAC, HKIAC, CIETAC, and UNCITRAL rules. His experience in contentious matters comprises a wide range of industries and areas, including oil & gas, renewable energy, pharmaceuticals, telecommunications, intellectual property, real estate, arbitration-related litigation, and shareholder disputes.

Fredrik Andreas Stenstadvold Senior Associate

E: frste@bahr.no M: +47 932 85 216 Fredrik is part of BAHR’s dispute resolution team and acts as counsel in a wide range of commercial disputes, inter alia, tax litigation, post-M&A, corporate law, and liability. In addition, Fredrik has previous experience working in BAHR’s finance and capital markets team.

Sam E. Harris Partner

E: seh@bahr.no M: +47 92 88 14 26 Sam is widely recognized as one of Norway’s most experienced dispute resolution lawyers, having served as leading counsel on several hundred legal disputes. He is admitted to the Supreme Court and specializes in construction law (both onshore and offshore) and property law. In addition, Sam has a wealth of experience in post-M&A issues, as well as disputes related to allegations of unfair business practices and broker’s fees.

25 >>>

BAHR

Contact us Jan B. Jansen

Atle Skaldebø-Rød

E: jbj@bahr.no M: +47 934 94 306

E: atska@bahr.no M: +47 922 87 727

Partner

<<<

26

Partner / Head of Dispute Resolution

Advokatfirmaet BAHR AS