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SPECIAL REPORT
THE LAWYER
24 JULY 2006
LITIGATION
dispute. He cautioned that “it would have been
better had the precise circumstances in which
the option could be exercised or lost were spelt
out…”, but concluded that failure to do so did
not render the clause unenforceable. He did not
regard the option as openended, but stated
that: “It would cease to be available if owners
took a step in the action or they otherwise led
charterers to believe on reasonable grounds
that the option to stay would not be exercised.”
Questions and answers
To the extent that Three Shipping left open the
question of the validity of an arbitration agreement with a unilateral right on the part of one
party to opt for English court proceedings, this
issue was resolved in Elektrim. There the agreement between the parties stated in clause 29.2
that disputes were to be submitted by any party
to arbitration for final settlement under the UN
Commission on International Trade Law arbitration rules and went on to provide:
#29.6: The Agreement by all the parties to
refer all disputes… to arbitration… is exclusive
such that neither [the Elektrim defendants]
shall be permitted to bring proceedings in any
other court…
#29.7: Notwithstanding clause 29.2, for the
exclusive benefit of the Trustee and each of the
Bondholders, [the Elektrim defendants] agree
that the Trustee and each of the Bondholders
shall have the exclusive right, at their option, to
apply to the courts of England who shall have
non-exclusive jurisdiction to settle any
disputes…
Elektrim gave notice of arbitration. Some
two months later the trustee issued proceedings
to have the issues between the parties
determined and subsequently sought a
determination under Section 72 of the Arbitration Act 1996 that there was no valid arbitration
agreement and that the English courts had
jurisdiction by contract to hear the dispute.
Mr Justice Mann considered the construction
and effect of clause 29. He concluded that, in the
circumstances, the trustee was contractually
entitled to litigate the dispute and to stop
Elektrim pursuing a parallel arbitration dealing
with the same matters, as there was a dual
dispute resolution regime. The effect of clause
29.7 was to give the trustee a unilateral option.
This option was “probably” subject to only one
limit – that the trustee could not blow hot and
cold. If the trustee started an arbitration it
would have waived its right (or option) to go by
way of litigation. By the same token, if the
trustee participated sufficiently in an arbitration, it may well be held to have waived its
rights to exercise its option.
Mann J rejected submissions by the defendants’ counsel that, since the trustee’s case
involved the possibility of an arbitration being
brought to a halt by litigation commenced by
the trustee, Elektrim would be forced to ask the
trustee whether it wished to arbitrate before
commencing the arbitration. While this may
well be right as a matter of construction, as with
Three Shipping the case illustrates that
confusion, delay and expense can arise if parties
do not spell out how such dual dispute
resolution regimes are to operate.
The validity of hybrid dispute resolution
clauses giving one party superior rights has
been endorsed by the English courts. Whether
such clauses would be upheld in other jurisdictions is a matter for local law. Although not fatal
in Three Shipping or Elektrim, parties intending to include such clauses would be well
advised to address the mechanics of operation
of the unilateral options. I
Elizabeth Barrett is a partner at Slaughter
and May
Show and tell
New rules covering
electronic files could
signal a change in
how documents
are produced in
international
arbitration cases,
say Ian Meredith
and Sarah Aspinall
T
he decision by the US Federal
Court to adopt new rules providing for widespread discovery
of electronic documents and
the parallel development of
forensic and other IT techniques may herald a change to the manner in
which parties to international arbitration proceedings will approach document production.
Many in the international arbitration community were beginning to point to a developing
consensus over the proper scope of document
production some way between traditional civil
law and common law. Now, with the advent of
new technology allowing for electronic
document ‘scavenging’, and with many major
corporations with a presence in the US being
forced by the Federal Court Rules to establish systems enabling them to comply with e-discovery
orders, it may be that there is set to be a further
shift. Whether this will lead to a polarisation
with the creation of a US and a non-US position,
or a more subtle evolution, is too early to say.
Statistics show that more than 93 per cent of
information now being created is done so and
stored in electronic format. The proliferation of
email and other types of electronic records,
combined with the relative ease with which
massive quantities of electronic information
can be backed up and stored, has led to increasing record creation and retention.
Litigants, whether in court or in arbitration,
have started to view the electronic records of
opposing parties as potential treasure troves of
records that can be searched to support their
cases, or undermine the cases of opposing
parties. Several recent US cases have resulted in
multimillion-dollar verdicts because of ‘smoking
gun’ electronic records, or sanctions against
parties that have failed to preserve and
produce electronic records they were obliged to
preserve and produce. Similarly, the focus on
electronic discovery in the UK is increasing, as
can be seen in some high-profile cases that have
begun to turn on the contents of emails and
other electronically stored documents.
Disclosure discrepancies
Traditionally, the purpose of common law disclosure was to ensure that all relevant documents,
including those that are prejudicial to a party,
should be produced at court. This approach was
greeted with bewilderment by the civil law jurisdictions, which only produced documents on
which they intended to rely. The conflicting
approaches to disclosure between civil and common law jurisdictions has been one of the great
challenges faced by international arbitration.
The civil law model differs fundamentally in
its mechanisms of disclosure to the common law
model. Not only is the taking of evidence
governed by a strict relevance standard (the
parties produce documents on which they
intend to rely and not documents that are
likely to damage their case as per the much
broader relevance standard in the common
law model), but most civil law jurisdictions do
not recognise pre-trial disclosure. In most civil
law jurisdictions the tribunal has the power to
order production of documents on its own
initiative (by contrast with the party-based
discovery in the common law model) but cannot compel the parties to produce such documents. However, the tribunal may draw adverse
inferences from a party’s refusal to do so.
Pursuant to the institutional rules, arbitral
tribunals have the power to order document
disclosure. For example, International
Chamber of Commerce Rule 20(5) provides that
“the arbitral tribunal may summon any party to
provide additional evidence”; American Arbitration Association Rule 19(3) provides that “the
PHOTOLIBRARY
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arbitral tribunal may order parties to produce
other documents, exhibits or other evidence it
deems necessary or appropriate”, and London
Court of International Arbitration Rule 22.1(e)
provides that “unless the parties at any time
agree otherwise in writing, the Arbitral Tribunal
shall have the power, on the application of any
party or of its own motion, but in either case only
after giving the parties a reasonable opportunity to state their views to order any party to
produce to the Arbitral Tribunal, and to the
other parties for inspection and to supply copies
of any documents or classes of documents in their
possession, custody or power which the Arbitral
Tribunal determines to be relevant”.
Given the wide discretion of the tribunal to
determine what evidence it should hear, the
critical challenge for a party in an international arbitration is to develop a strategy for
presenting and submitting evidence that will
persuade members of the tribunal.
While the powers provided by these rules are
certainly broad enough to allow arbitrators to
order disclosure of potentially relevant electronic evidence, the traditional practice has been to
limit pre-hearing disclosures. As a guideline for
a compromise between the common law model
and the civil law model, arbitral tribunals have
SPECIAL REPORT
increasingly looked to the International Bar
Association (IBA) rules, which codify what was
felt to be common practice. Article 1 of the IBA
rules provides that a ‘document’ means “a
writing of any kind, whether recorded on paper,
electronic means, audio or visual recordings or
any other mechanical or electronic means of
storing or recording information”. Article 3 (1)
provides a form of mandatory disclosure, requiring each party to submit to the arbitral tribunal
and the other parties “all documents available to
it on which it relies, including public documents
and those in the public domain, except for any
documents that have already been submitted
to another Party”.
The IBA rules were intended to strike a
balance between different cultural approaches.
Requests are limited by:
#the requirement that parties specifically
identify the documents that they seek;
#the limitation to “narrow and specific”
categories “reasonably believed to exist”;
#the burden on the requesting party to show
relevance and materiality; and
#the various grounds for objection allowed
under Article 9.
When seeking to resist efforts by an opposing
party to gain access to further document
production, parties commonly seek to argue
that the requested documents fall within one of
the seven sub-categories within Article 9 (2) of
the IBA rules (whether they base their arguments specifically upon the IBA rules). The arbitral tribunal shall, at the request of a party or on
its own motion, exclude from evidence or production any document, statement, oral testimony or
inspection for any of the following reasons:
#lack of sufficient relevance or materiality;
#legal impediment or privilege under the legal
or ethical rules determined by the arbitral
tribunal to be applicable;
#unreasonable burden to produce the
requested evidence;
#loss or destruction of the document that has
been reasonably shown to have occurred;
#grounds of commercial or technical
confidentiality that the arbitral tribunal
determines to be compelling;
#grounds of special political or institutional
sensitivity (including evidence that has been
classified as secret by a government or a public
international institution) that the arbitral
tribunal determines to be compelling; or
#considerations of fairness or equality of the
parties that the arbitral tribunal determines to
be compelling.
Rise of the fudge
I
The increased use
of mediation has
altered dramatically
the English litigation
system – and not
necessarily for
the better, argues
Arshad Ghaffar
n the past 15 years the English
litigation landscape has changed
enormously. The important question
is whether this is for the better.
Conventional wisdom says yes. But is
that really so?
The litigation practitioner in the England of
1990 still generally found Europe a distant place.
English courts did things in English ways, despite
some vivid statements about “incoming tides” by
the judiciary. The bar was still seen as a ‘gentleman’s’ profession. Solicitors were trusted and
respected and their clients deferred to their
judgements in legal matters. Generations of law
students had grown up understanding why the
UK had no need for a written constitution or a
Human Rights Act, why the adversarial system
was a good thing and why the courts generally,
and not some other authority or body, were best
placed to resolve disputes. Of course, the system
was not perfect. Delays were legion. Party control
over the litigation process was greater than it
should be, with the resulting ability for some to
‘play the game’ exploitatively.
Today the influence of Europe and of European
law is immense. New forms of business enterprise
and the limited-liability partnership have entered
the picture. Public access to the bar, something
unheard of in 1990, has taken hold. Solicitoradvocates are not uncommon. The Civil
Procedure Rules (CPR) have replaced the rules
of the Supreme Court and created a new
procedural culture. Fewer claims are issued.
Fewer trials take place. Costs orders departing
from the norm of ‘loser pays’ are more frequent.
Wasted costs orders are increasingly made.
Litigation is front-loaded. Conditional fee
arrangements are used regularly. The common
feature of these changes is to do with money
and resources and their best use.
Just as significantly, in 1990 alternative
dispute resolution (ADR) was an ephemeral
territory, not often visited by the majority of
practitioners. Specialised arbitrations did occur,
and in particular in technical areas and those
where the cross-border nature of the
underlying activity meant that some form of
assimilation of different legal cultures was
necessary, but the acronym ADR was not
known to most. Today, however, it trips off the
tongues of all lawyers as an answer to all the
difficulties encountered when two parties fall
out. Momentum from Europe, with a proposed
directive on mediation in civil and commercial
matters, is also there.
Mediation methods
In England the CPR without doubt encourage
the use of mediation. Under CPR 1.4, part of the
court’s active case management function
includes encouraging the parties to use ADR
procedures if thought appropriate. Under CPR
PD 29 the court can now, of its own initiative,
order the parties to consider ADR, and if a
party considers the case is not suitable for ADR
it must file a witness statement setting out the
reasons why. The Protocols PD, in paragraph
4.7, encourages implicitly the use of ADR before
resorting to litigation. Under CPR 26.4, any
party may, at a very early stage of a dispute, seek
a one-month stay of the proceedings while the
parties try to settle the case by ADR or by other
means. And then there is the costs sanction
that can follow in cases of unreasonable refusals
to mediate.
Notwithstanding the decision in Halsey v
Milton Keynes NHS Trust (2004), this remains
a real source of tactical manoeuvring for the
litigation lawyer – as was borne out by the facts
of Halsey itself. Given that the incidence of costs
can, and often does, end up being the most
significant practical aspect of a case for a party,
this can render any success altogether nugatory.
The purpose of all these rules and directions
is to encourage non-judicial dispute resolution. That is laudable. But the possibility
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In the area of electronic disclosure, the most
commonly relied upon ground to resist disclosure is “unreasonable burden to produce the
requested evidence”. In light of the Federal
Court Rule changes, many corporations are
now taking steps to connect IT systems and put
in place a means of accessing and producing
documents for the purposes of US court actions.
Having done so, to what extent can they then
argue, in the context of international arbitration
proceedings, that they do not have an ability to
locate and produce documents and rely upon
the ‘overly burdensome’ test? Similarly, where
a requesting party is willing to meet the cost of
forensic IT consultants to utilise ‘scavenging
technology’ to search through electronic records
for electronically held documentary records,
how can a request that otherwise satisfies the
relevance and marketing tests be defeated on an
‘overly burdensome’ basis?
The Federal Court rule changes look set to have
far wider repercussions across the world and
may enable requesting parties (particularly if
party to arbitral claims against US companies) to
access significantly more documents. I
Ian Meredith is a partner and Sarah Aspinall
is an associate at Kirkpatrick & Lockhart
Nicholson Graham
presented by ADR of an exit route from
litigation, and so the flipside of enabling
litigation to be used when it should not, can also
be sinister. One result is the appearance of a
cynical culture of initiating claims procedures
based on client enthusiasm and self-righteousness alone, without early detailed consideration
of evidence, merits and law.
The head note in the recent collapsed BCCI
litigation makes the point: “The Bank of
England was entitled to indemnity costs because
of the hopelessness of the allegations and the way
in which they were pursued. The extraordinary
manner in which C’s case was made to change to
fit the exigencies of the moment would alone
justify an award of indemnity costs… C were
prepared to make fanciful allegations plainly
unsupported by and/or inconsistent with the
documents and, when confronted by the hopelessness of an allegation, twisted and turned so
as to preserve the allegation and the ability to put
it in cross-examination. C’s case was unsound
and the allegations of dishonesty made in
support of it were also without foundation. Allegations of dishonesty had been levelled against
the Bank of England’s officials for no better
reason than that if their conduct was presumed
to have been honest it represented an
insuperable obstacle to C proving their case…”
The BCCI case was discontinued. But in many
others, much the same features as identified there
– allegations without foundation, shifting sands
– also exist. Not all of these cases are discontinued,
but many do not get to a final judgment. Rather,
they can find themselves in the ADR arena, and
private and confidential settlements are then
achieved. Increasingly they take advantage of
the exit route provided by mediation. But the
object of mediation at this stage is only to achieve
a satisfactory subjective resolution. The theory is
that this, even if wholly imprecise and departure
from the result that the application of the law may
continued #