Solving Disputes Virtually Across Borders
By Sharon Arnolda
Ever wondered why most commercial contracts have airtight arbitration clauses that specify where and under which jurisdiction a dispute will be handled? Through arbitration, parties to a dispute are provided with the opportunity of controlling the manner in which any dispute that arises between them is solved. It provides an alternative solution to going to courts where neither party in an agreement will have any control over the timings and/or any other matters pertaining to the ongoing dispute resolution process. The second webinar of the webseries AmCham SL Law Review hosted by the American Chamber of Commerce in Sri Lanka held in February was on the topic, ‘Developments in Arbitration’. The webinar was panelled by Executive Director of the New York International Arbitration Centre (NYIAC) Rekha Rangachari, Counsel – Arnold and Porter New York and Lecturer-in-Law at Columbia Law School Dr. Kabir Duggal Esq., Lead Counsel, – Colombo Law Alliance and Chairman of Sri Lanka International Arbitration Centre Dr. Asanga Gunawansa, Esq. The session was moderated by Legal Counsel - International Chamber of Commerce (ICC) Nishan Premathiratne, Esq. with Young America’s Foundation (YAF) Regional Representative for Sri Lanka and Sector Specialist for Commercial Law Reforms of the Ministry of Justice being present. Like all other aspects of business that changed with the pandemic, dispute resolution, especially on international levels, was handled differently during the pandemic. And like with all things the fact that these sessions were held on a virtual platform highlighted important aspects of the current system that need to be reformed and what the focus in making these reformations should be. Dr. Gunawansa who opened the forum focused his presentation on how the system could and should adapt to the ‘new normal’ brought on by the pandemic. In his opening remarks he explained how the pandemic has impacted procedures globally due to the travel restrictions imposed.
Courts vs. arbitration
Arbitration gives the Parties autonomy to solve any dispute arising between them through mutual agreement. However, “Most arbitration clauses are not designed for virtual hearings even though the parties have autonomy,” Dr. Gunawansa stated. In commenting on the situation brought on by virtual hearings he stated that, “While arbitration clauses can now be drafted to include similar situations to those brought on by the pandemic, existing clauses can only be modified or amended with the mutual consent of both parties.” He further stated that in doing so, there are practical concerns that need to be addressed such as ensuring that all parties to the arbitration are tech savvy and/ or are in mutual agreement as to the manner in which the proceedings will be taking place. He further highlighted how it is important as a corporation to identify the dispute resolution mechanism that works best for them and proceed without further delay.
How can parties contribute in speeding up the process?
Dr. Gunawansa stated that the parties could make a request to the secretaries of institutions such as the ICC in order to facilitate a virtual hearing, which will enable the arbitrators as well as the parties and witnesses to join the proceedings from within their own jurisdictions. Drawing reference from a practical example Dr. Gunawansa pointed out that in a recent arbitration to which he was a party whilst the rest of whom were from others parts of the world, was solved in consecutive hearings. He further stated that this was in fact faster than the normal process which would have involved the parties concerned travelling to Singapore and sorting out the logistics thereof. He pointed out that in the given scenario the parties were eager to solve the dispute and therefore, facilitated the virtual procedure to expedite the dispute resolution process.
International outlook on virtual hearings
Dr. Gunawansa further stated that almost all reputed arbitration centres in the world have moved towards ‘Virtual Hearings’. The London Court of International Arbitration (LCIA) has taken steps to facilitate arbitration proceedings via virtual platforms or telephone, mentioning so in its ‘Guidance Note for Arbitrators’ and Article 24 (2) of the Korean Commercial Arbitration Board (KCAB) International Arbitration Rules 2016 permits the use of video conferencing. Other institutions such as the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) and the Singapore International Arbitration Centre (SIAC) too have developed guidelines to ensure continuity of proceedings without delay during this period. He also pointed out that some countries have facilitated the use of video-conferencing by legislative initiatives while the arbitration laws in countries such as the Netherlands, Hong Kong, and Austria amended their statutes to facilitate witness examination without the physical presence of the parties.
The good and the bad
In his presentation, Dr. Gunawansa also pointed out that by enabling the procedure to be hosted virtually, arbitrators, witnesses, and other participants will no longer have to travel. In addition to which platforms, apps, and service providers have made strides in addressing the technological challenges faced during virtual hearings. However he also highlighted the limitations brought on by parties who are unwilling to move such proceedings to a virtual platform, in addition to practical issues such as the inability of a lawyer to judge a witness's body language during cross examination. He further highlighted that virtual hearings raise concerns of privacy with there being no definitive manner of ensuring who is with the parties at any given time, thus highlighting the importance of cyber security in ensuring that the credibility and integrity of these virtual hearings are upheld. The presentation also spoke about the initiative given by the Seoul Protocol on Video Conferencing in International Arbitration (2018) with regard to video-conferencing in arbitration. He went on to discuss articles from the said protocol that highlight the necessity for such proceedings to be conducted in an impartial manner.
Context in Sri Lanka
In Sri Lanka we engage in both ad hoc and administered methods of arbitration, with two domestic arbitration institutes namely; the Sri Lanka National Arbitration Centre (SLNAC) and the Arbitration Centre of the Institute for the Development of Commercial Law and Practice (ICLP). In addition to which is the Sri Lankan International Arbitration Centre - which is underfunded and currently not functioning. The other panellists in doing a joint presentation shared their views on the ‘Procedural Efficiency in International Arbitration.’ They started their presentation by noting that the shift to virtual proceedings has led to the proceedings being more efficient, flexible and accessible by removing the geographical barriers between people. In addition they also highlighted the fact that it would also reduce each party's carbon footprint which is increasingly becoming a concern. Rangachari further elaborated on some of the concerns raised with regards to cyber security by Dr. Gunawansa. The presentation highlighted the issues concerning ‘Claims against a State’ – claims that are brought against a State and are generally based on obligations imposed by treaties. The pandemic is leading to States adopting measures that would have otherwise gotten backlash. Citing a couple of current scenarios Dr. Duggal, pointed out the approach taken by the Tribunal in a case in connection to Bolivia, in which the Tribunal held the opinion that, “The COVID-19 Pandemic has created a new reality, in the context of arbitration proceedings, new demands have been imposed by the crisis on parties, counsel, tribunals and institutions. While there have been difficulties, practice shows that in most cases the participants in the proceedings have been able to adjust to the new reality.” In answer to a question raised in regard to the inability to file written admissions due to the inability to physically meet the witnesses the Tribunal was of the view which “… recognises that adapting to the new normal may require more time and effort. The Tribunal believes that the preparation of written submissions, with all the necessary supplementary materials and documentation is feasible.” The points highlighted show that on an international level Tribunals are upholding the values of due process while also ensuring that parties are not left in a position to take undue advantage of the situation. However, there is a call for a global moratorium. Arbitration claims by private organisations against Governments using International Investment Treaties, and a permanent restriction on all arbitration claims related to Government measures targeting health, economic and social dimensions of the pandemic and its effects, is based on three main points. Firstly, that the necessary business closures and other emergency responses will bring about changes that will largely trigger unjustified claims. In such a situation foreign investors may make claims based on the loss of expected profits. However, in the light of the necessity of such measures, such claims that cannot be made even by local companies should not be allowed. Secondly, all governments must direct their attention to the urgent control of the pandemic and not be distracted by foreign companies who might take advantage of the situation. Lastly, such large amounts which run into millions of dollars will significantly impact a country’s budgets and would weigh heavily against the lower economies resulting in inadequate funds to control the pandemic. In concluding the panellists shared that the likelihood is that the system will likely involve a hybrid version of both virtual and non-virtual means of dispute resolution. In answering a question pertaining to the validity and with regards to Courts honouring the decision made by proceedings held virtually, Dr. Duggal stated that if arbitrators follow due process and base their decision like they would during a normal proceeding the courts should honour the decision in the same manner. In answering another question he stated that, “Arbitration in itself will come into question now that the motives of the parties in making State-wise and other decisions are being questioned.” Dr. Gunawansa stated that the issue of enforcement depends on what the parties have agreed on and whether the arbitrator has honoured the same. “Provided that the verdict is given within the scope of the agreement the mode of the proceedings shouldn't really matter,” he further stated. The panellists also suggested that the force majeure clauses on contracts should be looked at to include flexibility and include similar situations. However, too much flexibility can result in ambiguity.
What the future holds for Sri Lanka
Dr. Gunawansa said, “It is not sure what the future holds for the Arbitration Centre but the current minister is looking into it and there is a lot of potential. Rules have been drafted and they currently need a champion to take it forward.” Premathiratne said it is, “In the process of making it a harbour for arbitration similar to Singapore.”