Vitaliy Kozachenko, Fortior’s Managing Director, participates in the launch of the Caspian Arbitration Society in Davos 2019. We are proud to support the project and we truly believe it is one of the most innovative arbitration projects out there.
Caspian Arbitration Society is a new arbitration institution, and it is being presented for the first time this week in Davos. You may have heard about other institutions such as the London Court of International Arbitration, International Chamber of Commerce, London Maritime Arbitrators Association and so forth. These institutions may have differing degrees of involvement in arbitration proceedings, but they all share the following two features:
- They have their own arbitration rules.
- They have some role in supporting arbitration proceedings, for example appointing arbitrators, deciding on arbitrator challenges (e.g. where an arbitrator is biased) and so forth.
Caspian Arbitration Society has the following objectives:
- Create one of the world’s most advanced and innovative sets of arbitration rules. The current rules, which we believe is already the most innovative rules out there, can be found at caspian-arbitration.com.
- Provide the minimum necessary support for arbitration proceedings so that parties do not have to go to local courts for minor matters such as appointment of arbitrators and arbitrator challenges.
- Maintain a list of arbitrators all of whom have experience in matters involving the Greater Caspian Region.
- Serve as a forum for exchange of knowledge and ideas about arbitration generally, to promote and continuously improve this method for resolution of international disputes.
So why do we say Caspian Arbitration Society is so innovative and special? We propose to cover five points on which the Caspian Arbitration rules are currently more advanced than the rules of the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA) and, to our knowledge, any other rules.
Firstly, a common problem of arbitration proceedings, as opposed to Court proceedings, is that arbitrators do not issue default judgments. Default Judgment refers to judgments issued where one party fails to properly participate in the procedure, e.g. does not file a defence. English Courts have the power to issue default judgments where a party does not file an acknowledgement of service or a defence. In arbitration, even where the respondent does not participate, arbitrators generally only issue awards where they are satisfied that the claim has merit. In order to be so satisfied, they often require the claimant to file full submissions, provide all supporting documents and sometimes even attend an oral hearing. This leads to a waste of time and resources on the purely formal process, resources which really need not be wasted the parties for whose sake the process is conducted does not care about it.
Caspian Rules provide for default awards where (i) the respondent does not file a response to the notice of arbitration; (ii) the respondent does not file a defence; or (iii) the respondent ceases its participation in an arbitration for a period of at least 28 days. This way, if you have an opponent who thinks they are judgment proof and do not participate in the arbitration, you may be able to obtain an award against it in a matter of several weeks. This is a unique feature of the Caspian Rules. It allows parties to save time and money where their opponents do not participate in arbitration.
Secondly, there is the issue of interim remedies. Parties often try to choose arbitral seats which they consider prestigious and neutral, without really trying to work out what consequences this will have for their disputes. There are many good arbitral seats, such as Zurich, Geneva, Paris and others. But, in our humble opinion, there is no seat as good as London when it comes to interim measures. You can get an interim injunction in almost any jurisdiction. But in London you can get a worldwide freezing order. And you can get it anytime. Last year we got one at 01:00 am on Sunday. Our barrister had to go to the judge’s apartment at night to pick up the stamped order. While Swiss courts may likewise be effective in granting injunctions, the sanctions for non-compliance are regrettably somewhat weak. Switzerland is a country of law-abiding citizen. When a court tells a Swiss person not to do something, they usually don’t do it. But people who work in the Caspian Region may be somewhat different. we had a case where we sent our defendant a sealed injunction and he just said: “It’s invalid, and you are just some student writing letters from Ukraine“. Now that particular gentleman is about to get a two-year prison sentence for contempt of course. By contrast, when a defendant failed to comply with an injunction in Switzerland saying that Swiss courts are effectively acting as agents for foreign corrupt powers, all the Swiss court did is a fine of CHF500 per day of non-compliance. When you are talking about millions of dollars a day of potentially lost revenue, a fine of CHF500 per day doesn’t really make any difference.
With the Caspian Arbitration Society, we have come up with a solution which allows you both to choose the arbitral seat you like and to reserve yourself the opportunity to seek any interim injunction in London. Article 14.2 of the Caspian Rules provides:
14.2. In the event that the Claimant requires an urgent interim order (i) without notice to the respondent, or (ii) within a time limit which cannot reasonably be met in an arbitration under these rules, such as an urgent order for preservation of assets or a freezing injunction, the Claimant may seek such an order at its option from the following courts, provided that in the jurisdiction of those courts the order could be made upon an application without notice to the respondent:
- the courts of the seat of the arbitration;
- the courts of the place where the property which is the subject matter of the proceedings is located; or
- the Commercial Court of England and Wales.
Thirdly, a concern which many arbitration rules seek to address is the likelihood of delay in arbitration. Some rules, such as the SCC Rules, provide that the arbitration must be completed within 6 months of the Tribunal’s appointment. But these time limits are not strictly enforced. We had a case where the initial six-month time limit under the SCC Rules was extended eleven times, each time by a further six months. Setting a time limit within which a final award must be issued is surely not the best approach to controlling the length of an arbitration.
The Caspian Rules seek to shorten arbitration in three ways. One way is to remove the overlap between the various stages in the proceedings. For example, in the context of LCIA proceedings, the request for arbitration and the claimant’s statement of case often contain similar information. And while there is an option for the claimant to have its request for arbitration treated as a statement of case, this has little effect on the timetable. Repetition of the same material in two documents, extension of the process to allow similar pleadings and the extra costs which all this entails is something which can be avoided.
The Caspian Rules provide that arbitration may be commenced in two ways. One way is to file a notice of arbitration. The requirements for the notice are very limited. A notice of arbitration can be a one-page document, for instance, appointing the arbitrator and calling the respondent to appoint his arbitrator. We have actually imposed a limit of 2,000 words on the notice of arbitration, which should make it a document of not more than around 5 pages. In the alternative, arbitration may be commenced by filing a notice of arbitration and a statement of case at the same time.
Where the claimant starts proceedings by using the latter option, then proceedings may take up to two months shorter than regular LCIA proceedings, because the 28-day period in the LCIA Rules to file a response to the notice of arbitration, the 28-day period to file a statement of case and the 28-day period to file a defence are all combined into one 28-day period to file a defence under the Caspian Rules.
Where the claimant chooses to file a notice of arbitration only, there is still a potential for saving time. If it is just a simple notice of arbitration on 5 pages or less, the respondent does not need 28 days to respond it (which is a standard period under the LCIA Rules, for example). The Caspian Rules shorten this period to 14 days.
Another part of the procedure where time is often wasted is agreeing on procedural directions. Most arbitration rules provide for directions up to the conclusion of pleadings. The parties may then spend weeks or sometimes months on agreeing onward directions. Caspian Rules provide for standard directions which apply unless the parties agree or the Tribunal rules otherwise. We believe this may speed up the process.
Another way in which the Caspian Rules seek to save the parties’ time is by combining the various stages in the proceedings. For example, it is common for arbitration proceedings to have a time limit for preparing witness statements and a separate time limit for preparing expert reports. But there is no reason why the experts and witnesses cannot work on their documents at the same time. The Caspian Rules, therefore, set a single time limit for both sets of documents.
The Caspian Rules limit the Tribunals’ discretion on extending time limits. In arbitrations whose value does not exceed CHF20 million, Tribunal’s may only extend any time limit by 21 days. A further extension may only be granted in very limited circumstances such as a medical emergency. This, again, contrasts with LCIA Rules for example, where it is not unusual for a time limit to be extended by many weeks and sometimes several months. As I have mentioned previously, I have heard of a case under the SCC Rules where there were eleven extensions of time of 6 months each.
The fourth unique feature of the Caspian Rules is how they deal with costs of the arbitration. The way arbitration proceedings are conducted and the way parties finance costs raise a number of issues which are not properly addressed in any other arbitration rules to our knowledge. Many large companies seek to move legal work in-house to save costs. This should be encouraged. But it is in effect discouraged by many arbitration rules because recovering costs of in-house counsel is much more difficult than recovering costs of external lawyers. One cannot recover the salary of the in-house counsel, because it usually covers things other than arbitration proceedings. It is not clear what rate is recoverable. Caspian Rules deal with this by providing specifically that costs of in-house counsel are recoverable and that they are recoverable at a rate similar to the rates of comparable external counsel with similar experience.
The litigation funding industry has been booming in recent years. If you have a good claim, the chances are you can find someone to finance your legal costs in exchange for part of the recovery. There is no reason why reasonable funding costs should not be recoverable in arbitration proceedings. But, to our knowledge, there are hardly any arbitration rules which address the issue. Caspian Rules expressly provide that reasonable costs of litigation funding are recoverable.
Finally, there is often a lot of abuse insofar as costs are concerned. For example, in cases where one of the parties is financially stronger than the other, it is not uncommon to see a huge international firm fight an in-house counsel of a small company or a small firm. The huge firm and the potentially high costs which it may incur are used to discourage small companies from bringing any sort of claims. Caspian Rules have two deterrents to this. In Caspian Rules, like in English court proceedings, parties are obliged to submit costs budgets. If a party fails to submit a costs budget than it can recover no more than 70% of its reasonable legal costs. If both parties submit budgets, then the Tribunal may say if it considers one of the parties’ expected costs unreasonable, thereby discouraging parties from incurring unnecessary costs.
Where parties submit budgets, and in the losing party’s budgeted or actual costs exceeded the winning party’s costs by a substantial margin, then there is a further sanction for the unnecessary costs. Article 12.4(2) of the Caspian Rules provides: “if the losing party’s budgeted or actual costs exceed the winning party’s costs by a substantial margin, then the Tribunal shall be entitled to award the winning party 100% of its costs, it being presumed that all costs claimed are reasonable unless convincing proof to the contrary is provided”. Basically, if you are unreasonable with your costs and you lose arbitration, the other party will get all its costs, even if they might be a bit high. Those of you who have been involved in arbitration or court proceedings will be aware that courts and tribunals do not award 100% of the legal costs very often.
If you would like to resolve your disputes with the Caspian Arbitration Society, all you have to do is include in your contract a provision to the effect that “Any and all disputes arising out of or in connection with this contract shall be resolved by arbitration under the rules of the Caspian Arbitration Society“. You may choose to resolve your future and current dispute with us.
Thank you for your time. If you want to learn more about the Caspian Arbitration Society or review our rules, please visit our website at www.caspian-arbitration.com. If you are a lawyer and would like to participate in the society as an arbitrator or help us work on improving the rules and the society in general, please speak to me or email the society at email@example.com.
We invite all interested arbitration practitioners to join in.