As we had announced, Caroline Duclercq has hosted, along with Valence Borgia and Maria Beatriz Burghetto, a breakfast round-table “Wake up (with) Arbitration!” on 28 June 2017, on the topic “Arbitrator and Defaulting Party: All Alone Like in “The Martian”?”, with Gaëlle le Quillec and Fernando Mantilla-Serrano.
In arbitration, the party in default may have various reasons for not participating: it can be voluntary or involuntary, it may, for instance, result from a material or financial impediment.
A party’s default may also take different forms: it can be total or partial, interfering during the proceedings or on the contrary from its outset.
How should arbitrators react? How should they apprehend their jurisdictional mission? Do arbitrators have the tools to deal with party’s default?
Our first speaker defended, upon our request, an affirmative position. In other words, in case of default, the arbitrator is alone on his planet, like in “The Martian”.
During the arbitrator’s career, he is confronted with solitude: during a first appointment as sole arbitrator; it is not uncommon to entrust a file to the arbitrator with a defaulting party.
Fortunately, the party’s default will not paralyzes the arbitral proceedings, nor even decelerate them. Indeed, the arbitrator may issue a default award, which shall be deemed compliant with due process.
Some arbitration rules expressly provide this possibility (see articles 6.8, 23.3 and 26.2 of ICC Rules, article 30 of UNCITRAL Rules, article 29 of AAA Rules, article 15.8 of LCIA Rules and article 42 of ICSID Rules).
However, to face a party’s default, the arbitrator has to adopt a special attitude: he has to ascertain particular precautions during the proceedings and when drafting the award.
The precautions to be taken by arbitrators during the proceedings
Arbitrators should be particularly careful during the entire arbitral proceedings in order to ensure that due process is strictly respected. In fact, it is not uncommon for the defaulting party to bring an action for annulment if the award is unfavorable. Thus, as the speaker pointed out:
“the award rendered by default should not be annulled for a violation of due process”.
For instance, when a party does not participate from the beginning of the arbitral proceedings, arbitrators should ensure, when drafting the Terms of Reference, that their mission is defined and that the defaulting party has the opportunity to participate at each stage of the proceedings.
More concretely, due process implies that: (i) the document instituting the proceedings has been notified to the defaulting party, (ii) the latter has been duly informed of the arbitral proceedings and (iii) such party gets, throughout the arbitration, the opportunity to present its case.
When establishing the procedural timetable, arbitrators should be careful not to organize an overly expeditious procedure; it is not uncommon that the only party taking part in the proceedings makes a «simple» statement of the case, in the absence of the defendant, so that the arbitrator might be tempted to make a short procedure to render his award promptly: however, due to the default, the arbitrator must instead make sure to «leave windows for the defaulting party to participate».
He should also select the most appropriate mode of communication (e-mail and / or private courrier) to ensure that the defaulting party receives all communications between the parties and the tribunal.
The precautions to be taken by arbitrators during the drafting of the award
Again, arbitrators must exercise great caution: on the one hand, they should not act as a counsel for the defaulting party and, on the other hand, they should respect due process.
Due process involves that arbitrators must verify their own jurisdiction along with the merits of the plaintiff’s claims and, the defendant’s default under no circumstance may dispense with this.
Arbitrators must «challenge» all the claims, without exceeding their mandate, which does not consist in taking the position of the defaulting party. The arbitrator may request the claimant to provide additional evidence. However, to what extent should the arbitrator solicit the party for evidence to prove its position? Indeed, «arbitrators should not fall into the excess of conducting a detailed investigation». The boundary is often difficult to determine.
Finally, the drafting of the default award requires special care: it is recommended that arbitrators should include a retelling of the proceedings in greater detail than usual, especially to demonstrate that the defaulting party has been duly informed of the progress of the proceedings and has had the opportunity to participate therein. In contrast, regarding the default award, the arbitrator must not become the defaulting party’s attorney, even if, where the arbitral tribunal is composed of three arbitrators, the arbitrator appointed by the defaulting party (the co-arbitrator) may be tempted to adopt such attitude.
Our second speaker advocated, also at our request, the opposite view; i.e., the arbitrator is not «Alone like in “The Martian”».
As the speaker pointed out, the arbitrator is not alone, since at least one party participates in the arbitration.
This speaker further noted that:
- Sole arbitrators are not alone, since they may exchange with the members of their teams, subject to compliance with the principle of confidentiality;
- In case of institutional arbitration, sole arbitrators can also rely on the arbitral institution;
- Finally, arbitrators are never alone, since they will have their own experience, which allows they to face the unexpected with serenity.
Arbitrators, when facing a defaulting party, should by no means forget their role: to solve the dispute. In short, arbitrators must not create contentious issues where there are none, or force a party to adopt a particular line of defense, or forget that it is for the plaintiff to prove his case.
From a procedural point of view, for instance, concerning the means of communication, arbitrators should not go to the extreme of sending each mail by two or three forms of communication, save for the most important acts. Likewise for the timetable: the arbitrator may reduce the time if there is no submission by the defaulting party.
Regarding the drafting of the award, the arbitrator must make sure to give the potential judge of who would deal with a request for annulment, sufficient information regarding the proper conduct of the proceedings.
On the other hand, it is desirable that the arbitrator analyzes the reasons for the party’s default: is this an intentional non-attendance? Does the recalcitrant party have a strategic interest in refusing to participate in the arbitral proceedings? Are there any jurisdictional objections? Parallel proceedings? Conversely, is it an involuntary default? Does the defaulting party lack funding? The knowledge of these circumstances may change the perception of the arbitrator.
The manifestations of the party’s default may sometimes confuse the arbitrator: how to react when faced with an intermittent participation of a party? Similarly, in the event of late appearance of a party, should the arbitrator reopen the proceedings?
Finally, where a party is represented by bad counsel, is such a situation not comparable, in fact, to that party’s default, or even worse?
Subject to these reservations, the difficulties encountered by arbitrators should not be overestimated, because, as the speaker concluded, when facing a challenge, it is necessary to analyze the issues one by one and this must be done with creativity, by relying on one’s own experience.
Following these presentations, the participants exchanged views with the speakers.
The speakers noted the difficulty that the arbitrator may have in conceiving their role in default arbitral proceedings.
A difficulty which is particularly felt when the proceedings are inquisitorial and arbitrators are called upon to play a much more active role; in this case, it could be concluded that the proceedings have changed their nature.
A participant stated that
«arbitrators are not examining judges and must not go beyond what is necessary».
However, arbitrators, as judges, must have the necessary elements to accomplish their mission and render a “good” award.
Finally, it was indicated that the arbitrators’ roles change, depending on the reason for the party’s default:
- If its default is deliberate, the party is in breach of the arbitration contract. The arbitrator should not go beyond the documents submitted to him.
- On the other hand, where the default is not intentional, but rather suffered by a party (for example, because it lacks sufficient financial resources to submit to arbitration), arbitrators should conceive their role in the arbitration in a much more active way.
Caroline Duclercq & Violette Savine