Mediation, Arbitration, Negotiation, Facilitation & Training
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November 2020
November 2020
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International ADR News
covering
Arbitration and Mediation
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Homo sapiens, the wise human being, must now learn from its mistakes and live up to its name. We who are alive today have the formidable task of making sure that our species does so.” David Attenborough, A Life on Our Planet
Looking back at John Sturrock’s post from February which suggested a World Mediators Alliance on Climate Change, we are struck by how it seems to address a different era. Shortly after that piece was published, the coronavirus pandemic swept across the world bringing immeasurable loss and suffering. It also brought, for many, a heightened awareness of our interconnectedness with our planet and our impact upon it. It has also changed our mediation practices in ways we could not have foreseen just a few months ago.
As a mediation community, we have often talked about how we might mediate climate change issues. Perhaps we have not given the same amount of attention to how we might reduce the environmental impact of our own behaviour and practices as mediators – and in particular to how we can individually and collectively play our part in reducing carbon emissions. The changes precipitated by the Covid pandemic have accelerated our ability to do so.
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In response to John’s open invitation back in February to create a World Mediators Alliance on Climate Change (WoMACC), members of the international mediation community came together to form a working group, with members from New Zealand, Germany, Scotland, England and Belgium. Over the past six months, the working group has explored what WoMACC could offer to encourage mediators individually and collectively to lessen their environmental footprint.
The main output is the Mediators’ Green Pledge. This has been inspired by Lucy Greenwood’s Green Pledge for arbitration and, with Lucy’s kind permission, the working group has adapted that pledge for mediation. The Pledge, which was launched on 21st October, can be read here on the special website which has been created for this purpose. Already, signatures are being added daily.
While refining the Pledge, we had many intricate and lively discussions on its wording. Does the Pledge ask too much or too little? Is it sensitive to differences across countries and cultures? Might it demonise certain aspects of mediation which many may hold dear? The Pledge is designed to be illustrative, and adaptable. While there will certainly be aspects which we have missed, the Pledge is hopefully broad enough to allow all those involved in mediation to consider how they can make changes to contribute to a greener way of mediating. The Pledge offers a foundation upon which mediators can build with their own measures tailored to their specific practices and preferences. Signatories are welcome to augment and modify the Pledge as they wish. We encourage you to sign it.
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The Pledge offers one way for us to come together to do so. As one signatory of the Pledge has said “This pledge is a commitment that has no end and whether it is formalised or just remains a contract to myself – it feels really good to have begun it. Thank you for giving me the nudge!”
We hope many others in the mediation community will feel the nudge!
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The "Tribunals" and Tribulations of Section 1782: What Constitutes a "Foreign or International Tribunal?"
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With the continuing globalization of litigation and arbitration, counsel engaged in arbitral proceedings outside of the United States are becoming more familiar with a powerful U.S. statute: 28 U.S.C. § 1782 (titled “Assistance to foreign and international tribunals and to litigants before such tribunals”) (“Section 1782”). Noticeably, there has been a recent flurry of important, and, at times, conflicting decisions from U.S. federal circuit courts related to the availability of Section 1782 to obtain information and documents from third parties in aid of private international arbitration. Most recently, as discussed further below, on 22 September 2020, the Seventh Circuit Court held that a private international arbitral tribunal is not a “foreign or international tribunal” under Section 1782. Servotronics, Inc. v. Rolls-Royce PLC, No. 19-1847, 2020 WL 5640466 (7th Cir. Sept. 22, 2020).
What is Section 1782?
Section 1782 is a federal statute that authorizes a U.S. district court, upon application by a “foreign or international tribunal or . . . any interested person,” to order a person found or resident in the U.S. district to “give his testimony or statement or to produce a document or other thing” for use in “a proceeding in a foreign or international tribunal.” As a threshold matter, a court presented with a Section 1782 application must determine whether Section 1782 is available to the tribunal or interested person making the request. More particularly, the court must be satisfied that the proceeding where the applicant seeks to use the information qualifies as a “foreign or international tribunal” under Section 1782.
The Intel Decision
The U.S. Supreme Court has addressed Section 1782 on only one occasion, in 2004, in its opinion on Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004). Among other issues, the U.S. Supreme Court specifically addressed whether the Directorate General for Competition of the Commission of the European Communities (Directorate-General) was a “foreign or international tribunal” under Section 1782, and it concluded that it was. The U.S. Supreme Court reasoned that Section 1782 covers first instance decision-makers that render dispositive rulings subject to judicial review. Id. at 546–47. The Intel decision, however, left open several significant questions, including whether a private international arbitral tribunal constitutes a “foreign or international tribunal” under Section 1782.
The Split of Opinion Among U.S. Circuit Courts
Since the U.S. Supreme Court’s 2004 decision in Intel, five of the 12 federal circuit courts in the United States have addressed the question whether a private international arbitral tribunal constitutes a “foreign or international tribunal” under Section 1782, and the question is also pending for decision before two additional circuit courts. Three of the five circuit courts to rule thus far have answered the question in the negative and two have answered in the affirmative. In the two cases pending for circuit court decision, one of the lower courts ruled in the negative and one ruled in the affirmative.
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Given the continuing globalization of litigation and arbitration and the deepening U.S. federal circuit court split around Section 1782, it appears that this issue is ripe for the U.S. Supreme Court to address. Until this issue is resolved, however, parties involved in private international arbitrations who seek discovery of information in the United States should consider carefully where the discovery target is located and, if located in more than one state in the United States, further consider where a Section 1782 application is likely to be most successful. For those parties who seek to reduce the risk of Section 1782 discovery in international arbitral proceedings where they are a party, they should consider explicitly addressing this when drafting their arbitration agreements so as to impose limits on this type of discovery.
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Under Section 68 of the New South Wales Retail Leases Act, and in other Australian jurisdictions, parties to a commercial lease dispute may not sue until the applicant has obtained a certificate that mediation has failed to resolve the dispute or the court is otherwise satisfied that mediation is unlikely to do so.
In response to the current COVID-19 pandemic, the Premiers of the Australian States and Territories and the Prime Minister combined to form a “National Cabinet” to find consistent ways to tackle the economic impacts. On April 7, 2020 a Mandatory Code of Conduct was announced, subsequently reflected in State and Territory legislation, containing leasing principles applicable during COVID-19 to landlords and small to medium enterprise (SME) tenants: “the Code”.
In brief, under the Code, tenants whose trade has suffered and their landlords are obliged to renegotiate their arrangements in good faith. Leasing Principle 3 requires landlords to offer tenants proportionate rent reductions, in the form of waivers and deferrals. This may amount to up to 100% of the rent ordinarily payable, on a case-by-case basis, based on the reduction in the “tenant’s trade” during the COVID-19 pandemic period and a subsequent reasonable recovery period.
How this works in practice
A tenant suffering a 60% loss of turnover (subject to negotiation and agreement in good faith), would be required to pay only 40% of the normal rent during the pandemic and would receive both a rent-free waiver of 30% of the normal rent and a deferral of 30%, payable over at least 24 months, commencing after the pandemic is declared over. Meantime, landlords may not increase the rent nor take any of the usual actions available under a lease – including termination, drawing upon security for non-payment of rent or imposing penalties for non-trading.
In New South Wales, the Code was implemented on April 24, 2020 by a Regulation that was amended on July 3, 2020 to make it clear that lessees must provide evidence that they are “impacted”. The Regulation affects both retail leases and commercial leases. For a lessee to qualify as “impacted” its turnover in the 2018-2019 financial year must have been less than $A50 million. However, the way in which that is calculated differs depending on the nature of the lessee and this has led to much argument during landlord/tenant mediations.
The Regulation includes consideration of franchisees, which creates a more complex landscape. If the lessee is a franchisee, the relevant turnover is the turnover of the business conducted at the leased premises. If the lessee is a member of a corporate group, the relevant turnover is the turnover of the entire group. In any other case, the relevant turnover is the turnover of the business conducted by the lessee.
In a real-life example, the landlord was an elderly individual whose sole income was the rent from a shop. The tenant carried on business from numerous shops and had closed them all except the one owned by the landlord, where trading had actually increased. The tenant was able to claim at the mediation that it was entitled to rent relief under the Regulation, proportionate to the overall reduction in its business turnover.
What the cases say
Despite the extraordinary volume of leasing disputes being mediated, there are few cases reaching the courts.
In Sneakerboy No. 2, one of very few cases to consider the COVID-19 leasing regime, the judge said:
“The issue of whether the phrase “tenant’s trade” in leasing principle 3 refers to the whole of the tenant’s turnover, or only the turnover at the premises the subject of the particular lease, does not in my view always require the same answer. The overarching principles stated in the Code include: “It is intended that landlords will agree tailored, bespoke and appropriate temporary arrangements for each SME tenant, taking into account their particular circumstances on a case-by-case basis”. The overarching principles include that arrangements “will take into account the impact of the COVID-19 pandemic on the tenant with specific regard to its revenue, expenses and profitability”. They also include: “All premises are different, as are their commercial arrangements; it is therefore not possible to form a collective industry position”.
However, in my view it will generally be the case that the phrase “tenant’s trade” in leasing principle 3 will require a consideration of the whole of the particular tenant’s turnover, as well as costs and profit, from all locations at which the tenant conducts retail businesses.”
To my mind, the Code and the Regulation are based on the assumption that tenants are likely to be more adversely affected by the loss of trade attributable to the pandemic than landlords, who are assumed to be the ones required to make concessions to their tenants. This may generally be so and, indeed, the stated objective of the Code is “to mitigate the impact of the COVID-19 pandemic on the tenant”. Accordingly, there are no provisions requiring tenants to agree tailored, bespoke and appropriate temporary arrangements for landlords, nor do the overarching principles take into account the impact of the COVID-19 pandemic on landlords. These deficiencies make it harder for mediators to encourage tenants having multiple leased locations and enjoying full trade at the landlord’s premises to have regard to the circumstances of sole individual landlords dependent entirely on rent from one shop.
A reassuring outcome
The good news is that despite the remarkable increase in disputes in the retail and commercial lease space and the financial distress they reflect, mediation continues to demonstrate its value. Evidence reveals that the online mediation environment has not been a disincentive for parties and in fact online mediations appear to resolve faster. Most encouraging is that the settlement rates of about 85% have continued to hold up – a great endorsement of mediation’s value.
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Sometimes I wonder what the facilitation and mediation work I do is all about. By which I mean what purpose does it perform for clients. What is it that they are asking for from me, and what is it that they actually get? Do they always really want what they are ostensibly asking for? Do they know at the outset what it is they want from mediation? And during the process, do their needs perhaps shift, as other concerns become apparent? Do clients always have to know what they want and what the function or purpose of their facilitated dialogue is? Perhaps not.
In some fields, we might say that mediation has the function to facilitate settlement of a dispute, frequently a money dispute with a claim that has been or might be brought before a court of law. The function seems simple enough: to assist the parties in finding out if there are viable options for private settlement. This is significant, but I doubt it is the only function of mediation even in this kind of seemingly clear-cut dispute. It is not always about a focus on settlement.
Sometimes I have wondered if the function is no more than being there. Simply by a third party being present, in two senses of the word, the parties or clients have a space in which they reflect upon themselves and their differences differently. Maybe mediation is a mirror for its clients.
At other times I am there for the main reason that without my presence there would be no dialogue at all. I have worked with parties that are not able to talk without the presence of a third party. Yes, here I may structure the conversation, ask questions that are intended to create focus, clarify standpoints and interests, or shift the perspective. The main function, however, still seems to be to enable these clients to speak to each other in the first place.
In other settings I feel like a buffer and also a filter between various protagonists. Their communication with each other is challenging and may be aggressive, and the filtering function of a third party can be like an unburdening. The parties are responsible for and can focus on their messages because the third party facilitator can stand between them. I am thinking here particularly of my work moderating large public meetings, but not only. Maybe I am overstating my role, but I often feel like a conduit, a channel that is there between the parties to ensure that they can face up to each other squarely.
Mediation can also be a safe place for people to show emotions or sentiments that they would not so readily show otherwise. I do not know to what extent I personally am contributing to this, though I must be just by being there, and I am aware that being the third party here carries responsibility with it. If the place of mediation is perceived as safe, or at least safer than other places have been or are seen to be, then the mediator has a part in this.
Finally – though there are many more functions – I sometimes feel that I am a witness. Not in the sense that I will called to give evidence, of course, but in the sense that the parties in a mediation need someone to know and to acknowledge what moves them, what has happened to them, and how they feel. Someone to witness their discomfort, their sense of injustice, or their otherwise unseen aspirations and concerns. Someone who sees them.
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Hold on to your seats: UK Supreme Court ends the argument about the law governing arbitration agreements
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Identifying what law governs a contractual term requiring the parties to arbitrate their disputes, rather than taking them to court, can be profoundly important.
For example, depending on which law applies, the clause may be valid or invalid, awards made pursuant to that clause may be enforceable or unenforceable, and particular disputes arising between the parties may or may not be within its scope.
Laymen might roll their eyes and ask why this is an issue at all, noting that the parties could just specify which law governs the clause.
It is a fair point. Why not just put the question beyond doubt, especially if the law governing the arbitration clause is intended to be different from the law governing the contract as a whole, or the clause specifies arbitration in a third-party jurisdiction chosen because it is deemed safe and neutral?
Well, they can, and the Hong Kong International Arbitration Centre, for example, has express language in its standard administered arbitration clause to that effect, but still most parties do not take this simple step.
It should be remembered that dispute resolution clauses are generally regarded as "midnight clauses", drafted or inserted after everything else has been agreed, and frequently little or not attention is paid to this point.
Whatever the rights and wrongs, the UK Supreme court has now rendered a majority judgment in Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb [2020] UKSC 38 which not only ends years of argument on the issue in England, but – because it was decided in accordance with English common law principles, rather than on the basis of EU law – will have implications for the common law world generally, including in Hong Kong and Singapore.
The majority's decision in this case runs to 64 pages (and the minority judgment adds another 49) but a helpful summary of the main principles – reading almost as if it were a restatement - is provided. These are:
- The law applicable to the arbitration agreement will be: (a) the law chosen by the parties to govern it, or (b) in the absence of such a choice, the system of law with which the arbitration agreement is most closely connected.
- Whether the parties have agreed on a choice of law to govern the arbitration agreement is ascertained by construing the arbitration agreement and the contract containing it, as a whole, applying the rules of contractual interpretation of English law (or Hong Kong, Singapore etc law) as the law of the forum.
- Where the law applicable to the arbitration agreement is not specified, a choice of governing law for the contract as a whole will generally apply to an arbitration agreement, which forms part of the contract.
- The choice of a different country as the seat of the arbitration is not, without more, sufficient to negate an inference that a choice of law to govern the contract was intended to apply to the arbitration agreement.
- Additional factors which may, however, negate such an inference and may in some cases imply that the arbitration agreement was intended to be governed by the law of the seat are: (a) any provision of the law of the seat which indicates that, where an arbitration is subject to that law, the arbitration will also be treated as governed by that country’s law; or (b) the existence of a serious risk that, if governed by the same law as the main contract, the arbitration agreement would be ineffective. Either factor may be reinforced by circumstances indicating that the seat was deliberately chosen as a neutral forum for the arbitration.
- Where there is no express choice of law to govern the contract, a clause providing for arbitration in a particular place will not by itself justify an inference that the contract (or the arbitration agreement) is intended to be governed by the law of that place.
- In the absence of any choice of law to govern the arbitration agreement, the arbitration agreement is governed by the law with which it is most closely connected. Where the parties have chosen a seat of arbitration, this will generally be the law of the seat, even if this differs from the law applicable to the parties’ substantive contractual obligations.
- The fact that the contract requires the parties to attempt to resolve a dispute through good faith negotiation, mediation or any other procedure before referring it to arbitration will not generally provide a reason to displace the law of the seat of arbitration as the law applicable to the arbitration agreement by default in the absence of a choice of law to govern it.
Of these factors, the most significant are, first, the somewhat obvious, but no less significant for that, point that if the contract as a whole is governed by, say, Hong Kong law, yet the seat of arbitration is identified as Singapore, then the starting point is that the arbitration agreement remains governed by Hong Kong law, and the choice of Singapore as the seat does not in principle change that.
Second, if there is no choice as to the governing law of the arbitration agreement, then the clause will be governed by the law of the place where the seat is located.
Despite the detailed analysis in the majority judgment, these are, ultimately, simple rules to live by. It still does not excuse the parties from adding a few simple additional words to their contract, for instance "The law of this arbitration clause shall be Hong Kong (or English or Singapore) law".
As the majority judgment in Enka points out, the case got from the High Court to the Supreme Court in breakneck speed. But think how easily the uncertainty and expense endured by both parties could easily have been avoided by some additional drafting, even if it was at midnight.
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"What makes us human, I think, is an ability to ask questions."
Image Courtesy of Brad Heckman
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Newletter Subsriptions and Details |
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In an effort to recognize the specialization in the ADR community, we are creating 3 separate newsletters broadly covering these areas: Mediation - Arbitration - International ADR.
A newsletter focused in one of those areas will be sent out bi-monthly. In order for you to subscribe to as many types of newsletters that fit your particular practice/interests, please click on the Update Profile/Email Address link at the bottom of this email. From there you will be able to select which newsletters you wish to receive or if you would like to opt out all together.
Thank you for reading my newsletter, and as always, if you have any questions on any of the articles listed, do not hesitate to contact me.
Sincerely,
Thomas P. Valenti
350 W. Hubbard St., Suite 630
Chicago, IL 60654
T: 312-925-0081
F: 888-667-2485
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