What Can Lawyers Do Better When it Comes to Solving Commercial Disputes for Clients Through Arbitration?

In the midst of demanding timelines, and immense workloads, there may be some areas which lawyers may overlook when solving commercial disputes for their clients through arbitration. This article seeks to highlight the areas that lawyers may consider paying more attention to when dealing with commercial disputes involving, or potentially involving, arbitration.

Things to Consider Before the Commencement of Arbitration Proceedings

Having a well-drafted arbitration agreement is half the battle won. More often than not, parties find themselves incurring unnecessary time and costs disputing procedural matters which do not even relate to the substantive dispute. This can be avoided if the lawyers involved in the negotiations of contracts, in particular those drafting the arbitration agreements, are well-advised on how to draft a proper arbitration agreement. For instance, terms relating to pre-arbitration procedures, place of arbitration, constitution of the arbitral tribunal, and the governing law of the arbitration agreement should be properly fleshed out in the underlying contract rather than leaving such important decisions to be made (or ignored) at the midnight hour, so that there is less (or no) room for procedural disputes amongst the parties.

It is also important to manage clients’ expectations of what arbitration entails in comparison to litigation. There are certain common misconceptions about arbitration such as: ‘arbitration is cheaper than litigation’, ‘arbitration is faster than litigation’ and ‘arbitration guarantees confidentiality of proceedings’. These misconceptions do not necessarily reflect the reality of arbitrations. As such, from the get-go, lawyers should explain not only the arbitration process to their clients, but also the realities of arbitration: inter alia the potential fees involved, timeline for resolving the dispute, and procedural framework, so that their clients will know what to expect should a dispute arise. This also prevents misunderstandings between lawyers and their clients.

Even if a lawyer is not involved in drafting the arbitration agreement, there are a few practical points that lawyers can keep in mind for disputes which may result in arbitration.

Keeping a Close Eye on Costs

Legal costs are often a thorny issue between lawyers and their clients. Sometimes, lawyers will have to choose which battles to pick. This would mean doing a cost-benefit analysis of whether the costs involved in pursuing a certain course of action would outweigh the potential benefit to their clients. Ultimately, lawyers should be guided by one cardinal principle – what is in the best interest of the client?

To ensure that all parties are on the same page, lawyers should provide clients a realistic estimate for the mandate at the start of the retainer. To further manage clients’ expectation on costs, it is also good practice for lawyers to keep their clients apprised on the costs incurred.

In many cases, the arbitration fees imposed by arbitral institutions will take up a noticeable portion of the costs involved, particularly when considering court fees. Lawyers should inform their clients of the expected fees and payment schedule ahead of time, preferably before the commencement of arbitration proceedings, so that their clients know what to expect financially as well as make the necessary arrangements to pay the arbitration fees. This is important because the failure to make payment of arbitration fees may cause unnecessary delay to the proceedings, and in some cases, may even cause the arbitration proceedings to be withdrawn.

Another financial topic of particular interest for clients is third party funding. In recent years, third party funding has become more prevalent in arbitration proceedings. In Hong Kong, the Arbitration Ordinance (Cap. 609) was amended as of 1 February 2019, to allow third party funding in arbitration proceedings. Third party funding refers to the situation whereby a non-party to the arbitration proceedings agrees to provide funds to a party for the arbitration proceedings in exchange for a financial benefit, should the party that is being funded emerge successful. By alleviating the financial burden of commencing a legal action, benefits of third party funding include making it possible for a party to pursue its legal rights and improving cash flow, and thereby preventing impacts on a party’s day-to-day business operations. Lawyers should keep third party funding in mind and explore such an option with their clients, especially if their client is under-resourced to fund the arbitration.

Managing the Arbitral Process

Lawyers should always strive to ensure that arbitration proceedings are conducted in an efficient manner. To this end, lawyers should try to familiarise themselves with the different procedures set out under the various arbitral rules to make sure they are able to properly advise their clients. For example, lawyers should consider whether the dispute is one which is suitable for emergency arbitration, an early determination procedure, or an expedited procedure (assuming such options are available under the applicable set of arbitral rules).

Additionally, just because a dispute should be referred to arbitration does not mean that there are no other options available for parties to resolve their disputes. As with litigation proceedings, it is always open to parties to attempt mediation and/or settlement negotiations during the course of arbitration proceedings, in a bid to resolve the dispute amicably. As part of managing the arbitral process, lawyers should always ensure they draw their client’s attention to the possibility of resolving commercial disputes through other outlets such as mediation and/or settlement negotiations, and advise their clients on the same at the appropriate juncture.

Ensuring the Confidentiality of Arbitration Proceedings

One important facet of arbitration is confidentiality. However, this is also one of the biggest misconceptions. Contrary to popular belief, not all arbitral proceedings are, by default, confidential. The confidentiality of arbitration proceedings will depend on party agreement, the law of the seat of arbitration, and/or the relevant institutional rules.

For instance, Hong Kong is one of the few jurisdictions worldwide that implements a statutory requirement of confidentiality for arbitration proceedings. Specifically, Section 18 of the Hong Kong Arbitration Ordinance provides that unless otherwise agreed by the parties, no party may publish, disclose or communicate any information relating to (a) the arbitral proceedings under the arbitration agreement, or (b) an award made in those arbitral proceedings. Thus, parties who commence arbitrations seated in Hong Kong will be bound by this provision. Similarly, Article 30 of the London Court of International Arbitration Rules provide that parties should undertake as a general principle to keep all awards in the arbitration confidential, together with all materials created for the purpose of the arbitration. That said, even if the law of the seat of arbitration and/or the institutional rules impose a duty of confidentiality, the content and scope of the duty may vary.

In this regard, lawyers should be aware of this misconception and take active steps to ensure that the confidentiality of arbitral proceedings are adequately protected. For example, at the drafting stage of a commercial contract, lawyers should include an express confidentiality provision covering not only the business transaction itself, but any and all disputes arising from such contract. Once an arbitration has been commenced, the parties can also enter into an express agreement on the content and scope of confidentiality when establishing the Terms of Reference or similar order. If parties to the arbitration decide to engage third parties such as expert witnesses, translators and other service providers, lawyers should, together with their clients, consider whether it will be prudent for such third parties to sign a Non-Disclosure Agreement, so that the existence and contents of the arbitration proceedings will be kept strictly confidential.

Conclusion

There are many advantages to resolving disputes by way of arbitration. In fact, the popularity of arbitration is a testament to how arbitration is a reliable choice for commercial dispute resolution. Hopefully, fellow lawyers will find the pointers above useful when solving commercial disputes for their clients through arbitration, so as to achieve a better outcome for their clients.

Partner, Withers

Sherlin is a partner in the international arbitration and litigation team. She is a specialist in cross-border disputes, international commercial arbitration, and multi-jurisdiction litigations. With over a decade of experience, Sherlin has advised clients in Asia, the Americas, and Europe on all phases and aspects of cross-border disputes (both litigation and arbitration). Sherlin also advises clients on the enforcement of international arbitral awards and/or court judgments. Sherlin has a rare set of skills given her unique background. Her career has given her the ability to be involved in all roles of a dispute. Given this experience, she is able to understand the overlaying objectives of not only of her clients but also the strategies implemented by counterparties, how arbitral tribunal members/judges think, and how arbitral institutions/courts operate.

Sherlin regularly speaks in conferences worldwide and gives lectures and trainings on international arbitration and cross-border disputes.

Associate, Withers

Kelly is an associate in the litigation and arbitration team.

Her practice covers a broad range of areas including civil and commercial litigation, construction disputes, project and infrastructure disputes, shareholders’ disputes, and trust and probate proceedings. She has advised clients on numerous complex cross border and multi-jurisdictional matters, and is experienced in assisting in contentious court proceedings, as well as arbitration proceedings administered by the International Chamber of Commerce and the Singapore International Arbitration Centre.