Due process paranoia – an impediment to efficient arbitral proceedings?

Renjith Nair
Acuity Law, Mumbai, Maharashtra
r.nair@acuitylaw.co.in

Altamash Qureshi
Acuity Law, Mumbai, Maharashtra
altamash@acuitylaw.co.in

Richa Phulwani
Acuity Law, Mumbai, Maharashtra
richa.phulwani@acuitylaw.co.in

Introduction

Arbitration, coupled with other alternate dispute resolution mechanisms (ADRs) have gained preference for resolving cross-border disputes, especially after the Covid-19 pandemic.[1] The flexible procedure and relative finality in the adjudication of disputes are seen as some of the most valuable characteristics of arbitration.[2] However, there is scope for improvement, including the cost, efficiency and speed of the arbitral process.[3] This is more so in ad hoc arbitrations, where the procedure is either shaped by party autonomy or by the arbitral tribunal in decisions related to shaping the arbitral procedure, resulting in increased costs and time.

In most jurisdictions following the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the ‘New York Convention’) or the UNCITRAL Model Law on International Commercial Arbitration as adopted by the United Nations Commission on International Trade Law on 21 June 1985 (the ‘Model Law’), procedural unfairness and irregularities are grounds for setting aside or refusing to recognise or enforce an arbitral award. This results in a chilling effect where some arbitral tribunals may be excessively cautious while dealing with procedural decisions such as adjournments, document production, belated introduction of additional evidence and claims. The reluctance by arbitral tribunals to act decisively while considering such requests fearing annulment of the arbitral award is often referred to as ‘due process paranoia’.[4]

In this article, the authors discuss the recurrent issues of perceived procedural unfairness that cause due process paranoia and how it affects the stakeholders in an arbitration.

Scope of ‘due process’

While institutional rules often prescribe mechanisms for arbitral tribunals to be firm and decisive, in ad hoc arbitrations, arbitral tribunals are given broad discretion to decide procedural matters. As per international best practices and most national statutes, due process broadly means ‘fair and equal opportunity of being heard’ in the arbitration and determination of all material issues by the arbitral tribunal which goes to the root of the matter.[5]

The terms ‘due process’ or ‘fair and equal opportunity of being heard’ are not defined under the New York Convention or Model Law. However, as per Article 18 of the Model Law, each party shall be given a ‘full opportunity of presenting his case’. In ad hoc arbitrations, a plain and simple meaning is accorded to the term ‘full opportunity’. Consequently, the arbitral tribunal ends up granting nearly every procedural request of the parties. While several jurisdictions including England & Wales and Hong Kong have adopted a modified definition wherein ‘full opportunity’ essentially means ‘reasonable opportunity’, arbitral tribunals tend to be extra cautious.[6] Broadly, as per the principle of ‘due process’, the arbitral tribunal must grant an opportunity to the parties to comment on all factual and legal circumstances that may be relevant to the decision-making.[7] However, the denial of an opportunity to comment on a particular piece of evidence or argument is not considered prejudicial unless the arbitral tribunal relies on this piece of evidence or argument in its decision-making.[8]

Allegations of violation of ‘due process’

While there is a shift from ‘full opportunity’ to ‘reasonable opportunity’ of being heard, most legal systems recognise this right to be a fundamental procedural guarantee.[9] However, depending on the national laws applicable for annulment and enforcement of an arbitral award, the definition may differ. Few recurring instances where challenges are brought on the grounds of denial of ‘fair and equal opportunity’ of being heard include:

• requests for extension of deadlines to present oral arguments and evidence;
• requests for having the last say by filing additional pleadings;
• submitting additional evidence after the cut-off date;
• adjournments at the eleventh hour; and
• allegations of bias.

Requests for extension of deadlines to present oral arguments and evidence

It is not uncommon for parties to request extensions for completion of oral arguments or evidence, often delaying the procedural timeline of the arbitration. Denial of such requests may, in certain circumstances, form grounds for denial of fair and equal opportunity of being heard resulting in annulment of the arbitral award.[10] Similarly, providing the opportunity to one party without informing the counterparty may also constitute a denial of fair and equal opportunity of being heard.

The key issue for consideration before an arbitral tribunal is whether the parties were granted an ‘adequate opportunity’ to present their case.[11] The arbitral tribunal is under a duty to provide a sufficient opportunity to each party to present its case. However, whether the parties utilise the opportunity falls outside the caution to be exercised by the arbitral tribunal.[12] Moreover, it has been recognised by the High Court of England and Wales[13] that an arbitral award is annulled when a party is prevented due to matters falling outside his control to present his case. This normally includes cases where procedural requests are unfairly denied, or the arbitral tribunal acts contrary to the principles of natural justice. Further, the Supreme Court of India set aside an arbitral award on the grounds that a party was not granted an opportunity to comment on a circular relied on in the arbitral award.[14]

However, where a party has been denied the opportunity to be heard unfairly or without reasonable justification, it may be considered to be a ground for annulment of the arbitral award. The threshold to annul the arbitral award on such grounds is whether substantial prejudice is caused to the party while the counterparty has been granted sufficient opportunity to present its case. Further, the Delhi High Court[15] has drawn distinction between cases where the parties are unable to present their case and where the arbitral tribunal does not accept the case presented by the party. It has been held that the latter scenario does not give rise to annulment of the award.

Submitting additional evidence after the cut-off date

In commercial arbitrations, documentary evidence plays an important role in determining the rights and obligations of the parties. Moreover, fearing the exclusion of relevant evidence, arbitral tribunals are usually lenient towards acceding to such requests. As pointed out earlier, unless the evidence is relied upon by the arbitral tribunal in its decision-making and exclusion of the same causes substantial prejudice to any of the parties, courts do not tend to interfere with the arbitral award. However, in cases where request for production of essential documents is denied even when the applicant has reasonable justification for such delay, the courts may interfere and set aside the arbitral award.[16] Similarly, courts may interfere when such requests are accepted but the counterparty was not given an opportunity to respond to the additional evidence.

Adjournments at the eleventh hour

One of the most common procedural management requests by parties is the adjournment of a pre-scheduled hearing at the last minute. In such situations, issues arise regarding a party’s right to be heard in case the arbitral tribunal refuses to reschedule the hearing and the applicant party does not have sufficient time to prepare for the same. Last-minute rescheduling can occur for various reasons, including unavailability of counsel or witness and the likes. In such scenarios, the arbitral tribunal bears an additional responsibility of accommodating the requesting party, while also ensuring the expeditious conduct of the arbitration. As long as the adjournment is based on well-founded reasons, courts typically refrain from intervening or setting aside the arbitral award on the grounds of inadequate opportunity granted to the parties.

There have been instances where the arbitral award has been annulled for declining eleventh hour adjournments. In a case where a crucial witness fell ill and the arbitral tribunal refused to postpone the hearing, the arbitral award was annulled by the US District Court for the Southern District of New York.[17] In another case, the High Court of New Zealand declined enforcement of an arbitral award since the arbitral tribunal did not consider the party’s request for adjournment on grounds of insufficient funds. The Court held that the arbitral tribunal did not afford a ‘reasonable opportunity’ to the party by declining time to afford legal representation.[18]

Allegations of bias

The arbitral tribunal has the power to rule on its own jurisdiction pursuant to the principle of kompetenz-kompetenz (competence-competence). Accordingly, in cases where parties raise an objection on the grounds of bias, the arbitral tribunal itself has the jurisdiction to decide whether such bias exists. While kompetenz-kompetenz may appear to be contradictory to the principle that one cannot be a judge of its own cause, the Model Law specifically prescribes such powers to the arbitral tribunal. However, such decisions of the arbitral tribunal are often taken as due process grounds to seek annulment of an arbitral award. In cases where courts opine that there is reasonable apprehension that the arbitral tribunal acted in a partial manner, the arbitral award will be set aside on the grounds that parties did not have a fair and equal opportunity to present their case. Further, it is often seen that when parties level such allegations, paranoid arbitrator(s) recuse themselves to avoid annulment of the arbitral award at a later stage. Ultimately, in both situations the pre-scheduled timetable is hindered, causing prejudice to the counterparty.

Under national arbitration statutes, the grounds for alleging bias have been laid down and the courts bind themselves to such factors. Moreover, unless the bias is proved with sufficient reasons, the courts do not interfere with the arbitral award.

Conclusion

In ad hoc arbitrations, absent appellate review of the arbitral tribunal’s decisions, the parties frequently raise procedural concerns to obtain some kind of review. In the recent decision of China Machine New Energy Corp v Jaguar Energy Guatemala, the Court of Appeal of Singapore recognised that such overzealous attempts often result in failure. While arbitral tribunals have been granted wide discretion to decide process issues, an attempt must be made to afford full opportunity of being heard to the parties. With the evolution of arbitration across jurisdictions, ‘full’ has come to signify ‘reasonable’ thereby reducing the threshold. Yet, due process paranoia has crept in and has been the root cause for delay.

In parallel, attempts are also being made to expedite arbitrations to suit the needs of commercial disputes. Recently, Dr Karl-Heinz Böckstiegel (Professor Emeritus of the Law Faculty of the University of Cologne) devised chess-clock arbitration, which contemplates that each party would be afforded a finite amount of time during the hearing, subject to time limits. The time limits and rules would typically be addressed at the preliminary conference. Further, under the procedural judgment rule, courts do not second-guess an arbitral tribunal’s decision if it is based on a bona fide assessment of the case. The rule creates a safe harbour for the arbitral tribunal’s procedural decisions. In a decision where enforcement of a foreign arbitral award was sought to be objected, the Supreme Court of India adopted a pro-arbitration approach.[19] It was held that the provision for setting aside the arbitral award under New York Convention is narrow. While the provision is a facet of natural justice, it would be breached only when a fair hearing is not afforded to parties. Further, such breach must be clearly made out in the facts of the case. The Court went a step further to hold that an arbitral award must be read supportively with an inclination to uphold rather than destroy with minimum interference.

To effectively balance fairness and efficiency, arbitral tribunals must take bold and proactive actions without excessive concerns about due process. This approach is generally endorsed by courts, anticipated by the parties, and increasingly encouraged by institutional rules. Any alternative approach risks the undesirable outcome inherent in undue due process apprehension – an award that is invalid and unenforceable. Further, mischievous parties tend to play the arbitral tribunal into due process paranoia. Therefore, the arbitral tribunals should strike a balance by implementing measures that provide parties with a full opportunity while ensuring expeditious arbitration.