International commercial arbitration: To boycott or not to boycott proceedings?

By Stuart Pallister

SMU Office of Research – When companies are in a cross-border dispute over a contract, the prevailing mode of resolution currently is arbitration, perhaps in Singapore, a leading arbitration centre in Asia if not the world.

But sometimes, one of the parties chooses not to participate or – even if it does take part initially – may decide to boycott the proceedings if it feels it is not getting a fair hearing and thinks it would get a more favourable outcome before a home national court.   

“It’s unfortunately quite common that parties from some jurisdictions, who don’t have a good understanding of arbitration, feel that an outsider arbitrator (the judge) will not give them a fair hearing or outcome, compared to their own national judges,” Darius Chan, Associate Professor of Law (Practice) at Singapore Management University told the Office of Research.

“Obviously there are vested interests, connections and relationships that these companies would prefer and that explains the boycotting.”

Professor Chan has co-authored a journal article with lawyer and SMU alumna Claire Neoh titled ‘To boycott proceedings or not? Recourse against arbitral awards on jurisdictional grounds by different categories of respondents under the Model Law’ (Arbitration International, 2020, 0, 1-28).

The Model Law on International Commercial Arbitration had been promulgated by a United Nations body dealing with international trade law called UNCITRAL which sought to introduce a common set of harmonised laws that individual countries would enact.

“So, everyone would have the same law on arbitration for example. And that’s what they did in 1985. They rolled out a set of model laws which countries and territories such as Singapore, Hong Kong, New Zealand, Canada, and Australia enacted as part of their national laws.”

“But the drafters of the 1985 Model Law could not envisage everything, and different courts started interpreting different provisions differently. And that’s where you get the different approaches, even though everyone started from the same common birthplace as it were.”

The advantage arbitration has over litigation is that an arbitral award would be enforceable in more than 160 countries which have signed up to the New York Arbitration Convention, which Professor Chan refers to as “the most successful treaty in the world”.

Whereas arbitration awards are enforceable in many other jurisdictions, settlement agreements from mediation are not as easily enforceable and a party to the settlement may have to sue again in another national court. (That said, some eleven countries have so far ratified the Singapore Convention on Mediation, which Professor Chan refers to as a  “young and upcoming ‘analogue’” version of the New York Convention.)  

“Basically, all these countries say in the (New York) treaty that we agree to enforce each other’s arbitration awards. So, unlike a court judgement where you don’t have an extensive treaty network, that award is enforceable in 160 jurisdictions and that has been the main driver of the popularity of arbitration over the past decade.”

The article, he says, “tries to tease out the blind spots in the law”, adding that the drafters of the Model Law in the 1980s had not covered all their bases and “so it goes into some of the nuances”.

In the article, which references a range of cross-border arbitration cases involving companies from Indonesia, Cyprus and Singapore, among others, the researchers explore the remedies available to respondents under the Model Law, and their verdict is that as far as a boycotting party is concerned, their remedies against any eventual award are ‘unclear’.

Professor Chan says there may be legitimate reasons for not wanting to participate in arbitration proceedings. For example, a company may feel it had never agreed in the contract to arbitrate the dispute, and a non-participating party would still be able to challenge any eventual award later.

But for a company deciding to boycott the process, it may find it difficult to make its case when it comes a challenge against the award in a national court later.

That’s why Professor Chan urges companies to engage in the arbitration process rather than shun the proceedings.

“It is tempting to just ignore the arbitration. However, you should still show up and make your case. And the reason is that you can make sure your points are recorded in the ultimate award.”

“If you don’t show up, your side of the story is not even going to be recorded so challenging it later (before a national court) is going to be much harder. The court would be very suspicious of your motives as to why you didn’t make your case earlier.”

“And those are extra legal reasons because under the law, the respondent who doesn’t participate at all would still have the right to challenge any eventual award, but practically speaking, my advice is they should think hard about participating unless it is crystal clear they have absolutely not agreed to arbitrate.”

While a non-participating party would still get what he calls the “full panoply of rights and remedies” and be able to challenge the arbitration award, Professor Chan says a company which boycotts the process should be treated as though it had participated in the arbitration.

“The boycotting respondent participates halfway and when it sees it’s losing the fight, it drops out, whereas the non-participating respondent doesn’t participate right from the start.”

Professor Chan, who has co-authored a textbook on International Commercial Arbitration in Singapore, is now working on a comparative analysis of a compulsory requirement to go for mediation before taking the case to a national court.

As to whether it is best to opt for arbitration over mediation, he believes companies should consider deploying both.

“We should not think of these two modes as being exclusive. Even if any initial mediation fails at the outset, you can still start the arbitration process whilst continuing to explore a settlement. In this way you have two parallel ongoing tracks. If you only mediate you may not have sufficient leverage, so if you fight in the arbitration at the same time as you’re negotiating in mediation, you may achieve a more favourable outcome.”

“Once you do both there’s an incentive for the counter party to come to a solution with you, otherwise it will be staring at risks such as costs, time, and an adverse award. It’s very common in practice.”

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