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Ph.D. (Law), Partner, Salkom
Experts in International Arbitration
An expert can be involved in international arbitration in connection with any matters that require special knowledge of a specific area. An expert on matters of foreign law plays a special role due to the specifics of international arbitration and the nature of issues that an arbitral tribunal has to deal with.
International arbitration constitutes a special dispute resolution mechanism.
Its most important feature is that this mechanism is intended for situations when a dispute involves various legal systems and is not limited to the framework of a national legal system. Such situations imply the presence of a so-called foreign element in disputed relationships that became a subject of international arbitration.
As a matter of priority, international arbitration “deals” with the interaction between various legal systems, various legislative frameworks, various approaches to the ways legal rules are construed and legal concepts, various traditions of the application of law, and, finally, with various legal psychologies and legal terminologies.
The nature of such interaction can take on different forms. Such forms depend on the specifics of each dispute referred to international arbitration.
However, the following are the main areas where legal systems of various jurisdictions interact.
First of all, in many cases legal counsels to the parties in one set of arbitration proceedings can come from different jurisdictions. While in domestic state courts parties are mainly represented by local attorneys or counsels (in many jurisdictions, only local lawyers who have special licences to practice law in a specific country can act for the parties to the proceeding), it isa common occurrence that in international arbitration parties are represented by lawyers from different jurisdictions. Moreover, such jurisdictions differ from the jurisdiction where arbitration has its seat.
The same applies to arbitrators. It is a regular occurrence that persons “representing” one jurisdiction are appointed as arbitrators in proceedings conducted on the territory of other jurisdiction. In cases when an arbitral tribunal comprises of several arbitrators, all of them can come from different jurisdictions.
It goes without saying that in such a situation a certain interaction or even a conflict of some kind exists between legal systems, the representatives of which (arbitrators, counsels) are involved in the same arbitral proceeding.
Secondly, the involvement of various legal systems, particularly different legal frameworks, in international arbitration causes the need to apply or at least take into consideration legal rules of foreign states that are different to the national states of arbitrators.
This is the case in situations when the subject matter of a dispute is governed by law, which is foreign law for an arbitrator (or arbitrators). If a dispute has arisen out of, or in connection with, a cross-border contract, such foreign law could be the law determined by the parties to the contact as the governing law based on the principle of choice of law, which is known to the majority of jurisdictions and is broadly used in international practice. Such governing law could be the law of a country that is not the country of nationality of the arbitrators, parties, or seat of arbitration. In other words, in such a situation arbitrators will have to apply a law that is foreign to them to disputed relationships and resolve a dispute on the basis of such law. A great deal has already been said about the difficulties and contradictions that arise when foreign law is applied. Here, an arbitral tribunal has to factor in approaches to the construing of legal rules that exist in one or another state, the established practice of the application of law, and domestic legal theories.
Situations when the practice of application of foreign law rules in the relevant foreign state does not quite correspond to the formal phrasing of such rules or a scientific doctrine used to construe the rules fall into a separate category, which poses special difficulties. Moreover, there might be contradictions between provisions contained in various laws and regulations within the law of a foreign state, incongruent approaches used by national judicial authorities to construe and apply the same legal rules, ambiguity of very foreign legal rule, and even gaps in legal regulation.
All these aspects have to be assessed by arbitrators when applying legal rules that are foreign to them when resolving a dispute.
The above list of difficulties that arise in connection with the application of foreign law by international arbitration is not exhaustive. Apart from having to apply the law chosen by the parties to a contract as governing law, arbitrators have to take into consideration some kind of interaction between arbitral proceedings in a given case and other legal systems.
It means that the arbitrators have to factor in the law of the state where arbitration has its seat. International arbitration does not function in accordance with the rules of procedure that are applied by state courts but rather have its own rules, which means a certain degree of independence of international arbitration from the procedural law of the state of the seat of arbitration. Nonetheless, a number of domestic procedural rules of such a state have to be complied with. Normally, such rules include mandatory rules, basic procedural provisions, and procedural principles that must not be disregarded. By failing to obey such rules, a tribunal can put its award at risk of being appealed against in national courts on the grounds of violation of public order. Such a jurisdiction can also be foreign to arbitrators unless they are lawyers practising in this jurisdiction. This is why issues regarding the assessment of the legal rules of the jurisdiction concerned are both highly relevant and challenging at the same time.
Moreover, the law of the state when an arbitral award is to be recognised or enforced should also be taken into account. This law can be different to the governing law that applies to disputed relationships. It can also be different to the national law of either one or all parties to the contract, and also to the law of the state of the seat of arbitration.
An arbitral tribunal has to take into account the law of the state where an award is expected to be recognized or enforced, since such recognition or enforcement can be denied if the arbitral award is contrary to the public order of the relevant state. This rule is set out, in particular, in the 1958 New York Convention and is also known to the majority of national legal systems. Arbitrators issuing an award have to assess the compatibility of the award with the rules of foreign law, i.e. the law of the state where the award is to be enforced. To achieve this objective, arbitrators need to get an understanding of the public order that exists in a given state, the norms and principles that make up the concept of public order and which could potentially be contravened by the arbitral award.
The assessment of foreign law by arbitrators in international investment arbitration merits special interest. Investment arbitration deals with disputes between investors and host states that arise when the host state violates the rights granted to the investor under the relevant investment treaty. In such disputes, investment arbitration assesses the acts of the authorities of the host state in terms of compliance with international rules governing the protection of investments. In many cases, such assessment covers laws and regulations of the host state as they could be contrary to international law. This is why the correct interpretation of such regulations and an understanding of the practice of their application are of great importance. At the same time, it is important to establish in such investor-state disputes the degree to which the acts of government authorities, state officials, and the investor complied with the domestic legislation of the host state, and whether the state ensured the availability of efficient mechanisms the investor could use to protect its interests. Once again, to answer these and many other questions that arise in the course of investment arbitration, arbitrators have to assess the law of the host state, which to them is foreign law.
In such cases an expert in foreign law plays an important role. An expert opinion issued by the expert has to cover the matters of foreign law that are relevant to the resolution of a given dispute. A general rule is that a finding made by such an expert is not binding on arbitrators. Nevertheless, a foreign law expert performs a procedural role whose objective is to assist the arbitrators with making a legitimate award where the correct application of governing law is ensured. Moreover, in a number of situations, only a foreign law expert is capable of helping arbitrators make an arbitral award that carries a minimum risk of being set aside in the state where it was made, or that would face a problem with the recognition or enforcement of the award in another state on the grounds of contradiction to the fundamental legal rules of such state.
It comes as no surprise that international acts in the area of arbitration deal very carefully not only with the involvement of an expert in arbitral proceedings, but also with the procedure for taking statements from an expert and for assessing such statements. The objective of this exercise is to ensure that expert statements are correct and unbiased to the maximum extent possible. It suffices to cite the IBA Rules on the Taking of Evidence in International Arbitration, which, despite not being binding, are widely applied by international arbitral tribunals.
Recent developments in Ukrainian arbitral legislation aimed at improving the rules governing the involvement of experts, including foreign law experts in arbitration, merit attention. This is in reference to the new Rules of the ICAC at the Ukrainian Chamber of Commerce and Industry that came into force on 1 January 2018. This act imposes an obligation of impartiality, good faith, and confidentiality on experts, improves the processes for the engagement of party-appointed experts, and sets out in greater detail the procedural rights of the parties to arbitral proceedings in connection with expert reports.
Such trends should become yet another step towards the compliance of the national arbitration system with standards adopted in the developed arbitration jurisdictions. They will also promote the professional status of an expert which, in its turn, should have a positive effect on the quality of arbitration in Ukraine in general.