International arbitration gets innovative:
A creative solution

By Barry Leon

This article was originally published by The Lawyer’s Daily, part of LexisNexis Canada Inc.

In the first three parts of this series I wrote about innovative uses of international arbitration in other forms of disputes.

After outlining a proposal by former United States Bankruptcy Judge Allan Gropper (The Arbitration of Cross-Border Business Insolvencies), I considered why it may be that parties to insolvency proceedings are not taking up arbitration, what may be some drawbacks to the concept as articulated to date and possible methods for obtaining pre-insolvency consent to arbitrate international insolvency disputes.

In this final article I conclude that while there are a host of challenges to overcome in developing a workable and acceptable arbitration scheme for cross-border insolvency matters, the challenges appear to be surmountable with creativity and perseverance, such as the Judicial Insolvency Network (JIN) arbitration clause and JIN Basic Rules for Insolvency Arbitration.

Terminology for process

Considering the public nature of insolvency proceedings and the public interest in them, it may be preferable to structure an arbitration regime using terminology specific to these proceedings, so long as it is clear legally that the decision is an award to which the New York Convention applies (in other words, that the process is arbitration).

As previously mentioned, in the investor-state arbitration world there is significant discontent in some quarters with the use of arbitration to determine disputes which have a public interest.

Subject to the above concern about the New York Convention being applicable, the term “arbitration” might not be used generally but rather a term such as “adjudication.” This would need to be considered more carefully to ensure that recognition and enforcement under the New York Convention is not jeopardized. It may be that calling it insolvency arbitration would suffice, as it would become known as a form of non-private, non-confidential arbitration with other special features.

International insolvency courts/tribunals

Each adjudication would be by a tribunal known in each instance as an International Insolvency Court (IIC) or an International Insolvency Tribunal (IIT) (that is, a special arbitral tribunal established for the disputes or disputes submitted to it in connection with an insolvency.

JIN Basic Rules

There could be basic rules that set out the rules for the arbitration in a manner similar to what is done by the UNCITRAL Arbitration Rules or the rules of international arbitral institutions, covering the same kinds of topics but in ways suited to the situations that arise in the types of international insolvency disputes to be arbitrated.

The main areas requiring special innovation in the JIN Basic Rules would include the following:

  • Commencement of arbitration. An arbitration could be commenced by a party delivering a notice or by a competent court ordering it.
  • Eligibility and qualification for appointment to IIC/IIT. Perhaps insolvency expertise may be specified as a necessary qualification for appointment to an IIC/IIT but perhaps the eligibility could be left open for the judges from the key jurisdictions involved who could constitute an IIC/IIT.
  • Selection of IIC/IIT member(s) and challenges. Processes are possible that would give all parties a say in the constitution of an IIC/IIT, For example, each party could rank a list of names provided to them by the judges of the key jurisdictions involved or an arbitral institution (say the Permanent Court of Arbitration in The Hague) that would be the “appointing authority” to assemble the ICC/IIT. The names could be on a standing or on an ad hoc list. The parties could rank the persons on the list of names, with the ranking being say 1 to 10, with the number one choice getting 10 points and so on. The three persons with the most points would constitute the ICC/IIT with the top point-getter being the chair of the tribunal. And there are other options, of course.
  • Determining the applicable law. The JIN rules could set out principles which the IIC/CCT would apply to determine the applicable law after hearing the parties’ submissions on the question.
  • Determining the seat. As the seat usually would be less controversial than the applicable law, it could be left to the IIC/IIT to determine, following submissions of the parties, unless the parties agree.
  • Remedies and relief. Remedies and relief not available from courts could be provided for, particularly to suit the cross-border nature of the proceedings.
  • Appeals and review of the award. As discussed earlier, there are a few options to provide for merits appeals and/or expanded review of awards, if considered desirable.
  • Privacy and confidentiality. As noted earlier, it would be provided that all proceedings would be transparent (in the sense that the public would have a right to be informed about some or all the arbitration, and sometimes a right to observe the arbitration proceedings, or part of them), save for anything that might not be public if the dispute proceeded in public courts. So, there would be no privacy or confidentially unless ordered by a competent court or the IIC/IIT.

The prize worth the candle

The question now is whether the benefits of having one arbitration proceeding to determine international insolvency disputes are worth pursuing.

While there are a host of challenges to overcome in developing a workable and acceptable arbitration scheme for cross-border insolvency matters, the challenges appear to be surmountable with creativity and perseverance.

As Judge Gropper pointed out, it is well worth pursuing, through the mechanism of international arbitration, the goal of having a single proceeding to co-ordinate the insolvency of a multinational enterprise and provide centralized control over its worldwide assets, the possibility of a reorganization and a single, uniform distribution to creditors of the same priority.

The prize is worth the candle. Let us begin.

This is part four of a four-part series. Read part one: International arbitration gets innovative: Cross-border insolvencies; part two: International arbitration gets innovative: Privacy, confidentiality and appeals; part three: International arbitration gets innovative: Overcoming problems.

The Honourable Barry Leon is an independent arbitrator and mediator with Arbitration Place, Arbitrators@33BedfordRow (London) and Caribbean Arbitrators. He was presiding judge of BVI's Commercial Court (2015-2018) and chair of ICC Canada's Arbitration Committee.

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