In the second quarter of 2023, the big trend is still the ongoing discussions on the potential impact of AI and especially generative language models like ChatGPT. The debate on other aspects of the digital development is also ongoing. As professor Richard Susskind writes in his third edition of “Tomorrow’s Lawyers – An Introduction to your Future”[1]: “[…] I believe we should be increasing our use of virtual hearings, online courts, and online dispute resolution.”

Virtual arbitration hearings have already been here for some time, but we believe there is still a way to go before we see “online arbitration”. However, we will keep monitoring and share our thoughts on best practice use of AI in the current framework for international commercial arbitration.

In this newsletter we will, against the backdrop of a recent Oslo District Court case, look into the recurring theme of annulment of arbitral awards in Norway. Furthermore, we provide an overview of the latest NOMA News – before we give you an overview of upcoming events in What’s On the Agenda.

We hope you will like it!

The setting aside of arbitral awards in Norway

Introduction

Oslo District Court recently considered a challenge against an arbitral award in a dispute between Cesla Armeringsstål AS and Helgeland Industriutvikling AS regarding the former’s pre-emptive right to acquire shares in a company owned by the parties[2]. The underlying dispute was resolved in favour of Cesla Armeringsstål AS. Subsequently, Helgeland Industriutvikling AS initiated proceedings before Oslo District Court to set aside the arbitral award.

The question before Oslo District Court was whether the arbitral award could be set aside based on either (a) improper composition of the arbitral tribunal due to lack of impartiality and independence, or (b) the arbitral award’s lack of sufficient reasoning. The court concluded that the conditions for setting aside the award were not met. The judgment has been appealed. Nonetheless, it presents a valuable opportunity to discuss the issues at hand.

Arbitrators’ impartiality and independence

A common basis for challenges against arbitral awards is the arbitral panel’s improper composition due to the lack of impartiality and independence of one or more of the members of the arbitral tribunal.

The Norwegian Arbitration Act (the “Arbitration Act”), section 43, first paragraph, states that the courts may set aside an arbitral award if “the composition of the arbitral tribunal was incorrect”. This will inter alia be the case when the requirement that the “arbitrators shall be impartial and independent of the parties,” set out in the Arbitration Act, section 13, first paragraph, is not satisfied.

These rules are based on the UNCITRAL Model Law (1985), article 34, cf. article 12, and correspond to the requirement of impartiality and independence that applies to judges in the ordinary courts pursuant to the Norwegian Courts of Justice Act, sections 106 and 108. The rules reflect an internationally recognised ideal of independence and impartiality among judges and arbitrators.

Under Norwegian law, as in most other legal systems, it is not necessary to establish actual bias. It is sufficient to establish circumstances that, based on objective criteria, would give an outside observer reasonable and justifiable grounds to doubt the independence and impartiality of the person in question. Justice should not only be done, but also be seen to be done.

Although the ideal of independence and impartiality is common for the ordinary courts and in arbitration, there are crucial differences between the two forms of dispute resolution and between a judge and an arbitrator. When assessing the independence and impartiality of arbitrators, due regard must be given to these differences.

For example, the practice of party-appointed arbitrators has been much debated in the international arbitration community in recent years. It has been described as “ill-conceived” and a “moral hazard”.[3] Regardless of whether one endorses the criticism, when assessing an arbitrator’s independence and impartiality it is relevant whether he or she was appointed solely by one of the parties, jointly by the parties or by a third party. This is also suggested in the travaux préparatoires of the Arbitration Act, in which it is stated that party-appointed arbitrators create a ”risk that the arbitrator feels a loyalty bond to the party that appointed them” and that arbitral tribunals appointed jointly by the parties “will appear more impartial … and will therefore likely be met with greater trust”.[4] The fact that an arbitrator was appointed solely by one party is, however, clearly insufficient to disqualify him or her.

A related topic, which has also been subject to considerable debate in the international arbitration community in recent years, is repeated appointments of an arbitrator by a party or the party’s counsel. Such appointments are among the circumstances mentioned in the IBA Guidelines on the Conflict of Interest (2014) “orange list” that, depending on the facts, may give rise to doubts as to the arbitrator’s impartiality or independence. It has been suggested that repeated appointments can give an impression of loyalty and financial dependence between the arbitrator and the party or party’s counsel who has repeatedly appointed him or her. Repeated appointments in matters that raise overlapping legal and factual issues may give further reason to question the arbitrator’s independence and impartiality, as there is a risk that the arbitrator is influenced by his or her involvement in previous matters. On the other hand, it has been argued that the parties’ autonomy and right to appoint the best possible arbitrators should not be unnecessarily constrained. Under Norwegian law, an arbitrator’s previous appointments by one of the parties or its counsel are relevant in the assessment of his or her independence and impartiality. In most cases, however, it will not be sufficient to disqualify an arbitrator that he or she has been appointed by one of the parties or their counsel on a few occasions. The issue must ultimately be decided based on the particular facts of the matter.

The judgment by Oslo District Court, referred to above, dealt with another practical issue, namely challenges against an arbitrator due to ties between the arbitrator’s law firm and one of the parties. In this case, the presiding arbitrator had, between 2011 and 2019, been a partner in a law firm that had a long-lasting relationship with one of the parties in the dispute. The law firm had over the years provided considerable assistance to the party in unrelated matters. The presiding arbitrator had, however, not assisted the party in question himself. In 2019, he became partner in another law firm. In 2021, two years and four months later, he was appointed as the presiding arbitrator in the dispute in question. After the arbitral award was handed down, the losing party became aware of the circumstances and challenged his independence and impartiality.

The court reasoned that any ties between the arbitrator and the party, established through the party’s relationship with the arbitrator’s (previous) law firm, had weakened after the arbitrator had left the law firm and no longer had any connection with it. Moreover, after the arbitrator had left the law firm, there were no economic ties between the arbitrator and the party. The court also emphasised that the arbitrator had not himself assisted the party, that the arbitrator’s previous law firm had only assisted the party in unrelated matters, that the arbitrator was unaware of such assistance, and that almost two and a half years had passed since the arbitrator changed law firms. Against this background, the court concluded that there were no circumstances giving rise to reasonable and justifiable grounds to doubt the independence and impartiality of the presiding arbitrator.

It is noteworthy that the court referred to guidelines and practice from the international arbitration community, such as the IBA Guidelines on the Conflict of Interest (2014) and a decision by the Stockholm Chamber of Commerce (SCC Board Decisions on Challenges to Arbitrators 2016–2018, page 23, SCC Arbitration no. 2016/051). As mentioned above, in the assessment of an arbitrator’s independence and impartiality, it is important to consider the distinctive characteristics of arbitration as a dispute resolution procedure. International sources of law are important to achieve this, and to reach a conclusion in line with the expectations of parties in international arbitrations. We support this approach.

Alleged insufficient reasons in the arbitral award as basis for annulment

In the Oslo District Court judgment presented above, the party challenging the award also argued that it should be annulled due to insufficient reasons.

As no institutional rules governed the arbitration process, the court correctly started the analysis in the Arbitration Act, section 36, second paragraph, which reads as follows:

“The award shall state the reasons on which it is based […]”

As highlighted by the District Court, there is not much guidance in the wording nor the preparatory works to the Arbitration Act on this point. However, based on another District Court judgment (Remontova v. Torghatten – TOSLO-2017-125770) and legal theory, the starting point is that an arbitral award should meet the same standards as a judgment by the ordinary courts.

In Remontova v. Torghatten, the court stated that if the arbitral tribunal overlooks an important submission, or a basis for relief, this may be regarded as grounds for invalidity, cf. the Arbitration Act section 43, litra e). Based on a concrete assessment, the court in Remontova v. Torghatten found that the tribunal had not discussed an important submission by one of the parties – which led to a partial annulment of the award.

In the District Court judgment from 20 February 2023, the court found that there was no basis for the allegation that the arbitral award lacked sufficient reasoning. The court did thus not need to proceed to discuss whether such an error should give basis for annulment. It is worth noting, as the court also expressed in a correct way, that even if the conclusion is that the award does not meet the standard for sufficient reasons, it is not automatically regarded as invalid. On the contrary, the threshold for setting aside an award due to insufficient reasons is very high as it also must be substantiated that the error may have had an impact on the result, cf. the Arbitration Act, section 43, first paragraph, litra e).

Finally, and even if there is a small risk that insufficient reasons may lead to the arbitral award being annulled, an arbitral tribunal should in our view always write the award so that the parties understand how it has reached its decision by way of detailed reasoning in the final award.

NOMA News

NOMA Administrative Procedures published

Several provisions in the NOMA Arbitration Rules (and the NOMA Mediation Rules) may require a decision by NOMA on procedural matters – e.g., the appointment or request for removal of an arbitrator. In April 2023, to ensure transparency and predictability, NOMA published its first Administrative Procedures governing certain administrative aspects of such procedural decisions.

An important feature of the NOMA Arbitration Rules is that they provide an institutional framework with as few institutional elements as possible. Thus, the arbitration will at the outset be run by the parties and the appointed arbitrators, but NOMA has the power to act in situations where one of the parties requests assistance. The main situations in which NOMA involvement may be relevant, are:

the appointment of arbitrators if the parties do not meet their obligations to appoint (Rule 6, 7 and 8);
the removal of arbitrators if he or she is unavailable (Rule 11 and 12), and
reviewing and adjusting the arbitral tribunal’s determination of the fees and expenses of the arbitrators, if challenged by one of the parties (Rule 36).

When NOMA is asked to act it is of course imperative that such requests are handled swiftly, transparently and professionally. In our view, the Administrative Procedures secure a good framework for the work of the Procedural Committee – which consists of experienced international arbitration practitioners.

The third NOMA arbitral award published

On 31 May 2023 NOMA published the third public NOMA arbitral award (anonymised) arising from a dispute between an Estonian bunker trading company and a Singaporean ship manager concerning payment for bunkers supplied to two vessels managed by the latter.

The bunker contract was subject to Danish Law and NOMA 2021 arbitration rules with the seat in Copenhagen. The bunker supplier’s claims were dismissed on the basis of the Tribunal lacking jurisdiction over the dispute. For more details see here.

It is great to see that both Nordic and non-Nordic parties are choosing to include NOMA arbitration in their contracts. As highlighted in our 2023 Q1 Newsletter, this is in line with the general feedback from market players, who emphasise that NOMA arbitration regularly is included in the jurisdiction clause for contracts relating to the maritime and offshore industry.

What’s On the Agenda?

A study on the Future of Energy Arbitration conducted by Queen Mary University of London and Pinsent Mason predicts that the scene of arbitration will be highly impacted by disputes in the energy sector over the next five years, with the greatest increase expected in Europe.[5] The study predicts that the impact of international sanctions on the ability to perform pre-existing contracts will cause a rise in force majeure and hardship claims, and that suspension and termination of contracts will continue to increase in the short to medium term. Primary causes of the disputes are predicted to be the volatile price of raw materials and energy supply, in addition to the Russia-Ukraine conflict that will continue to affect the sector for years to come. As the respondents predict that such disputes largely will be resolved by arbitration as the preferred choice for the clients, arbitrators in the energy sector may expect a lot of work going forward.

For women in arbitration, this quarter involved the international, yearly event “Arbitration Lunch Match”, which is a concept of “blind dates” between women in arbitration in order for the female arbitration community to connect and converse. This year’s lunches were arranged in May and were a big international success. The global concept was initiated by Ulrike Gantenberg & Dr. Lisa Reiser and successfully organised by our colleagues in Advokatfirmaet Thommessen in Norway.[6] We will surely be in line for registrations for May 2024.

On the international commercial arbitration scene there are many potential events to choose from. We recommend considering the following upcoming local events:

7 September 2023: (New) annual arbitration event in Oslo, organised by Wikborg Rein and BAHR
14 September 2023: DIS Autumn Conference in Berlin, organised by The German Institution for Arbitration
18 September 2023: NOMA Day in Gothenburg, organised by NOMA
5 October 2023: Copenhagen Arbitration Day, organised by The Danish Institute of Arbitration

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