Localised Globalism

Localised Globalism  

In a recent post, Paolo Vargiu challenged the appropriateness of the application of universal standards of the notions of independence and impartiality in a ruling by the European Court of Human Rights [ECtHR] in Beg v. Italy. As evidenced by interviews conducted in different states in Europe, he argued that the actual notions of “independence and impartiality” are different according to the practice of local communities of each individual state. Therefore, the universal approach in the interpretation the concept of “fair trial” taken by ECtHR is questionable, which disregarded the actual practice of commercial arbitration in Europe. This raises the interesting question as to whether commercial arbitration is truly international as he argued in an earlier post. The ECtHR’s ruling highlighted the complex tension between globalisation and local circumstances in international arbitration, as Luke Nottage described in his new book International Commercial and Investor-State Arbitration: Australia and Japan in Regional and Global Contexts through examples of development of arbitration in Australia and Japan. 

I have stated in an earlier post that despite the general trend of harmonization of arbitration laws and rules, local cultures and norms remain to play an important role in shaping the actual practice of international arbitration—a phenomenon I described as “glocalization of arbitration”. Psychologists have increasingly recognized the important role that culture and cultural values have in shaping conflict and conflict resolution. Despite the major forces pushing towards the unification of arbitration laws and institutional rules, which made procedures more standardized and less country-specific, expectations of process still differ significantly based on local practice. Even though the principle of “independence and impartiality” is widely accepted in international arbitration, the actual meaning of the concept can be interpreted quite differently by parties and arbitrators from different legal and cultural background and there is no unanimity on these issues between different jurisdictions.  Certain institutional rules, such as Rule 13(B) of the American Arbitration Association Commercial Rules 2013, provide the express right of the parties to appoint non-neutral arbitrators, although such arbitrators are still required to perform their duties “with diligence and in good faith.” Where the parties have agreed to appoint non-neutrals under Rule 18(b), such arbitrators need not be impartial or independent and shall not be subject to disqualification for partiality or lack of independence. The parties are also exempted from the default prohibition against ex parte communications between a party and an arbitrator after the tribunal has been constituted. Furthermore, in societies where networks of trust between arbitrators and lawyers play an important role, such as Italy, the parties may also have a more flexible interpretation of the principle of “independence and impartiality” than their counterparts in Anglo-Saxon arbitration communities. The interpretation and application of independence and impartiality standards should thus take into account the commercial, legal, contractual and cultural contexts in which an arbitrator acts.

The very function of arbitration and role of arbitrators can be perceived quite differently by local communities. In communities where relationships play an essential role not only for social, but economic reasons, parties may actually seek an arbitrator who is familiar with the parties and their disputes, rather than a total stranger, because of the trust built in with that neutral.  Parties may also expect that neutral not only to end their dispute with a binding decision, but also to assist the parties to resolve the disputes in the most efficient manner. Thus, they may expect the arbitrators to help them to reach an amicable solution with as little loss of face as possible, which may be seen as problematic in other communities, due to concerns of the incompatibility of the role of a mediator and an arbitrator and concerns of due process.

Research also shows that people with a high level of power distance tend to place less weight on procedural justice than on distributive justice concerns. In other words, procedural fairness may be considered to be less important by those in a community with high power distance. According to Hofstede’s model of cultural dimensions, Italy and Egypt are ranked higher on power distance than Switzerland and United Kingdom. Thus, parties in these jurisdictions may be less concerned about issues of procedural justice than their counterparts in Anglo-Saxon or Swiss communities. While certain standards of procedural fairness must be maintained, local communities may have different interpretations as to whether a specific conduct is acceptable depending on the local practice.

Source: https://www.hofstede-insights.com/product/compare-countries/

Even for communities that share a common cultural tradition, actual practice could vary due to the different legal trainings and professional culture. For instance, the legislation in Mainland China and Hong Kong both expressly allow arbitrators to act as mediators with parties’ consent, but in practice, the arbitrators in Hong Kong are more reluctant to exercise such a dual role than their counterparts in Mainland China, which could be partly due to the common law trainings they receive.  

In the case of Gao Haiyan[1], even though the Court of First Instance in Hong Kong found that the conduct of a so-called arb-med procedure would cause a fair-minded observer to apprehend a real possibility of bias on the part of the Tribunal, the Court of Appeal overruled such decision. The Court of Appeal acknowledged concern about the way in which the so-called mediation was conducted[2] – because mediation is normally conducted differently in Hong Kong – it emphasized the importance of understanding how mediation is normally conducted in the place where it actually occurred, instead of applying a universal standard. In upholding the award, the Hong Kong Court of Appeal construed public policy considerations narrowly, to circumstances where enforcement “would be contrary to the fundamental conceptions of morality and injustice” of the forum, and also placed considerable weight upon the fact that the local court in Xi’an with supervisory jurisdiction over the arbitration had refused to set aside the award. According to the Court, the Xi’an court’s refusal was a very strong consideration to take into account in deciding whether or not to enforce an award. For a comment about this case, see here

Despite the general trend of harmonization and globalised localism, there are still a number of different arbitral practices associated with divergent legal cultures. Even when the same laws and institutional rules are applied, arbitration taking place in Italy will not look exactly the same as arbitration taking place in Switzerland. Two arbitrations taking place in Italy carried out by parties and arbitrators coming from different cultural and legal backgrounds may also look quite different. Arbitration will be more colorful with diversities than without. 

[1] Gao Haiyan and Xie Heping v. Keeneye Holdings Ltd and New Purple Golden Resources Development Ltd, [2011] HKE 514, Court of First Instance, 12 April 2011.  Gao Haiyan and Xie Heping v. Keeneye Holdings Ltd and New Purple Golden Resources Development Ltd, CACV 79/2011, Court of Appeal, 2 December 2011.  

[2] It should be noted that the factual circumstances in this case are quite extraordinary, so the so-called arb-med procedure in this case does not represent how typically arb-med is conducted in Mainland China either. 

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