There is much buzz around the launch of the Hague Court of Arbitration for Aviation (the ‘HCAA’), a new industry focussed arbitral regime, in Rotterdam. However, it remains to be seen whether the hype is justified and whether the HCAA will gain traction within the aerospace industry and, in particular, with industry participants.
In this alert, we take a closer look at the administration of the HCAA by the Netherlands Arbitration Institute (the ‘NAI’), the model clause and, of course, the proposed rules (the ‘Rules’).
The model clause
The HCAA proposes two model clauses: As you would expect, one for future disputes (clause A) and, cannily – recognising its own youthfulness – one for existing disputes (clause B). The use of dual clauses and, indeed, the wording of those clauses for existing and future disputes are similar to the model clauses employed by the London Court of International Arbitration (the ‘LCIA’). These contain the essential separate agreement between the parties and the highly recommended criteria for avoiding jurisdictional-type disputes at an early stage, including place, law applicable to the agreement and language. The HCAA has also produced a draft arbitration amendment, the purpose of which is to provide a one-stop document for parties to adjust existing contracts to incorporate the HCAA arbitration clause.
The Rules’ Standing Committee has followed-up the model clauses with helpful explanatory, practical guidance. This includes factors to consider when determining the number of arbitrators (e.g. complexity versus increased cost) or determination of the ‘place’ or ‘seat’ of the arbitration; the latter going to the support of and role of supervisory courts and application of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the ‘New York Convention’).
The guidance also makes further suggestions for parties in case they wish to be more prescriptive in the application of the model clause. In practice, we suspect that contracting parties are likely to adopt the route of least resistance, i.e. one of the aforementioned clauses in its entirety. However, contracting parties’ professional advisors would do well to consider what further elements they might like to include at contract drafting stage. This might include the adoption (or express exclusion) of an expedited procedure in an appropriate value case, the mandating of qualifications for arbitrators, or a more prescriptive framework around disclosure and evidence. HCAA also proposes a mediation-arbitration clause for completeness.
Below, we take a look at some of the rules and how they might impact industry participants’ use of the new arbitral institution.
The Arbitration Rules
The HCAA Rules can be found on the HCAA website and are said to come into force as of 31 August 2022 (Article 2(2)). Care should be taken not to confuse these with the arbitration rules of the NAI, the latest version of which came into force on 1 January 2015.
Requests for arbitration are to be submitted to the administrator. The NAI Executive Board appoints one or more administrators, such party (or parties) which is designated ‘administrator’ of the arbitration.
The Arbitral Tribunal (Articles 11-20)
The HCAA offers the parties some flexibility as to the composition of the arbitral tribunal. They can agree to have an even or uneven number of arbitrators (Article 12(1)). In case of the former, the arbitrators appoint an additional arbitrator who acts as the chair of the arbitral tribunal (Article 12(3)). However, there is a notable fetter, being that the chair of a three-member arbitral tribunal (as well as sole arbitrators) must be qualified to practice law and must have demonstrated experience of sitting as an arbitrator (Article 11(6)).
Where parties are unable to jointly appoint the tribunal (in accordance with Article 13), the parties may agree that the tribunal shall be appointed using the “list procedure” set out at Article 14. In the list procedure, the administrator sends each party an identical list of persons’ names. The parties can delete any names and arrange the remaining in their order of preference. The administrator then compares the lists and invites persons to serve as arbitrators, with due observances of the preferences and objections of the parties.
Provisional relief – Emergency Measures (Article 36) and Expedited Proceedings (Article 37)
The Rules provide for a party to apply to the administrator for emergency relief (i.e. urgent interim or conservatory measures) where that party cannot wait for the constitution of the arbitration tribunal. In those circumstances, and upon receipt of a request in accordance with Article 36(2), the administrator shall appoint an emergency arbitrator. The emergency arbitrator has no power to act after the tribunal is constituted. Notably, the Rules also expressly permit the parties to seek equivalent interim and conservatory measures from a competent judicial authority and this will not be considered as a waiver of the arbitration agreement (Article 35(4)).
These provisions may assist in preserving a party’s redress where the circumstances of a case require urgent interim relief. It is, however, submitted that parties are more likely to seek interim relief from the would be supervisory courts or the competent judicial authority, since this may provide speedier redress than an order or award from the emergency arbitrator who must only make the order or award within 15 days of receiving the file (Article 36(10)), and who also may be more susceptible to jurisdictional challenge under Article 36(6).
These emergency measures enable preservation of the rights of the parties and prevent the final award from being frustrated, for example by ordering the parties to provide security or to preserve any assets. This appears increasingly important considering the increased borrowing leverage in airlines and a number of them defaulting on their payment obligations during the Covid-19 pandemic, and subsequently.
Section Four B of the Rules provides for an expedited arbitration framework where the amount in dispute does not exceed €10 million (including cross claims and interest), or where, irrespective of the amount in dispute, the parties have agreed on the application of Section Four B. The expedited procedure does not apply to non-monetary claims, including claims for declaratory relief.
It will be interesting to see what proportion of arbitrations are captured by the default expedited procedure. Whilst asset values are likely to mean that proprietary disputes regarding airframes and engines are not captured, presumably, there will be plenty of airframe and engine leasing, or perhaps MRO disputes that will be captured.
Upon service of the request for arbitration under the expedited procedure (to the administrator and respondent, respectively), the respondent has 10 days to submit a short answer, including details of any counterclaim. Upon receipt of the short answer from the respondent, the administrator has 48 hours to decide whether the expedited arbitration procedure will apply to the dispute.
Where the administrator decides that the arbitration may be conducted in accordance with the expedited procedure, the administrator shall appoint an arbitral tribunal. Any process for appointment previously agreed by the parties shall be excluded unless expressly stated to apply to the appointment within an expedited procedure – Article 37(b)(1). Under the expedited procedure, the arbitral tribunal (which shall consist of a single arbitrator) shall be constituted within one month of commencement of the expedited arbitral proceedings and it must issue the award within six months of the case management conference, which itself must take place within 10 days of constitution of the tribunal.
The expediency of the expedited procedure is likely to be attractive to commercial parties given the high costs and losses faced by parties due to grounded airframes or engines in leasing disputes or where liens have been exercised by MRO facilities. This is especially true in light of ongoing supply chain issues, such as delays in the delivery of engines and other spare parts.
Clearly, astuteness of the administrators shall be required to ensure that complex disputes or disputes, which may balloon in terms of complexity or quantum, do not slip through the net and fall to be adjudged by an unsuitable procedure. Although, there are safety nets for this eventuality at both the case management conference (Article 37(c)(3(a)) and further down the line, pursuant to Article 37(c)(9).
Joinder, Impleader and Consolidation (Article 38-40)
The Rules allow for joinder or impleader (the latter not to be confused with interpleader) of third parties. In both scenarios, the arbitration agreement enters into force or already applies to the third party as it does to the original parties to the arbitration. The process of joinder is commenced by a written request of the third party to the arbitral tribunal (via the administrator) and the process of impleader is commenced by one of the original parties to the arbitration.
Article 40 of the Rules sets down the framework for consolidation of the arbitration with other arbitrations within or outside of the Netherlands. The request for consolidation may be made by a party to the arbitration by way of request submitted to the administrator who will provide a copy of the request to the other arbitration tribunal and the parties.
The Rules provide for the appointment of a ‘third person’ who may grant or refuse the consolidation request after hearing from the parties and the arbitration tribunal. It is said that the administrator shall then communicate the decision to the parties and the (other) arbitral tribunals concerned (Article 40(5). Thereafter, and where successful, a process commences by which the arbitrations are consolidated and an uneven number of arbitrators retained.
The jurisdiction of the ‘third party’ to order the consolidation over the subject and the other arbitration proceedings appears to be founded on both sets of arbitration proceedings being subject to the Rules (or presumably, mutual agreement of all of the parties to the different arbitral proceedings where those arbitrations are not subject to the Rules). The criteria to which the third party shall have regard is if consolidation will not cause unreasonable delay and the respective arbitral proceedings are so closely connected that good administration of justice renders it expedient to hear and determine them together to avoid the risk of irreconcilable decisions resulting from separate proceedings.
There is no doubt that there is a place in the aviation space for a bespoke arbitration entity. One only has to look at the shipping industry to note the benefit of institutions with a maritime focus such as the London Maritime Arbitrators’ Association, the Singapore Chamber of Maritime Arbitration or the New York Society of Maritime Arbitrators to recognise the advantages; including institutions which house in one place experts in their field too quickly and efficiently decide disputes, and to provide industry based rules which respond to issues which are likely to crop up in the relevant sector. It only remains now to see what the take-up by the industry looks like and for the HCAA to take off (groan!).