What happens when a respondent fails to participate in the arbitration? Can the local courts compel parties to arbitrate? Can they order third parties to participate in arbitration proceedings?
International Arbitration (2nd Edition)
Subject to the parties’ agreement, the AA permits arbitral proceedings to continue despite the non-participation of a party provided there is no sufficient cause for this failure (section 27, AA). Where:
- The claimant fails to communicate the statement of claim in accordance with subsection 25(1), the arbitral tribunal shall terminate the proceedings;
- The respondent fails to communicate the statement of defence in accordance with subsection 25(1), the arbitral tribunal shall continue the proceedings without treating such failure in itself as an admission of the claimant’s allegations;
- Any party fails to appear at a hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the award on the evidence before it; and
- The claimant fails to proceed with the claim, the arbitral tribunal may make an award dismissing the claim or give directions, with or without conditions, for the speedy determination of the claim.
While Malaysian courts cannot order parties to pursue arbitration, they are able to negatively compel parties to arbitrate by ordering a stay of court proceedings pending the completion of an arbitration (Section 10, AA).
Malaysian courts lack jurisdiction to compel third parties to participate in arbitral proceedings to which they are not a party.
If the respondent fails to participate in arbitration, and the arbitral tribunal has not yet been constituted, both national and international regulations allow the local courts to appoint the arbitrator(s) in order to commence the arbitration procedure. For national arbitration, Article 232 of the Code of Judicial Organization states as a general rule, that the appointment of the arbitrator shall be upon unanimous parties’ agreement. Nevertheless, if such agreement is not met, the ordinary judicature shall appoint a sole arbitrator, who must be a different individual of the first to options indicated by the parties. If such procedure is not possible due to the failure of one of the parties to participate, the ordinary judicature shall appoint the arbitrator under the Code of Civil Procedure rules for the appointment of legal experts.
Regarding of international arbitration, Article 11 of the International Commercial Arbitration Law No 19.971 provides for arbitrators appointment procedures to be applicable when a party fails to participate in the arbitration, as previously explained in Sections 13 and 14 above.
These procedures allow the arbitration to move forward, despite the respondents default and also allow the arbitration procedure to move forward without the need of compelling by local courts.
As for the participation of third parties in the arbitral proceeding, it must be noted that in Chile arbitration agreements are deemed to be contracts, and that under Chilean contractual law, contracts are only binding for the contracting parties. Therefore, local courts can not order third parties to participate in an arbitration proceeding in which they have not subscribe the arbitration clause.
If a Respondent fails to participate in the arbitration, namely by not submitting its opposition, the arbitral tribunal will still proceed with the process. Such omission shall not be considered as an acceptance of the allegations of the Claimant (contrarily to the rules of civil procedure which determine that if a Respondent does not submit its opposition, the facts alleged by the Claimant can be considered as admitted).
Also, if a party does not attend a hearing or does not produce documental evidences within a given deadline, the tribunal may also proceed with the proceedings and issue an award with basis on the submitted evidence.
The local courts may only compel parties to arbitrate if there is a breach of an arbitral agreement and if such breach has been invoked in the local court (see question 18 above).
Local courts cannot order third parties to participate in arbitration proceedings. Third parties can only participate in arbitral proceedings already in course if they are bound by an arbitration agreement and upon authorization from the arbitral tribunal after hearing the parties, if the intervention does not disrupt the normal course of the proceedings and if there are relevant reasons to do so.
If a party fails to appoint an arbitrator, the President of the District Court will do so (article 1227 of the NCPC). The court order will then be notified within eight days to the defendant with notice to participate in the arbitration process.
Local courts, however, cannot compel parties to arbitrate.
The failure of a party to submit its defense, as required by article 1237 of the NCPC, does not prevent the arbitration proceedings from commencing.
Except where a party fails to appoint an arbitrator when establishing the arbitral tribunal (in which case the state court will step in in lieu of the defaulting party), Swiss law does not entrust the state courts at the seat of the arbitral tribunal with authority to compel parties to arbitrate.
After an arbitral tribunal has been established, it is up to the arbitral tribunal to deal with a defaulting party. As Swiss law requires the arbitral tribunal to treat parties equally and to ensure the parties’ right to be heard, the arbitral tribunal must ensure that the parties – including non-participating parties to a proceeding – are properly served and informed. If these conditions are met, a default award is generally considered valid and enforceable.
In Swiss Rules arbitration, art. 28 Swiss Rules stipulates the procedure for the arbitral tribunal in case a party fails to take procedural acts. Provided that the parties are duly notified, the arbitral tribunal may proceed with the arbitration in case one of the parties fails to appear at a hearing without showing sufficient cause for its failure. On the same basis, the arbitral tribunal may render an award based on the evidence available to it if a party fails to produce evidence.
If a respondent does not submit a reply to a request for arbitration, the tribunal shall continue the proceedings without considering such failure as an acknowledgment of the claimant’s assertions (section 1048 (2) ZPO). If either party fails to appear at a hearing, the tribunal may continue the proceedings and may ultimately issue its award based on the insights it has obtained otherwise (section 1048 (3) ZPO).
German courts cannot compel a respondent to participate in the arbitration. They also cannot force a third party to participate in arbitration proceedings without its consent.
In case of the default of the respondent under the Arbitration Act the arbitral proceedings may be continued provided that other requirements, particularly as to the due notification, were met. Additionally, such failure per se should not be treated as an admission of the claimant's allegations.
Ukrainian courts do not possess the powers to compel parties to arbitrate, including the third parties.
When a respondent fails to participate in the arbitration, the Panama Arbitration Law provides that the proceedings may continue and that the arbitral tribunal may render an award.
There are no provisions in the Panama Arbitration Law allowing local courts to compel parties to arbitrate or to order third parties to participate in arbitration proceedings.
The UAE CPC cannot compel a respondent to participate in the arbitration process.
A respondent which chooses not to participate may allege that it was not given appropriate notice of the commencement of arbitration proceedings. It may then attempt to rely on such grounds to challenge any arbitral award made against it.
A claimant may easily evidence its compliance with the requirement to properly notify the respondent, should the arbitration be administered by the courts or an arbitral institution.
In an ad hoc arbitration, where notifications may not be as authoritative as they would be in an institutional arbitration, a party may utilise the services of a UAE Federal Court bailiff to deliver a legal notice (or any other formal notice) informing the other party of the commencement of arbitral proceedings or of any other procedural part that is of critical importance to communicate.
If a party without valid cause fails to appear at a hearing or otherwise fails to comply with an order of the tribunal, such failure shall not prevent the continuation of the proceedings and a resolution of the dispute. However, the dispute must be adjudicated on the merits, i.e. “default awards” are not available for the tribunal. With respect to a respondent’s failure to appoint its arbitrator, see item 14 above.
The local courts cannot compel parties to arbitrate, and cannot order third parties to participate in the arbitration proceedings.
Under the SCC Rules, the tribunal may render a separate award on the advance on costs, should a party fail to make its contribution. Such award is enforceable in at least Sweden.
Law on Arbitration provides a number of provisions aimed at compelling the respondent to participate in the arbitration. These include provisions on appointment of arbitrators in case a party refuses to participate in the appointment process, as well as the rule that, if a party fails to deliver the statement of defense or participate at the hearing, this does not prevent the proceedings to continue. However, local courts do not have the authority to compel a party to arbitrate. Finally, they cannot compel third parties to participate in an arbitration (the only exception being the rules on judicial assistance in furnishing of evidence, where the court may fine witnesses who fail to appear before the court to provide their testimony which is to be used in arbitration proceedings).
For domestic arbitration, a party aggrieved by the failure, neglect or refusal of another to perform under an agreement for arbitration, may petition the court for an order directing that such arbitration proceed in the manner provided for in such agreement. Five (5) days notice in writing of the hearing of such application shall be served either personally or by registered mail upon the party in default. The court shall hear the parties, and upon being satisfied that the making of the agreement or such failure to comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the agreement or default be in issue, the court shall proceed to summarily hear such issue. If the finding be that no agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in proceeding thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.
For international commercial arbitration, unless otherwise agreed by the parties, if, without showing sufficient cause,
(a) the claimant fails to communicate his statement of claim within the period of time agreed by the parties or determined by the arbitral tribunal, the arbitral tribunal shall terminate the proceedings; or
(b) the respondent fails to communicate his statement of defence within the period of time agreed by the parties or determined by the arbitral tribunal, the arbitral tribunal shall continue the proceedings without treating such failure in itself as an admission of the claimant’s allegations; or
(c) any party fails to appear at a hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the award on the evidence before it.
It is a right to demand recourse to arbitration because the arbitration agreement is the law between the parties and they are expected to abide by it in good faith. Thus, a party may compel the other to arbitrate. If such party refuses to arbitrate, he shall suffer the consequences of his failure and Philippine courts may issue an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.
As to ordering third parties to participate in arbitration proceedings, Philippine courts may issue an order directing the inclusion in arbitration of those parties who are bound by the arbitration agreement directly or by reference thereto.
The arbitral tribunal has the power to proceed ex parte in a scenario if any of the parties fail to participate. Furthermore, as per section 25 of the Arbitration and Conciliation Act, 1996 if the respondent fails to communicate his statement of defence in accordance with sub-section (1) of section 23, the arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations by the claimant and shall have the discretion to treat the right of the respondent to file such statement of defence as having been forfeited.
Section 8 of the Arbitration and Conciliation Act, 1996 provides that where a dispute is covered under the arbitration agreement and still a party approaches the Hon’ble Court, the Hon’ble Court will refer the parties to Arbitration. In case of International Arbitration, as per section 45 of the Arbitration and Conciliation Act, 1996 the Hon’ble Court can refer the parties to arbitration, when there exist a valid and enforceable arbitration agreement between the parties.
Additionally, as per section 89 of the Code of Civil Procedure, 1908, the Hon’ble Court has power to refer the parties to arbitration.
The Courts or the Tribunal do not have any powers conferred upon them as per the Arbitration & Conciliation Act, 1996 to order third parties to participate in arbitration proceeding. However, at the same time, it can be noted that for the purpose of interim relief, the Court/Tribunal can direct impleadment of a third party for effective implementation of the interim order.
If after having been summoned a respondent does not answer the claim and not appear before the arbitration tribunal, the arbitration proceeding will continue without the respondent.
The arbitration tribunal has no power to order third parties to participate in the proceedings. During the evidence stage, however, the arbitration court can order witnesses to appear before the court to provide a deposition about the facts they know with regard to the dispute between the parties. Local courts cannot compel parties to arbitrate or order third parties to participate in the arbitration.
A Tribunal cannot compel a party to attend. If a party is properly notified and fails to attend, the procedures may continue in its absence.
If the respondent, without reasonable grounds, fails to submit a reply to the claimant’s statement of claim, the arbitral tribunal shall continue the arbitration. However, the failure to submit a reply shall not be considered to be an admission of the claimant’s claim.
If a party, without reasonable grounds, is absent from an oral hearing or fails to submit documentary evidence, the arbitral tribunal may continue the arbitration and make the award based on the evidence already presented.
The local courts cannot compel the parties to arbitrate, nor can they order third parties to participate in arbitration proceedings.
In case the respondent fails to participate in the arbitration, the arbitration court shall continue the proceedings, whilst the respondent’s omission per se will not be treated as an admission of the claimant’s allegations. The parties or third parties cannot be compelled to actively participate in the arbitration proceedings.
Pursuant to ICA Law, where a respondent fails to file its Defence, the arbitral tribunal continues the arbitral proceeding without considering the omission as an admission of the allegations contained in the Statement of Claim. If any of the parties fails to appear in order to participate in the proceedings or to submit evidence or documents, the arbitral tribunal may continue the proceeding and issue a judgment on the substance of the disputed based on the rest of the evidence submitted before it. There are no provisions relating to third parties in the ICA Law.
Cap.4 does not contain provisions relevant to a default of a party. However, on the basis of section 17, upon an application of a party to the arbitration, the Court may issue a summons which may obligate any person to appear for examination or to present any document, within the framework of the arbitration proceeding.
The person responsible for administering the arbitration or, if there is no such person, the juge d’appui will nominate the arbitrator in lieu of the respondent (see Questions 13 and 14). Then arbitral proceedings shall proceed irrespective of whether the respondent participated in the arbitration. An award shall be rendered. In this regard, French courts have held that an award that was rendered against a respondent that wilfully did not participate in the arbitration despite the fact that it was notified of the various stages of the proceedings and had the chance to participate in the proceedings shall not be set aside (see Paris Court of Appeal, 7 February 1991, 1992 Rev Arb 634).
Non-signatories can be compelled to arbitrate disputes relating to the contract in question in different situations where it can be deduced from the facts of the case or the behaviour of the non-signatory that the non-signatory consented to be bound by the arbitration agreement. In French law, the analysis can take into account both:
- The non-signatory’s actual (express or tacit) consent.
- Behaviour that can be “deemed” to constitute consent (such as extensive participation in the performance of the contract containing the arbitration clause, in certain circumstances).
French courts are more likely to compel a non-signatory to arbitrate in the context of international arbitration than in that of domestic arbitration. For example, in the case of a group of companies, where the parent company of the signatory was actively involved in the negotiation and performance of the contract, it was held that the parent was bound by the arbitration clause contained in the contract (Paris Court of Appeal, 21 October 1983, 1984 Rev Arb 98).
In addition, in the case of a group of contracts, where only one of the contracts contains an arbitration agreement, the French courts have considered that a party to a related contract or sub-contract that does not contain an arbitration agreement can be compelled to arbitrate its disputes when it was involved in the performance of the contract containing the arbitration agreement (Paris Court of Appeal, 7 December 1994, 1996 Rev Arb 245, Jaguar; for chains of contract, see Court of Cassation, First Civil Chamber, 27 March 2007, No. 04-20.842, ABS).
French courts have also accepted that an arbitration clause signed by a private party and a state-owned company can be extended to a state that did not sign the arbitration clause in certain circumstances (Paris Court of Appeal, 17 February 2011, 2011 Rev Arb 286).
If a respondent fails to participate in the arbitration the proceedings will continue provided that the claimant has duly served the notice of appointment of its party-appointed arbitrator on the (inactive) respondent.
As seen above (see question No. 14), if a party fails to participate to the appointment of the arbitral tribunal, the President of the Court of the First Instance at the seat of the arbitration makes the appointment.
As to third-parties, the general rule is that they cannot be compelled to participate to arbitration proceedings if they are not bound by an arbitration agreement. Italian courts have not upheld the various doctrines elaborated by other jurisdictions, such as the veil-piercing and the group of companies’ doctrine, yet. Nevertheless, some national courts have extended arbitration agreements to non-signatories in cases of third-party beneficiaries and assignment of contracts.
Pursuant to Article 816-quinquies, para. 2, CCP, any third party who has an interest in the dispute has the right to voluntarily intervene in pending proceedings in support of one of the party’s defense or to join as a legally necessary co-party, without the consent of either the parties or of the arbitrators being required.
Where a respondent fails to state his/her defence as required under the ACA, the arbitral tribunal can continue the proceedings without treating such failure in itself as an admission of the claimant’s allegations. See section 21(b) of the ACA. Also, where any party fails to appear at a hearing or to produce evidence, the arbitral tribunal may proceed with the proceedings and make an award. See section 21(c) of the ACA.
Nigerian courts cannot compel the parties to arbitrate but may stay proceedings and direct the parties to arbitrate where a party to the arbitration agreement has commenced litigation instead of arbitration. Except with the consent of the parties and third-party, a third party cannot be made a party to an arbitration. It is essential that a person must be a party to an arbitration agreement before he is made a party to an arbitration unless he submits to arbitration. The court may command third parties within Nigeria to appear as witnesses or produce evidence. See section 23 of the ACA.
Under the Austrian arbitration law, no one can be compelled to actually participate in an arbitration. However, the parties to a valid arbitration agreement are, of course, bound by it and the Austrian Civil Procedure Code ensures that any non-participation does not inhibit the proceedings from progressing.
As regards third party participation, arbitral tribunals may ask local courts to order the appearance of witnesses and, failing such order, summoned witnesses may be penalized.
Where a respondent fails to participate in the arbitration commenced under a valid arbitration agreement, the FAA empowers federal courts to compel the respondent to participate in the arbitration. 9 U.S.C. § 4. Most state arbitration acts confer similar authority on state courts. If a party nevertheless does not participate in the proceedings, the arbitral rules of most arbitration institutions empower arbitrators to enter a default award, but require that the non-defaulting party provide evidence in support of its claims. Such default awards are enforceable in the United States. For information on compelling arbitration by non-signatories, see question 22 below.
In domestic arbitration, pursuant to article 887 para. 1 GrCCP, unless otherwise agreed in the arbitration agreement, the case is tried and an award is rendered even if a summoned party defaults or fails in any other way to take part in the proceedings by pleading its assertions and submitting evidence.
In international commercial arbitral proceedings having their seat in Greece, the issue is regulated by article 25 L. 2735/1999 which incorporates verbatim the respective rule of the Model Law. Hence, unless otherwise agreed by the parties, arbitral proceedings are terminated in case claimant fails to file his statement of claim in accordance with article 23 para. 1. In case the respondent fails to file his statement of defense according to the same article, the proceedings advance but the tribunal is not allowed to treat this failure per se as an admission of material facts pertaining to claimant’s allegations. In case any party fails to appear at a hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the award on the evidence before it.
State courts may not compel the parties to the arbitration agreement to arbitrate. State Courts may only refer the dispute to arbitration in case a respective defense is raised as regards a complaint filed with them. The same holds true also as regards third parties: They may not be compelled by State Courts to participate in arbitration proceedings (see also below the answer under Question 21).
Under the Israeli law, a party to an arbitration agreement may approach the court with a motion to appoint an arbitrator in a dispute agreed to be referred to arbitration in the event the parties fail to reach an agreement as to the issue of arbitrator's appointment.
A party which is interested in denying the arbitrator's jurisdiction and the arbitral proceeding may refrain from appearing in the sessions and the arbitrator has nothing to do about it. However, under Section 15 of the Arbitration Law, the arbitrator has an option to hold a session in the absence of a non-appearing party, provided that this party was warned in advance that the arbitrator intends to do so. Similarly, in the event of a party that has not alleged its arguments on the scheduled date, the arbitrator may rule in the dispute in its absence.
The 1996 Act allows the parties to agree on the powers of the tribunal in case a respondent (or claimant) fails to participate in the arbitration (s.41(1)). The tribunal is empowered to dismiss the claim, continue the proceedings in the absence of that party or issue a peremptory order (see s.41).
Generally, a third party cannot be bound by an arbitration clause without its consent. It may participate in an arbitration only with the consent of all parties concerned. Consent may be given by adopting institutional rules that provide for joinder.
Neither the arbitral tribunal nor the local courts can compel the parties to arbitrate or third parties to participate in arbitration proceedings. Once a dispute has been referred to arbitration, it can examine the case and render an award irrespective of whether one or both parties participate in the proceedings. In order to ensure a fair trial, the parties must only be duly notified of the arbitral proceedings, their actual participation in the proceedings being entirely their choice.
Failure of one party, although duly notified, to attend the hearing shall not prevent the progress of the proceedings, unless the absent party submits, at least 3 days before the scheduled date of the hearing, a request to the arbitral tribunal for adjournment of the hearing on solid grounds and notifies the other party and the arbitrators thereof.
In case the respondent does not submit its response, the proceeding continues without considering this as the acceptance of the case or cognizance of the allegations of the claimant. In case one of the parties do not attend the hearing without a valid reason or abstain from submitting its evidences; the sole arbitrator or the arbitral tribunal can continue the proceeding and decide by considering the available evidences in the file. The local courts cannot compel the parties to arbitrate or order third parties to arbitration proceeding.