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M. Campbell Herbert

Associate - Freshfields Bruckhaus Deringer

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Discontinuance of the Proceedings

I. Introduction

1.

Discontinuance refers to the termination of arbitral proceedings other than through a final award.

2.

Discontinuance is provided for in arbitral rules, and so the precise formulation of the circumstances in which it will occur depends on the applicable rules. This note addresses discontinuance of proceedings generally, having regard to commonly used rules in investor-State arbitration other than the ICSID Arbitration Rules.

II. Circumstances in which proceedings will be discontinued

3.

Proceedings will generally be discontinued in one of four circumstances:

  1. voluntary withdrawal of claims;
  2. default by the claimant in pursuit of its claim (or by the parties in furtherance of the arbitration);
  3. non-payment by the parties of advances on arbitration costs; or
  4. when continuation of the arbitration becomes unnecessary or impossible.

A. Withdrawal of claims

4.

Parties to an arbitration may unilaterally withdraw their claims. Where the withdrawn claim is the only claim being made in the arbitration, the proceedings will ordinarily be discontinued.1

5.

One common situation in which claims are withdrawn is when the parties settle their dispute. In many cases, for reasons of enforceability, parties will request that their settlement be recorded in an award on agreed terms.2 However, they need not necessarily do so. In cases where, for example, the parties’ agreement is self-executing, an order terminating the proceedings may be sufficient.

6.

Unilateral withdraw of a party’s claims will not affect claims made by other parties. Consequently, the withdrawal of claims by a claimant will not result in the discontinuance of proceedings in which there are other claimants who maintain their claims, or respondents who maintain their counterclaims.

B. Default by the claimant

7.

A claimant’s failure to pursue its claim may result in discontinuance. For example, Article 28 of the UNCITRAL Rules 1976 provides, in relevant part: “If, within the period of time fixed by the arbitral tribunal, the claimant has failed to communicate his claim without showing sufficient cause for such failure, the arbitral tribunal shall issue an order for the termination of the arbitral proceedings”.

8.

Express provision for discontinuance in this manner is provided for in most arbitral rules commonly used in investor-State arbitration.3

C. Failure by the parties to advance costs or comply with orders to pay costs

9.

The tribunal (or other relevant authority) may direct the parties to pay advances on the tribunal’s costs. If the parties collectively fail to make the required payment within the mandated period, then the tribunal may order the termination (or suspension) of proceedings.4

10.

Tribunals will often direct the parties to pay these advances in equal portions.5 In the event one party fails to pay the required amount (in practice usually the respondent), the tribunal will inform the other parties and give them the opportunity to make the payment (which amount the paying party can then generally recover in the arbitration).6

11.

Similarly, in the event a party fails to comply with an order for the payment of costs (for example, an order for the claimant to pay security for costs), the tribunal may discontinue the proceedings.7

D. Impossibility and lack of necessity

12.

As noted above, the grounds of lack of necessity will commonly occur in situations in which a claim is withdrawn or the parties settle their dispute, with the result that the arbitration becomes moot. In such circumstances, proceedings may be discontinued.

13.

Settlement is just one specie of lack of necessity, however, and discontinuance on the basis of necessity – or impossibility – may also be appropriate in other circumstances. These include situations in which there is a legal impediment to the continuation of proceedings. This power is typically broadly expressed, and the tribunal usually has significant discretion in its exercise.8

III. Effect of discontinuance

A. Termination of proceedings

14.

Discontinuance formally closes the proceedings but does not, of itself, result in an award disposing of all issues in dispute. In the result, discontinuance has no Res Judicata effect,9 meaning that the parties can commence proceedings afresh if necessary.

B. Costs implications

15.

Many arbitral rules provide that when a tribunal makes an order for the termination of proceedings, it should fix the costs of the arbitration in that order.10

16.

Discontinuance will not have any automatic costs implications, and the allocation of costs arising from the discontinuance of proceedings will depend on, among other things, the reason for the discontinuance and the provision made for cost allocation in the relevant rules.11 Some tribunals have found, for example, that discontinuance as a result of the withdrawal of a claim will trigger the principle codified in the UNCITRAL Rules that costs should follow the event.12

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