Reform of civil procedure in Norwegian arbitration: making amendments during proceedings

Practical Law UK Articles 4-502-2071 (Approx. 7 pages)

Reform of civil procedure in Norwegian arbitration: making amendments during proceedings

by Lars Trygve Jenssen, Kvale Advokatfirma DA

Overview of civil procedure reform

In the late 1990s, the Norwegian government began to reform civil dispute resolution procedure. At that time, arbitration and regular civil proceedings were both governed by the general Civil Procedure Act for dispute resolution. This law did not specifically regulate the possibility of expanding a case during the course of proceedings.

The reform resulted in two new acts:

NCPA, which regulates cases before the ordinary courts.
NAA, which regulates arbitration.

The NAA is closely based on the UNCITRAL Model Law, which makes it clear that regulation of arbitration will no longer be based on general procedural principles or the provisions of the NCPA.

The nature of arbitration

When considering the right to make amendments or supplements during proceedings, it is important to bear in mind that arbitration is optional and depends on the parties' agreement. This is of course not the case for ordinary civil dispute resolution. This optionality influences the extent of the parties' rights during the proceedings. Having agreed to use arbitration, the parties can influence the proceedings to a greater extent than in regular court litigation.

However, because a dispute inherently involves (at least) two parties with differing interests, there are limits on procedural flexibility. Additionally, procedure is influenced by the need to consider other legitimate objectives, such as fairness, cost and expediency. Consequently, not every procedural question can be solved by the parties.

Another relevant aspect is that an arbitration award is legally binding and, unlike a court judgment, cannot be appealed. The claim will finally be settled by the decision of the arbitration court, and the judgment will be enforceable. Therefore, the need to allow for a complete and thorough assessment of the facts of the case throughout the proceedings is crucial.

Relevant laws

The following sections of the respective acts are relevant for determining the extent of extension or amendment rights.

NAA

Paragraph 4, section 25:

"Unless otherwise agreed by the parties, parties may submit new claims, expand the request for relief in respect of existing claims and submit new grounds for the request and the new evidence. The arbitral tribunal may, on the request of a party, refuse such amendments or additions, if the need for progressing the case or other weighty concerns suggests that such amendment or addition should not be permitted."

UNCITRAL Model Law

Paragraph 2, section 23:

"Unless otherwise agreed by the parties, either party may amend or supplement his claim or defence during the course of the arbitral proceedings, unless the arbitral tribunal considers it inappropriate to allow such amendment having regard to the delay in making it."

NCPA

Section 9-16, titled "Amendments to the claim, the request for relief, the grounds for the request and evidence":

"1. After concluded preparatory proceedings, a party shall not, under objection from the opposing party, submit new claims, broaden the request for relief in respect of a submitted claim, submit new grounds on which to base such request or present new evidence, unless the amendment is done before the main hearing and is occasioned by the closing pleading from the opposite party, or is permitted by the court. Such permission shall be granted provided that:

a. the party is not to blame for the amendment not having taken place previously, and it would be unreasonable to refuse the amendment;

b. the opposing party has a sufficient basis for, without adjournment, attending to his interests subsequent to the amendment; or

c. refusal could lead to the party suffering an unreasonable loss.

2. Even if the conditions under paragraph 1 are not fulfilled, the court can permit the amendment on the condition that the party shall be ordered to compensate the opposing party for its additional expenses resulting from the amendment having taken place after the expiry of the time limit for amendments, unless other material considerations concerning the opposing party suggest otherwise.

3. The court can, even if no objection has been made to an amendment pursuant to paragraph 1, refuse the amendment, provided that concern for the progression of the case or other important considerations suggest that amendment should not be permitted and that refusal would not be unreasonable."

Interpreting the law: principal rules

NAA

Section 25(4) of the NAA lists the different amendments that, unless otherwise agreed, can be made by the parties. The list considers every conceivable amendment or supplement and the wording does not contain any factual demarcation as to what kind of amendments can be made. Nevertheless, expanding the case with another claim will require a connection with the original claims of the case (Kolrud, Voldgiftsloven kommentarutgave, Universitetsforlaget 2007). Further, the provision does not state any time limits for amendments, so in principle, amendments can be made until termination of the proceedings.

Therefore, the main rule under the NAA is that any amendment or supplement can be made at any point throughout the case.

This is consistent with the arbitration tribunal's function as both the court of first instance and the final court of appeal. Arbitration cases are typically commercial disputes of significant economic value, and the factual circumstances as well as the applicable law can be extremely complex. A narrow principal rule could lead to a higher risk of loss of a rightful legal position and consequentially a diminishing interest of the business sector in using arbitration. The wide-ranging possibilities to amend or supplement a case under the NAA are therefore important for the existence and function of arbitration in its present form.

UNCITRAL Model Law

While the wording of the UNCITRAL Model Law is slightly different to that of the NAA, the effects of the laws are very similar. However, the scope of the main rule of the UNCITRAL Model Law may be different because of the range of restrictions following from the exceptions (see below, Exceptions to the principal rules).

Like the NAA, the UNCITRAL Model Law does not have fixed time limits for amendments. Still, in both, relative time limits follow from the arbitral tribunal's ability to exclude (see below, Exceptions to the principal rules). In practice, the further the proceedings have come, the smaller the amendments that will be allowed and the more closely they will need to be connected to the rest of the case.

Due to the contractual aspect of arbitration and the fact that the parties themselves can create and agree on their own time limits, the proceedings may be more or less strictly regulated than the procedure prescribed by the NCPA.

NCPA

The NCPA states that case preparation is frozen two weeks before the main hearing (section 9-10, NCPA). Consequently, changes in claims, statements, grounds and evidence after this point in time are, provided the opposite party objects, generally not accepted (section 9-16, NCPA). Even if the opposing party does not object, the court can refuse the amendment (paragraph 2, section 9-16, NCPA).

The principal rule is that amendments and supplements are precluded. The parties have a fixed period to prepare the case. Therefore, the NCPA and the NAA have opposite main rules. How these different rules function in practice depends on the applicable exceptions from the main rules.

Exceptions to the principal rules

By the parties' agreement

Both section 25(4) of the NAA and section 23(2) of the UNCITRAL Model Law are non-mandatory, so they will not apply if the parties both agree. Additionally, respites can be made by the parties themselves.

While the extent of the parties influence over matters subject to section 9-16 of the NCPA is more limited, the opposing party's point of view is still relevant. Amendments or supplements are generally allowed, even after the start of the preclusive period (two weeks before the hearing), if the other party does not object. However, it depends on the court's view of the impact of the change.

When the amendment is contested

NAA. If the principal rule is not limited by an agreement of the parties, the other party can demand that the tribunal rejects the amendment. The tribunal has the power to refuse the requested amendment on certain grounds. A refusal must be based on a concrete evaluation, considering the following issues:

The impact (on both parties) of allowing or denying the amendment, considering any subsequent delay and the amount of additional resources required.
Character and scope of the amendment. New claims (which are supplements rather than amendments) and grounds, or matters bordering these are less acceptable. Extensive new evidence is also less acceptable because of the impact on the conduct of the case (compared to modest additions to already present documents).
Whether the party can show reasonable grounds for not having made the amendment earlier. If there is no blameworthy conduct involved, typically legal gamesmanship, the tribunal will be more tolerant. Conversely, an intentional attempt to delay the proceedings will be refused.

UNCITRAL Model Law. Section 23 of the UNCITRAL Model Law allows the tribunal to refuse amendments or supplements. However, the delay caused by the amendment is the sole criterion mentioned in the section, and is therefore the only relevant motive for the tribunal's denial of late changes. The exclusion of other concerns appears to have been well considered, based on the preparatory works (see United Nations Commission on International Trade Law, 323rd Meeting, 14 June 1985). Therefore, in this instance, the UNCITRAL Model Law has a narrower scope than the corresponding provision in the NAA.

Despite this limitation, the tribunal's evaluation of whether the delay is acceptable must be based on the impact its decision will have on both parties, taking into consideration the character and scope of the desired amendment. However, culpability or negligence will not be emphasised as much.

NCPA. If the opposing party objects to an amendment made less than two weeks before the main hearing, two possible situations allow for the amendment to be made:

The amendment can be made if it relates to the other party's closing written pleading (which must be submitted by each of the parties two weeks before the main hearing (section 9-10(2), NCPA)), and is provided before to the main hearing.
The court can allow the amendment subject to detailed guidelines. These guidelines broadly require the same balancing of interests as the NAA, although they put greater emphasis on considering delays and cost increases. As with the NAA, but not necessarily with the UNCITRAL Model Law, any negligence by the amending party will be considered.

Refusal ex officio

The next question is whether the court itself has the power to refuse late pleadings, when the amendments or supplements are not met by any objections by the parties.

The NAA does not leave any room for the tribunal's ex officio refusal of amendments. The UNCITRAL Model Law, on the other hand, does not exclude this possibility. However, such action by the tribunal requires substantial reasons, as it is not in line with the non-mandatory character of arbitration and can increase the risk of an incorrect decision. Only if allowing an amendment could cause a very significant and disproportionate delay will a tribunal consider an ex officio denial of an amendment.

The NCPA clearly states that the court, provided that the case preparation has closed, has the power to refuse amendments and exclude new evidence, even if no objection to the amendment is made (section 9-16(3), NCPA). Ex officio refusal is permitted if the amendment would cause significant delay or if "other important considerations" would be disproportionally affected by it. The court must also assess the fairness of its decision, as the law states that it cannot make an unreasonable refusal. A court can also refuse an amendment based on other grounds than the delay-based assessment under the UNCITRAL Model Law.

Allocation of costs

Late amendments or supplements are linked to legal costs, as they usually result in higher expenses for all parties, including the tribunal. The tribunal's (prospective) allocation of legal costs can therefore be used as an instrument both for preventing late amendments, and for compensating for inconveniences caused by the amendments.

Contrary to the regular civil procedure, arbitration presumes that the tribunal's costs will be covered by the parties. The UNCITRAL Model Law, however, does not contain any provisions on cost allocation. This matter was left for national regulation. Section 39 (costs of the arbitral tribunal) and section 40 (allocation of the parties' costs) of the NAA are a codification of the current arbitral practice. Accordingly, the tribunal can cover its additional costs related to the amendment, as well as compensating the other party for equivalent expenses. Both sections are non-mandatory, though section 39 requires that the tribunal be part of the agreement.

Under the NCPA, much less of the procedural costs can be allocated to the parties. Minimising procedural costs is more important in the court system than under arbitration, because it is partly funded by public money. The procedural cost issue is therefore more legitimate as a reason for denying changes in claims, statements or evidence. However, pre-determined allocation of the parties' costs may lead to amendments which would normally be precluded to be allowed (section 9-16(2), NCPA), provided increased expenses are the main drawback associated with the amendment.

Different rules: same basic principles

Assuming that the parties do not agree to limit the possibility to make amendments, the arbitration system and the legal system at first appear quite different in their regulations, and they do have opposite principal rules (see above, Interpreting the law: principal rules).

However, with closer examination and analysis, particularly of the exceptions to the binding preclusive effect of the respite period (section 9-16, NCPA) and the arbitration tribunal's power of refusal, the two sets of rules appear more alike. For both systems, the further the proceedings have come, the smaller the amendments that will be allowed. The time limit will therefore be relative, shortened proportionally as the case moves along. Central issues are the effect on the progression of the case and degree of coherence with the rest of the case.

This similarity is not surprising given that they reflect the same basic principles. The basic and overriding objective of both institutions is to resolve disputes and reach materially correct decisions.

For these objectives to be achieved, the full facts of the case must be made known to the parties and the court or the tribunal before a final decision is made. This, in turn, depends on the parties' opportunity and ability to present their case.

Arbitration hearings, which result in final awards that cannot be appealed, naturally require a greater focus on full explanation of the case during the initial proceeding. The UNCITRAL Model Law and the NAA reflect this. Also, since dispute resolution by arbitration is optional, dialogue-based solutions are more prominent. This is reflected in the non-mandatory character of the provisions, and also by the fact that in the NAA, there is no right for the tribunal to make an ex officio decision.

For the ordinary courts, an important aspect is the basic right for citizens to have access to a court of law and, as a basic principle, to appeal a case at least once. For this right to be sufficiently provided, a greater emphasis on efficient use of time and resources is required. This is reflected by the NCPA regulation.

It appears that the characteristics of each dispute resolution system and the specific considerations to be met by them determine what emphasis is put on the applicable basic principles. Therefore, the concrete interpretations and implementation of the principles vary.

Practical effects of the reform

The two-week preclusive period under the NCPA surely gives the parties more of an incentive to be thorough during initial case preparation. The risk of preclusion provides effective motivation to present all relevant facts at an early stage.

Without fixed time limits, and because the NAA has not included the UNCITRAL Model Law's ex officio power for the arbitration tribunal, parties using arbitration have less of a compulsion to be comprehensive at the early stages. But this needs to be balanced with the risk of additional time and procedural costs spent on any late amendments, provided the parties have not agreed on alternative rules. The parties can, on the other hand, have a great deal of control over the arbitration process.

Since the reforms were enacted, the civil procedure for court litigation and the regulation of arbitration in Norway are a lot less alike than previously. They now better reflect the characteristics and inherent differences within each institution.

Reform of civil procedure in Norwegian arbitration: making amendments during proceedings | Practical Law