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Missing Witnesses – You Can Run But You Cannot Hide.

2 March, 2012

 

 

INTRODUCTION
 
To common law practitioners, cross-examination of witnesses is a critical part of any arbitration because it gives counsel an opportunity to test the veracity of the other party’s evidence.
 
While arbitration practitioners from a civil law background traditionally place less emphasis on cross-examination, there are some cases in which all lawyers would agree that an arbitral tribunal would benefit from the cross-examination of crucial witnesses.
 
In such cases, parties may be substantially prejudiced if cross-examination is frustrated. In this article, we shall examine what should be done with the written statements of witnesses who fail to appear at hearings – whether they should be completely excluded or the statements should be admitted but given very little weight since the evidence has not been tested through cross-examination.
 
This issue arose in a recent International Chamber of Commerce (“ICC”) arbitration relating to the purported termination of an exclusive distribution agreement for marble tiles between an Australian distributor and its Italian supplier.
 
The contract was governed by Italian law and the dispute centred around contractual principles of termination, in particular, that of good faith which underpinned the exercise of contractual rights under Italian law.
 
The Claimant was represented by Australian solicitors and Italian lawyers. The Respondent was represented by Italian lawyers, Australian solicitors and an Australian Senior Counsel.
 
Cavinder Bull, SC was instructed as lead counsel to conduct the arbitration hearing and in particular to cross-examine the witnesses in this case.
 
BACKGROUND
 
The Respondent had purportedly terminated a long-term distribution agreement (“Agreement”) with the Claimant on the ground that the Claimant failed to achieve sales targets. The Claimant commenced legal proceedings against the Respondent for wrongful termination.
 
The Claimant’s position was that the termination was not done in good faith as the reason given for the termination was false. Instead, the Claimant argued that the termination stemmed from the Respondent’s desire to earn higher profits and that the Respondent had earlier breached its exclusivity obligations to the Claimant by supplying its products to the Claimant’s competitors.
 
Just days before the hearing of the arbitration was to take place in Singapore, the Respondent informed the arbitral panel that two of their key witnesses, A and B, would not be travelling to Singapore to testify.
 
One of the witnesses was the Respondent company’s president, A, who made the decision to terminate the distribution agreement. As A’s state of mind when signing the termination notices and his understanding of sales targets were critical to the finding of bad faith, it was essential for A to be cross-examined.
 
The other key witness, B, was a senior member of the Respondent company who had personal charge of the business relationship with the Claimant. He had been expected to testify as to the relevance (or otherwise) of the alleged sale targets which were the reason for the termination.
 
Urgent applications were made and heard by the arbitral tribunal (“Tribunal”) relating to the sudden change of position by the Respondent as to the availability of these two witnesses. The Tribunal ruled that these two witnesses had to testify in person because they were important to the case. The Tribunal also noted that the reasons given for the two individuals being unable to travel to Singapore were weak and it had not been properly explained why the ”reasons” had not been raised earlier.
 
As the Claimant’s case depended on their being able to discredit the two key witnesses who had already provided written witness statements, there was little choice but to agree to the postponement of the hearing so as to try and get these two key witnesses to testify. The Claimant informed the Tribunal that it was fearful of any adjourned hearing being faced with the very same gambit by the Respondent.
 
As such, the Claimant applied for the hearing to be moved to Milan, ie. to the key witnesses’ home jurisdiction. This would make it very difficult for the key witnesses to avoid appearing at the hearing to testify. The application was granted and the hearing was postponed by three months to be held in Milan.
 
B appeared at the hearing in Milan and was cross-examined. The cross-examination revealed that no one had given any credence to the sales targets which the Respondent had relied on to terminate the agreement.
 
However, A failed to appear for cross-examination again. The irony of this recurring, last-minute development was not lost on the Tribunal, who noted that the purpose of adjourning and relocating the hearing to Milan had been defeated as the Claimant’s counsel still had no opportunity to cross-examine A in person.
 
In view of A’s persistent absence, the Claimant launched a strong attack on the Respondent’s disingenuous conduct, which not only smacked of bad faith, but was also indicative of the weaknesses of the Respondent’s case and its lack of legitimate reasons for terminating the distribution agreement.
 
To that end, the Claimant requested the Tribunal to exclude A’s witness statements entirely and make a finding of adverse inference. Alternatively, even if the witness statements were to be admitted, the Claimant argued that the Tribunal should attach little or no weight to A’s testimony.
 
THE TRIBUNAL’S DECISION
 
Although the Tribunal did not exclude A’s witness statement, it recognized that the Claimant would be unfairly prejudiced as A’s evidence had not been tested. This was exacerbated by the fact that A’s witness statement was vague and could not be corroborated with any other documentary evidence or witness statements. The Tribunal therefore gave “very limited weight” to A’s testimony.
 
In coming to that decision, the Tribunal noted that A’s witness statements were unreliable as the Claimant’s counsel could not test A’s evidence through cross-examination at all. The Tribunal also took into account the fact that this was the second time A had failed to appear, having previously avoided cross-examination at the scheduled Singapore hearing with no valid reason.
 
The Tribunal found that the termination of the Agreement had been carried out in bad faith and that the ostensible reason given in the termination notices was false. The tribunal also found that there had been breaches of the Agreement before its purported termination. Damages were awarded to the Claimant.
 
COMMENT
 
The Claimant’s insistence on the cross-examination of A and B was crucial to the success of this case.
 
Having seen the Respondent’s willingness to try and frustrate the hearing of this arbitration, the Claimant’s only recourse was to go to the Respondent’s “home town” in an effort to deprive them of any such gambit. This was not done lightly.
 
Having arbitrations conducted in a neutral venue is understandably part of arbitration dogma. However, in this case, the move paid dividends. B was forced to testify and much of the truth came out. While A still did not testify, his failure to turn up again, even when the arbitration hearing had been moved to his jurisdiction, could not help but colour his written evidence.
 
More importantly, the Tribunal’s decision to move the hearing to Milan, despite Singapore being the seat of arbitration, bears testament to the flexibility of international arbitration and the steps which tribunals are prepared to take to ensure that parties are not unfairly prejudiced by disingenuous tactics or obstructive conduct.
 
 
For further information, please contact:
 
Cavinder Bull, Director, Drew & Napier
cavinder.bull@drewnapier.com
 
Woo Shu Yan, Drew & Napier
shuyan.woo@drewnapier.com
 
Lee Xin Jie, Drew & Napier
xinjie.lee@drewnapier.com
 

 

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