Advantages of arbitration in aviation dispute resolution

In recent years marked by mounting aviation disputes, arbitration has emerged as a preferred option for resolution among many parties in aviation, in addition to litigation and mediation. The Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC) has accepted many disputes involving international aviation treaties, special equipment, land use, advertising and so on.

With these cases and the author’s own professional experience in mind, this article highlights the unique advantage of arbitration in resolving commercial aviation disputes.

Distinction of aviation cases

High degree of party specialisation with strict demands for procedural rights. Aviation cases usually involve significant monetary value and highly specialised parties that, along with their attorneys, tend to be cautious. Both parties may attempt to use procedural rights to safeguard their own rights and interests.

Complex transaction structures and intricate case facts. Aviation transactions tend to be complex, both structurally and procedurally. The parties are likely to have a long business relationship, with multiple lines of communication established and many contracts executed, particularly in cases related to the sale or lease of aviation equipment.

In one dispute over sales contracts for aviation special equipment that covered myriad business scenarios, including the manufacture, import, sales and final sales of multiple categories of equipment, the parties disputed nearly 30 contracts signed over the course of their co-operation. Given the long span of these contracts, as well as their varying payment cycles, proportions, and other terms and conditions, the arbitration tribunal needed to meticulously consider each aspect when determining and calculating liability for breach of contract.

Accusations of malicious collusion by signatories, the use of fake seals and the inclusion of clearly unfavourable clauses have also been raised, requiring the arbitral tribunal to handle such cases with extra caution and care.

Special payment conditions and the need for professional judgment on performance. Because of the unique nature of the subject matter in aviation cases, the purchaser tends to impose many add-on conditions when payment is involved. These may include, but are not limited to, airworthiness documents, quality documents, letters of guarantee, accompanying documentation, inspection and maintenance service, technical guidance service, etc. Parties also typically agree that the seller must bear the liability for breach of contract if the equipment fails to meet the end user’s needs.

In actual implementation, the delivery of the subject matter may involve cross-border manufacturing and transportation, which are vulnerable to external factors. Often, the identification, determination and application of contract terms and conditions require an arbitral tribunal well-versed in the aviation industry to make accurate judgments.

Advantages of arbitration

Respect for party autonomy. During the entire process and in all aspects of arbitration, party autonomy is upheld to the greatest extent possible. Taking the selection of the presiding arbitrator as an example, the BAC Arbitration Rules provide for various mechanisms for the selection of the presiding arbitrator. Applying article 20(4) of the BAC Arbitration Rules, the parties may request a shortlist of five to seven arbitrator candidates with extensive experience in the field of aviation, and jointly select the presiding arbitrator from such a list.

Alternatively, they may select experienced side arbitrators who will jointly nominate the presiding arbitrator. With mutual trust and co-operation, the parties can lay a solid foundation for the arbitration process.

Emphasis on efficiency. In one aviation case, following the constitution of the arbitral tribunal, the respondent filed a counterclaim for arbitration, and the appellant applied to amend its arbitration claim several times. Both parties submitted dozens of pieces of evidence in support of their respective claims.

After only one week, the tribunal issued its first procedural order to clarify, fix and narrow the scope of dispute. In total, four procedural orders were issued before the hearing, effectively facilitating the identification of the points of contention between the parties. The final award was made within two months after the hearing, reflecting the efficiency of arbitration.

Protection of confidentiality. The aviation industry is capital and technology-intensive, and heavily regulated, with extra emphasis on safety. Most commercial entities gain access to the aviation market after receiving regulatory approvals, and only then can they carry out long-term co-operation with fellow commercial entities.

Disputes between such entities are often accompanied by negotiations and communications concerning a great many details involving import, manufacture, resale and other business matters. Such talks with a third party can also take place, which may cover considerable trade and technical secrets of both parties. The confidentiality of such trade secrets, intellectual property and other sensitive information is well protected in arbitration.

Expert adjudication. The aviation industry is unique in its economic and technical traits, and it places extreme emphasis on safety management, adopting specific industry regulator measures such as airworthiness management. In disputes, the parties often have direct or indirect communication with end users. They also often cite various documents issued by civil aviation authorities to support their claims as to the qualification of products, the period of use and other factors.

Special management methods such as announcements have been adopted for airport equipment. The parties may also have differing opinions on the interpretation of relevant inspection, consistency review and acceptance.

By choosing or appointing experts with keen understanding in the field of aviation and familiarity with industry practice as arbitrators, aviation disputes can be adequately understood and accurately resolved.

In the BAC’s experience with aviation disputes, each case is unique. Nevertheless, the arbitration tribunals, adhering to the value of respecting party autonomy and market logic, have delivered professional and efficient adjudications, resulting in swift and proper resolutions.

Hong Yuwen is an arbitrator at the Beijing Arbitration Commission/Beijing International Arbitration Centre