Getting the balance right

New rules governing international arbitration have lawyers hotly debating how much regulation is required

Global arbitration is one of the few boom areas of international legal practice, but litigation lawyers are sharpening claws and polishing fangs in a row over how much the process should be regulated.

An International Bar Association code of practice for those hearing arbitrations and counsel appearing before them is viewed by some as a poor sticking plaster compared with some of the more robust, but ultimately stymied, proposals coming out of Europe.

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Concern revolves around allegations of bias aimed at those sitting on arbitration panels. Leading City partners claim post-arbitration satellite litigation flowing from judgments has increased dramatically, with one specialist commenting that many of the “allegations of bias would make any litigator blush”.

That tussle is being fought out against the backdrop of a wider debate over whether arbitration provides disputing parties with value for money in more established jurisdictions compared with commercial courts populated by highly intellectual and respected judiciaries.

What is not in dispute is that global arbitration is booming – and not just in London and other historically strong centres such as Paris, Stockholm and Geneva, but around the world in burgeoning hotspots such as Dubai and Singapore.

Popular appeal

Figures from a survey by Price-waterhouseCoopers released in April show multinational corporations have seen a 35 per cent rise in disputes in the past year and that nearly three-quarters of their legal departments view international arbitration as ideally suited for resolving those rows. According to the survey, twice as many global businesses say they would plump for international arbitration as would go down the conventional litigation route.

“This is the busiest time in arbitration I have seen in London in 15 years, with work coming from all over the world,” comments Sophie Lamb, a litigation partner in the London office of US firm Debevoise & Plimpton, claiming the boom kicked off about three years ago.

The timeline coincides with the first aftershocks of 2007/08’s financial meltdown. In the economic heyday, global corporations were too busy loading wheelbarrows with cash to argue for long over a breach of what at the time would have been seen as a minor contractual clause. Back then, multinationals and other businesses were happy to shrug their shoulders and settle.

In today’s business environment corporate boards, their senior executives and general counsel cannot afford even to whisper the word ‘settlement’. Every dispute is fought and in a cross-border business world, arbitration is seen as the safest forum for resolving arguments. And London is one of the – if not the – premier global venues for arbitration, due to the quality of its tribunals and litigators.

“London reinvented itself following the Arbitration Act 1996,” observes Joe Tirado, global co-chair of international arbitration at Winston & Strawn in London. He maintains that the London Court of International Arbitration “has done a great job of marketing itself, especially to parties in Russia and the wider CIS”.

Arbitration’s appeal to battling corporations has several facets: the parties can choose their own expert tribunal rather than relying on the lottery of a commercial court bench; judgments are final, with the process being generally confidential; and, perhaps most importantly, they are widely enforceable under provisions of the UN’s 1958 New York convention.

Proponents of arbitration have also historically maintained that the process is cheaper and more efficient than court-based litigation. But that view is increasingly being challenged.

“We fight hard to preserve the myth that arbitration is faster and cheaper,” says one leading City specialist partner, “but of course, that’s nonsense.”

Too much of a good thing?

Khawar Qureshi QC, an arbitration specialist at Serle Court, says there are many positive aspects to arbitration and, encouragingly, authorities and judiciaries in emerging jurisdictions in southern Asia, Latin America and Africa are becoming familiar with the process and are therefore more supportive.

However, the silk worries that arbitration may be falling victim to its own success.

“There is a concern being voiced by users that arbitration now more often resembles the worst aspects of blunderbuss-type litigation in terms of cost and delay,” he says. “Indeed, some view the development as being rather ironic, not least given the impressive positive changes made in domestic courts such as the English Commercial Court to ensure that proactive case management leads to cheaper, faster determination of claims.”

Privately, some specialist lawyers offer an even more brutal assessment of arbitration.

“It’s almost always the case that arbitration is far more expensive than comparable commercial litigation in established jurisdictions such as England,” says one.

Critics point out that disputing parties must pay an institution – if one is involved – for providing the arbitration panel, the panel members themselves, and for the venue, before coughing up for their own lawyers.

That high dose of commerciality creates other problems. Some lawyers claim that because arbitrators have been “chosen and paid for” they suffer from a natural human desire to been seen in a positive light by their clients, not least because they will be in the market for repeat business.

Comments one lawyer: “Their default position is flexibility, which can often translate into providing parties with more latitude, which escalates costs and generates delay. It is seldom the case that arbitrators will actively case-manage a matter, and certainly rare for questions to be raised as to the volume of documents and/or the number of witnesses in the same way an English commercial court judge would.”

Silks cut

There are also suggestions that litigation solicitors view arbitration as a way of carving barristers out of dispute resolution.

“They will never openly admit to this,” says a leading London practitioner, “but one of the perceived benefits of arbitration for law firm partners is that they can keep all the work in-house and not instruct counsel. The corporate partner will ring up the head of litigation who will say ‘of course we can handle that’. He then rings up his favoured QC in his favourite set of chambers to act as the arbitrator who will no doubt try to be objective, but underlying that process there has got to be a commercial tension.”

City partners are alive to the issues, acknowledging that it is fallacious to suggest arbitration is routinely cheaper and faster than other forms of dispute resolution. But then, most clients don’t really expect it to be so.

“People choose arbitration not because it is cheaper and quicker because it isn’t,” comments Norton Rose’s global litigation head Deirdre Walker. “Our clients are sophisticated and they know that. They choose arbitration because it reduces the risk of ending up in a court in a jurisdiction in which you don’t feel comfortable, where the dispute is cross-jurisdictional and the ability to enforce the award is key, as is confidentiality.”

Sophie Lamb
Lamb

Lamb agrees, adding that in many cross-border disputes there is no choice.

“For many arrangements and contracts, arbitration is the only available forum,” she says. “A foreign investor going into a new emerging economy being asked to make capital investments in the hundreds of millions is not going to agree that if something goes wrong they should be beholden to the local court system.”

But in some cases, savvy lawyers can finesse arbitration so it works more efficiently than a court trial.

“If you pick your tribunal carefully, getting one that is reasonably decisive and prepared to take a firm grip, you can push the process more quickly than you could a high court action,” advises Wragge & Co’s international arbitration head Peter Flint.

“And arguably you could do it cheaper because arbitrators are under a lot more pressure from their institutions to be careful about costs. The arbitration community is being made to focus hard on that.”

Rows over conflicts of interest and bias also dominate the global arbitration landscape. Ramon Mullerat, a lawyer at Spanish law firm Iuris Valls, recently chaired a review of arbitration practices for the Council of Bars and Law Societies of Europe (CCBE). The starting point, he says, was a view that “there are problems with party-appointed arbitrators and their relationships with counsel – so some rules are needed”.

Other commentators are harsher.

“Without any doubt, there is a conflict of interest in some cases,” says one lawyer. Another argues: “There is a real potential for a free-for-all in arbitration. There are concerns over the concealing of documents, coaching witnesses and hostile or unpleasant conduct towards opponents.”

Ultimately, the CCBE draft guidelines failed to win support and withered, to Mullerat’s chagrin.

“There was a view that trying to create a code of practice for counsel would divide the legal profession,” he concedes.

In-crowd

Apart from the bias issue, Tirado highlights what he says is a trend among some arbitrators to over—extend themselves by accepting “cases they shouldn’t, either because they are not capable of doing them or because they are not actually available to do them”.

And while the pool of high-quality arbitrators capable of hearing disputes valued in the billions is increasing, Tirado still describes it as a “cliquey club”.

It is estimated that there are no more than 25 people worldwide hearing big-money disputes, with, says Tirado, “the old mafia being replaced by the new mafia”.