A game of survival: why the bar is embracing arbitration

Is arbitration the last nail in the coffin for litigation? At a recent Lincoln’s Inn soirée one judge voiced his concerns to The Lawyer that the increase in arbitration and other forms of alternative dispute resolution (ADR) is beginning to threaten the development of English law.

The judge said: “We’re seeing a huge decline in the number of cases going through the courts and I can foresee that there will come a point when we’ll no longer be able to rely on English law.”

Or is he being too pessimistic? Herbert Smith litigation partner Tim Parkes takes a longer view. New law is not yet threatened, he says, adding: “Well, maybe if the trend for arbitration continues for another 100 years or so.”

With arbitration often taking place behind closed doors, there is no real way to know exactly how many cases are now being kept out of the courts. However, a report published by the International Dispute Resolution Centre (IDRC) estimates that, in the UK, there could be anywhere between 5,000 and 10,000 arbitrations annually.

Maritime law also gives a snapshot of what is happening to litigation. In maritime alone it is believed that more than 2,000 arbitrations take place annually, while only 973 claims forms were issued at the Commercial Court and Admiralty Court in 2005, a 12 per cent drop on the previous year.

Meanwhile, the latest figures from the London Centre for International Arbitration (LCIA) reveal that the centre, which is just off Fleet Street, has seen an increase in casework referrals of more than 35 per cent on the previous year.

Robert Englehart QC of Blackstone Chambers, who believes the end of English case law is “a bit of a doomsday scenario”, says that, with statistics like these, he can see why some may believe case law is under threat.

“In the old days – 20-30 years ago – the ability to appeal arbitration rulings was much more readily available, thus bringing in much case law,” says Englehart. “But since the Arbitration Act 1996, the possibility to appeal is small, so in that sense I can understand why some see the development of the English law suffering if arbitration and other ADRs continue to increase in volume – but it would have to be a much higher volume than it is now.”

The act that Englehart refers to came into effect a decade ago following Lord Woolf recommending a shake-up in the world of dispute resolution by avoiding “slow, expensive and unpredictable” litigation in favour of ADRs.

Since then, as the statistics show, the legal profession has seen a litigation slowdown as it is shunned in favour of other forms of resolution, namely arbitration and other ADRs.

Another major factor is the effect of the collapse of the UK’s two longest-ever trials – BCCI and Equitable Life – as clients simply feel that the possible monetary losses are just not worth it.

The Olympic Delivery Authority is already in talks to devise an ADR strategy in anticipation of a flood of challenges over the infrastructure for the 2012 Olympic Games.

But as Hew Dundas, the president of the Chartered Institute of Arbitrators, explains, interested parties will always run test cases, so English law will continue to develop.

“My experience in commerce is that few users of arbitration want to be – and therefore pay for a test case – in the House of Lords and the notion of lack of development comes from the lawyers and the judiciary, not from arbitrators or users,” he says.

The change in consumer focus, however, has led chambers and law firms to look at how they can strengthen their arbitration and ADR services.

Brick Court Chambers strengthened its arbitration capabilities with the hire of door tenant Klaus Reichert, who moved from Littleton Chambers, while commercial set 3 Verulam Buildings’ expansion into Old Square Chambers’ former home has enabled it to introduce an arbitration suite.

US firm Shearman & Sterling has moved arbitration partner David Reed from his Paris base to London to start a practice in the UK, as the firm sees this as a growth area in the coming years.

Reed says the UK legal profession needs to take heed of what has happened in other countries where arbitration has been the preferred choice for decades. He says that there have been difficulties in some jurisdictions because of the lack of development in case law.

But he adds: “A relatively recent development shows the courts as having a much more supportive attitude to arbitration. This was illustrated by last month’s Court of Appeal decision in Fiona Trust & Holding Corporation v Privalov [2006], which endorsed the crucial principles of separability of arbitration agreement and Kompetenz-Kompetenz.”

So clearly the courts currently do not endorse the view that arbitration is going to kill litigation – and are in fact willing to push for more use of it.

The result is more traffic coming through London as groups such as the LCIA market themselves as the strong alternative to the International Chamber of Commerce’s (ICC) International Court of Arbitration in Paris.

The LCIA initially managed to steal work from the ICC when it was first founded, but as a result of increasing costs (80 per cent of which go to lawyers), the rate at which ICC-loyal companies have defected to the LCIA has allegedly dwindled.

London, however, does appear to be winning the new players on the market, not least because most IPO deals hold English arbitration clauses. The capital also dominates the maritime and commodities arbitration sectors.

Reed says English arbitration clauses are currently favoured in international contracts, which is why more work is coming London’s way.

“London does also offer some unique advantages: the sophistication and reach of the English law firms, the technical excellence and forensic skills of the English bar and the first-rate facilities at the IDRC, to name but three,” he says.

On the whole it is clear that arbitration is trouncing litigation as the favoured form of dispute resolution. Englehart says: “Privacy and informality are at the heart of what makes arbitration so attractive.”

But English law can sigh with relief, as litigation is here to stay – well, as Parkes puts it, at least for the next 100 years.