23 June 2003
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The International Chamber of Commerce received 590 new cases in 2002, up significantly from two years ago. In 2002, the Chinese arbitration market grew by 20 per cent, with disputes pouring into the China International Economic and Trade Arbitration Commission and the Hong Kong International Arbitration Centre. Arbitration institutions in London, Stockholm and Russia report growth, while the International Centre for Dispute Resolution, the Dublin-based offshoot of the American Arbitration Association, is marketing itself extensively to win new business. What is surprising is not the growth, but why arbitration has taken so long to establish itself as a significant money-earner for lawyers. Now that the penny has dropped, law firms are investing in their arbitration capabilities.
This growth is a natural consequence of globalisation. Capital flows around the world looking for investment opportunities; investors want returns, but need to safeguard their investments should things go wrong. And they do, both at the macro level (recently evidenced by the seismic devaluation crisis in Argentina) and at the micro level, with problems on individual investments.
Those seeking capital must make themselves attractive to investors. A US investor may no more want to get bogged down in a developing a country's court system than the local partner wants to chance their luck in front of a US jury. The mutual need to provide investor protection is addressed through investment treaties that facilitate capital inflows into countries and through reliable dispute resolution mechanisms in contracts. International arbitration provides such a mechanism, which can be attractive to investors, governments and to other recipients of capital. Used well, arbitration will resolve disputes and will do so through a flexible process that puts the parties' needs ahead of the sanctity of an established legal institution.
The attractiveness of arbitration is obvious. It provides a neutral resolution forum that is credible and private. Decisions can be made by a panel of arbitrators. Three wise heads with diverse skills may present a more attractive offering than even the most distinguished jurist. But perhaps the main appeal is its flexibility. The rule books are thin and parties can agree on the composition of the panel, the timetable and the most suited procedures. They can opt to avoid the cumbersome and expensive processes that are a feature of common law jurisdictions.
Of course, the corollary of that is risk, which must be managed. Discretion and choice provide scope for one party to outwit the other. That is both an opportunity and a threat. Getting the tactics right early on can give a party a real advantage, so there is an opportunity for those who know their way around the rules. The challenge to a business is to ensure that its legal advisers have the requisite skills and experience; it is unwise to assume that a corporate lawyer, or even a general litigator, will know all the tricks of the arbitration trade.
So, what are the hot spots for arbitration growth? Construction disputes, as always, but oil and gas disputes and commercial cases, particularly joint venture disputes, are on the up. Arbitrations are increasing in Central and Eastern Europe as new economies emerge. The most promising growth potential looks to be in China and, perhaps in the shorter term, South America. Disputes from the devaluation of the Argentinian peso have enabled lawyers to give hard-pressed airlines a profitable boost on their South American routes. There is also evidence of increased investor versus state claims under investment treaties. The International Centre for the Settlement of Investment Disputes' cases are increasing as investors are taking on states, because they can.
Legal fees may be a necessary evil for investors. But where the needs of parties are put first, fees can be more palatable. That explains why the market is growing and why the arbitration institutions are marketing themselves, albeit elegantly, to capture that growth. It is a market that lawyers can themselves shape by writing arbitration clauses into agreements. Was there ever a greener light for the legal profession?