7 May 2012
Arbitration is on course to become the default option for international disputes
What do you think the principal reasons are for the increase in the use of arbitration in recent years?
Lord Peter Goldsmith QC, chair of European and Asian litigation, Debevoise & Plimpton: First, globalisation has increased the number and size of cross-border transactions and confidence has been waning in the ability of national courts.
Second, there has been a phenomenal growth in investment disputes, which really require international arbitration.
Third, arbitration has simply come of age. The growth of the New York Convention, the model law, the ever-greater acceptance by courts of the autonomy of arbitration, the work of international bodies, such as the International Bar Association’s standard guidelines, the updating of arbitration rules and facilities, all make arbitration more attractive.
Jeffrey Gruder QC, Essex Court Chambers: There are a number of factors. Confidentiality is often put forward as a reason and it is a considerable advantage not to have your dirty linen washed in public.
But there are other matters to take account of. Enforceability of arbitration awards is important. Due to the widespread adoption of the New York Convention, it is frequently easier to enforce an award in many jurisdictions than a foreign judgment.
It’s also a comfort for many parties to feel they can have some role in the tribunal’s selection, at least to the extent of choosing one of three arbitrators. Many foreign parties have much greater confidence in the integrity and fairness of an arbitral tribunal in a recognised and impartial centre such as London, Paris or Singapore than the courts of some countries, especially when the arbitrators are operating within the framework of a respected arbitral institution, such as the International Chamber of Commerce [ICC] or the London Court of International Arbitration [LCIA].
Chantal Aimée Doerries QC, Atkin Chambers: The increase has been in international arbitration, in the sense of arbitrations involving parties from different countries. Domestic dispute resolution hasn’t seen such an increase.
Growth in the international field is attributable to a number of factors. It is largely due to an ever-increasing international world, where trade and investment is carried out across national borders. Arbitration allows parties to choose neutral venues, to select specialist tribunals and to pick a legal system and seat that both parties feel comfortable with.
Users have become increasingly sophisticated, so it is not uncommon to find parties selecting a seat but then choosing a law from a different country - for example, Korea as the seat with English law.
Stephen Furst QC, Keating Chambers: Arbitration remains attractive for a number of reasons. An award provides a binding decision that in general isn’t subject to appeal in the domestic courts; more than 140 countries are signatories to the New York Convention, enabling enforcement of awards in contracting states; arbitration agreements generally provide for the arbitration to be administered by an independent body, ensuring impartiality; generally arbitrations are (or should be) faster and cheaper than litigation in domestic courts, but much could be done to improve matters; and parties are often eager to keep disputes out of the public eye for commercial and other reasons.
Although users would weight these factors differently, so that for example there is some evidence that participants do not view speed and economy as a particular attribute of arbitration, one or more of them are sufficiently important to most users to influence them in their choice of forum in favour of arbitration. Arbitrators and rule-making bodies cannot rest on their laurels, however, as domestic courts seek to compete.
Can up-and-coming arbitration jurisdictions, for example those in Asia or the Middle East, catch up with established locations such as London or Paris?
Goldsmith: The ’new’ jurisdictions are already making inroads. The Hong Kong International Arbitration Centre and the Singapore International Arbitration Centre [SIAC] have both increased their caseloads.
Using state-of-the-art facilities and supported by courts respectful of the process helps this growth. London and Paris are unlikely to cease to be prime jurisdictions because of the wealth of experience and the facilities present.
But the competition is not limited to Asia or the Middle East. Last week nearly 200 people from around the world gathered in Atlanta to attend an inaugural conference, whose goal is to promote Atlanta as an alternative arbitration seat to other US cities.
Gruder: I think it will be difficult for the up-and-coming jurisdictions in the Middle East and Asia to catch up. The volume of worldwide work coming into London, for example, is immense and is reinforced by many standard-term contracts, such as charterparties specifying London as a venue of choice.
That said, I do see the newer jurisdictions, in particular Singapore, making progress. The authorities there have created an arbitration-friendly environment with the minimum of interference from the courts. The SIAC has attracted many distinguished international arbitrators as panel members. In addition, Singapore is conveniently situated geographically to attract work from India, China and the Far East.
Doerries: It is certainly possible, and perhaps even likely, but there is room for a number of good centres. To really succeed as a popular international jurisdiction, with arbitrations where neither party has any connection with the seat, any competitor will need to attract a sufficient concentration of professional talent, provide adequate facilities and have respected courts, which in turn respect the independence of the arbitration process but that provide the necessary supportive or supervisory role.
In London the courts have learnt from experience to be supportive of the process, as parties are looking for finality, and so the circumstances in which the courts overturn awards need to be controlled rigidly. In other arbitration centres, in some cases more properly described as regional centres, this may remain an issue.
The steps recently taken by Singapore’s government, allowing a number of foreign law firms to practise and making it easier for QCs and SCs to appear in their courts, demonstrates a real commitment to making Singapore increasingly competitive.
Paris, of course, is home to the ICC. But perhaps the real edge that London still has is that it offers the range: it has arbitration institutions, facilities, a generally supportive court and, possibly most importantly, a large concentration of specialist lawyers and advocates.
Furst: The short answer is yes, they can - and to an extent they have already done so.
With the fulcrum of economic activity moving to Asia, it’s inevitable that parties won’t want to base their arbitration disputes in London or Paris. Arbitration in Singapore and Hong Kong is well-established with strong and independent rule-making bodies. The China International Economic and Trade Arbitration Commission is becoming increasingly important in China and the Dubai International Arbitration Centre is an important independent body.
But London, New York and Paris retain some important advantages. With many parties, logistical convenience is important, and where at least one party is a multinational, London may be as convenient, if not more so than, for example, Singapore. Also, these established centres have large numbers of highly experienced advisers and a clear body of law.
What do you think will be the impact of the new ICC rules?
Goldsmith: The change I hope will have the greatest impact is Article 24, which imposes an obligation on tribunals to hold a case management conference at an early stage and which gives good examples of case management techniques in Appendix 4. Coupled with the new contractual obligation in Article 22, that the tribunal and parties “shall make every effort to conduct the arbitration in an expeditious and cost-effective manner”, this ought to result in tribunals focusing as early as possible on what the real issues are and how to determine them most effectively.
Gruder: The most important amendments deal with the provision for an emergency arbitrator to order urgent measures, methods to deal with multiparty disputes, updated case management procedures and the obligation on an arbitrator to declare impartiality and availability.
Under the previous rules, an application for urgent measures prior to the constitution of the tribunal could only be made through the courts. Now it may be made through an emergency arbitrator appointed by the Secretariat. The rules create a temporary solution for immediate relief prior to the formation of the tribunal.
Article 7 allows a party to join an additional party to an existing arbitration, and Article 10 allows a party involved in more than one arbitration made under the same arbitration agreement, between the same parties, or in connection with the same legal relationship, to apply to the court to have them consolidated.
It may be that the tight time limit in the joinder provision means it is used infrequently. Obtaining the consent of a party one wishes to join is likely to prove difficult. Obstructive parties will refuse. So if a party wishes to join an additional party once the arbitrator has been confirmed or appointed, they may find this provision of little practical use. In multiparty disputes, the consolidation provision may prove more useful and popular.
The 2012 rules also indicate the ICC’s desire to create a more efficient, cost-effective process. It has included a mandatory requirement for the tribunal to convene a case management conference in which parties must be consulted on any procedural measures. This will give them an opportunity to explore options for reducing time and cost.
There is a clear ICC directive that the time and costs should be proportionate to what is at stake in the dispute, and the tribunal will be expected to manage actively the arbitration to achieved this.
Furthermore, the amended rules make it clear that the parties’ conduct will be taken into consideration when making a costs award. These changes are to be welcomed. It remains to be seen how they will be applied in practice.
Doerries: The rules improve the process. Probably the most significant change is the new emergency arbitrator provision. The emergency arbitrator presents an alternative to the national courts and is likely to be used in certain types of dispute, although there are still certain limitations. It does not, for example, cover third parties, nor can an ex parte application be made.
This process provides for ’orders’ rather than ’awards’ and it remains to be seen how the courts approach enforcement where the party at the receiving end does not comply with the order.
Furst: The changes provide clear encouragement to speed up and reduce the costs of arbitration. For example, Article 4(3) requires the claimant to set out the amounts of any quantified claim and an estimate of the monetary value of any others, to the extent possible, in the Request for Arbitration. Article 5 requires the respondent to provide greater particularisation of its response. These measures seek to clarify and limit the extent of the dispute from the outset.
Many challenges as to the existence, validity or scope of a clause are made (although less than 2 per cent succeed in full) and have to be referred to the Court of Arbitration to make a prima facie determination of the challenge. That delay will now be eliminated, in most cases, by Article 6, which requires the tribunal to determine the challenge with a presumption against referral to the court.
The importance of encouraging settlement before arbitrating has been given a nudge by providing for half the fee for an ICC alternative dispute resolution to be credited against the ICC’s administrative expenses. In general tribunals have been given the tools and the encouragement to conduct arbitrations more efficiently.
Are the costs of arbitration rising too quickly, and what could be done to stem the increase?
Goldsmith: While international arbitration can provide significant advantages to cross-border disputes, parties to international arbitrations have been expressing concerns about the increased length and cost of the process. In 2010 we developed a protocol to promote efficiency in international arbitration, which identifies 25 specific procedures to do so.
Gruder: I think arbitral institutions and arbitrators are concerned about the increasing cost. They have begun to get their act together. Institutions control the fees payable to arbitrators, so experienced arbitrators are available at reasonable rates.
However, the major component of costs is the charges of the parties’ own legal advisers. The tribunal and the arbitral institutions can only influence these indirectly by not awarding costs where proceedings have been conducted in an extravagant manner. The costs incurred by the parties can only be moderated by the parties themselves. It is up to them to control their own lawyers. But if a party wishes to spare no expense in order to maximise its chances, it is that party’s privilege.
Doerries: For some time costs appeared to be on the rise, partly due to arbitration mimicking litigation. The arbitration world has recognised that costs inflation is an issue, but like the courts it continues to be challenged by costs that all too easily can be incurred.
An experienced tribunal that does not allow drift in the proceedings is important. Perhaps the single biggest challenge in substantial commercial arbitration is, as in litigation, disclosure - particularly e-disclosure. A sensible approach agreed between the parties as soon as possible is crucial, but requires a degree of cooperation, which is not that common.
Furst: There is clear evidence that many users no longer feel that arbitrations are as cheap and quick as they could be. Thus the new ICC rules require both the tribunal and the parties “to conduct the arbitration in an expeditious and cost-effective manner, having regard to the complexity and value of the dispute”.
However, the tribunal must set an example. The issues in the case should be defined as quickly and precisely as possible. The tribunal should take an active part in case management and not merely rely on the parties’ suggestions. Disclosure should be limited to what is essential. Witness statements should stand as evidence-in-chief and only vital witnesses cross-examined. There should be a presumption against expert evidence, but where essential a list of issues for experts should be agreed. The tribunal should make the parties aware that adverse costs orders can be made where a party acts unreasonably, thereby increasing costs.
Finally, although only around 18 per cent of costs incurred by the parties are incurred in arbitrators’ or administrative fees, this can be reduced if they choose a single arbitrator.
In your opinion, what has been the most significant court ruling on an arbitration issue in the past six months and why?
Goldsmith: Jivraj v Hashwani . Although a little bit out of the timescale, this case is so significant it merits attention.
The UK Supreme Court clarified the status of arbitrators, holding that they aren’t employees and therefore do not fall within the scope of UK anti-discrimination legislation.
This had the important effect of freeing arbitration agreements and institutional rules from the risk that they will be declared void and therefore unenforceable for making provision in relation to the nationality of arbitrators in certain disputes. This is hugely important, as it enables nationality to be continued to be used as a rough but still generally accepted proxy for independence in certain disputes.
But above all it removes the risk that people would move away from UK and EU-based arbitrations for fear that these provisions of EU employment law would be applied to arbitrations.
Gruder: Jivraj v Hashwani. It’s relatively rare for an arbitration to reach the Supreme Court (or the House of Lords previously). The importance of this decision was emphasised by the fact that both the ICC and the LCIA appeared as interveners.
The Court of Appeal [CoA] previously held that an arbitration agreement in a commercial contract stipulating that the arbitrators were to be drawn from members of a particular religious group, in that case the Ismaili community, was contrary to the Employment Equality (Religion or Belief) Regulations 2003.
Many commentators considered that, if the CoA decision stood, it was a significant threat to London as a venue for arbitration. The implications of arbitrators being deemed employees were massive and profoundly troublesome.
No less important was that the CoA struck out a provision in an arbitration agreement identifying the class of person who was to serve as arbitrator, thereby imperilling conventional and common provisions in institutional rules that impose certain nationality restrictions.
Fortunately the Supreme Court decided unanimously that arbitrators were not employees of the parties, so that the regulations did not apply and, on the present facts, the parties’ specification of the class of person who should serve as arbitrator was both appropriate and proportionate. Accordingly the threat to London as a venue for international arbitration was averted.
Doerries: The latest twist in the West Tankers saga - the January decision of the CoA in West Tankers Inc v Allianz Spa & Anor - confirmed that there is power under section 66 of the Arbitration Act 1996 to order judgment to be entered in the terms of an arbitral award where the award is declaratory in form, including where it is a negative declaration that the successful party has no legal liability to the other party in respect of the subject matter of the arbitration.