Developments in international arbitration – is this form of dispute resolution under threat?

Against the backdrop of increasing protectionism and populism, especially visible in the US and Europe, the international arbitration community has recently faced unprecedented scrutiny. With investor-state arbitration under fire and being accused of being shrouded in secrecy, never before has the debate raged so fiercely.

Recent trade agreements such as the EU-Canada Comprehensive Economic and Trade Agreement (CETA) voted by the EU Parliament in February 2017, have seen significant reforms of investor-state dispute settlement (ISDS) and the European Commission has subsequently proposed the idea of a permanent multilateral investment court (MIC) to replace ISDS. At the 50th session of the United Nations Commission on International Trade Law (UNCITRAL) held in July, the EU made progress towards its plan with a broad mandate for a Working Group to re-examine the merits of ISDS and develop the MIC as an alternative. If the “Mauritius Convention approach” to negotiations is to be followed to allow for a flexible “opt-in” mechanism for contracting parties, draft treaties containing dispute resolution provisions under the MIC could be on the table by 2018. Assuming such treaties would be ratified by 2019, the MIC could become a reality by 2020.

Delegations from the Chartered Institute of Arbitrators (CIArb) have taken action and put forward the views of the arbitral community on ISDS provisions of the Transatlantic Trade and Investment Partnership (TTIP) and other matters to the EU.

In the UK, prominent figures such as Lord Thomas, the Lord Chief Justice of England and Wales have called for greater court scrutiny of international arbitration, arguing that its use hinders the development of commercial law.

Hostility to all forms of commercial arbitration, domestic and international, is also rife in the US. The perception that buried in every small print from credit card agreements to employment contracts are forced arbitration provisions that preclude class action suits has led to a public backlash against any form of arbitration.

User demand

Whilst arbitration is under great scrutiny, the statistics paint a healthy picture. It appears to be the dispute resolution mechanism of choice for business globally. Figures point to its success as a system that works and one that is favoured for its neutrality, flexibility and efficiency.

In a recent international arbitration survey by Queen Mary University of London and White & Case, 90% of respondents chose international arbitration as their preferred method of dispute resolution, either standalone or in conjunction with mediation or negotiation.

Arbitral institutions are showing a year on year increase in caseload. In 2016, 966 new cases were filed for administration under the ICC International Court of Arbitration rules, constituting a record year for the Court in its 94-year history. The Singapore International Arbitration Centre (SIAC) also saw a 27% increase in the number of new cases (343) in 2016 and the International Centre for Settlement of Investment Disputes (ICSID) registered its highest-ever number of new cases in 2015 (52 cases).

The popularity of international arbitration is due to a number of attractive features. It provides parties with a neutral forum in which to resolve their dispute – the arbitration can be held in a place that is on neither parties’ home ground and by a neutral tribunal with the requisite expertise, chosen by the parties themselves. The ability to choose the seat of arbitration enables greater speed and efficiency in the process, for example foreign companies can avoid lengthy delays in the local courts of some countries or indeed those that have a perceived reputation for corruption. There is also flexibility in the process in that parties have the freedom to choose what rules govern the procedure.

Moreover, arbitral awards are binding and internationally enforceable under the provisions of the New York Convention of 1958 to which nearly 160 countries are signatories, providing parties with certainty of outcome. Indeed, it is this very reason that respondents to the Queen Mary survey cited as arbitration’s most valued characteristic.

Thriving centres

Along with this growth, the market for third party funding has also burgeoned. The legitimacy of third party funding in arbitration has been further strengthened with recent legislation having been passed in Hong Kong and Singapore to accommodate it.

The growing economies of Asia and Africa have largely fuelled the demand for international arbitration and accordingly there has been a proliferation of regional arbitral centres to support this. The Mauritius International Arbitration Centre (MIAC), Hong Kong International Arbitration Centre (HKIAC) and the China International Economic and Trade Arbitration Commission (CIETAC) are to name but a few, which have been established with the express aim of enabling arbitration to flourish.

Safeguards and the future

These arbitral institutions not only provide the all-important rules and guidelines to safeguard standards and ethics, but they also play a key role in bridging the gap between common and civil legal traditions. The CIArb, in particular, has spent much effort in leading the debate on bringing together the different approaches brought about by these two systems. As a leading education and training centre with a global presence, the Institute has also done much to encourage inclusivity in the field.

In an effort to address the issue of harmonising different legal systems, the CIArb has organised a three-part conference series this year focusing exclusively on the synergy and divergence in civil law and common law in international arbitration. Bringing together leading figures in the field, the conference has focused on each part of the world in turn, from the MENA region to Africa, culminating in a comprehensive session in Paris later this year which will focus on developments from a European and American angle.

Will the proposed establishment of the MIC have significant ramifications for investment arbitration in Europe? What impact will Brexit have on London as a major arbitration centre? How do differences in civil and common law traditions affect the way in which arbitrations are conducted and what practical measures are there to overcome current problems? Key insights into these questions as well as the impact of CETA, TTIP and Brexit on arbitration will be examined by top experts in the field on 7-8 December.

If the figures are anything to go by however, the pace of user demand suggests that arbitration will continue to thrive regardless of the knee-jerk political pressures of the moment.

Nikki Nang Nilar, PR and Communications, CIArb.

The Chartered Institute of Arbitrators (CIArb) is passionate about promoting a harmonious society and helping people and organisations avoid, manage and resolve conflict through its global network of 15,000 members.

To register for CIArb’s International Arbitration Conference in Paris on 7-8 December 2017, visit www.ciarb.org/events