Where Is International Commercial Arbitration Going?

A seminar on International Commerical Arbitration Delivered by Hefin Rees on 13th May 2010

1. In giving an overview of potential future trends, there is obviously an element of “crystal ball gazing”, and the following suggestions are just my thoughts that are designed to encourage debate.

2. It is possible to discern the following trends in international commercial arbitration, in that there is likely to be:

2.1 A further increase in the number of arbitration cases;

2.2 A further increase in the number of arbitration centres to meet the demands for arbitration in particular in Asia, The Middle East, Russia, and South America;

2.3 A greater uniformity of the rules and laws governing international arbitration;

2.4 A risk of further “judicialisation” of arbitration (unless restrained);

2.5 A continued rise in international bilateral investment treaty arbitration[1]

2.6 An increasing diversity in the subject matter of international arbitration;

2.7 An increasing use of mediation and other forms of ADR.

INCREASED NUMBER OF CASES

3. The most obvious future trend for international commercial arbitration is that the number of cases is increasing. With the continuing expansion of international trade and investment, the number of arbitration cases in general will increase. In particular, the Far Eastern “boom” in arbitration is part of a global phenomenon. There is also a considerable increase in arbitration in Russia and South America.

4. Arbitration has become increasingly popular as large companies expand into these emerging markets. With domestic courts in such countries often unpredictable and vulnerable to corruption, companies regard arbitration as a more reliable and neutral option. Another attraction is that hearings are held in private, away from the scrutiny of politicians, shareholders and the media.

5. Whilst there are no statistics available to record the number of ad hoc arbitrations, the most established centres of arbitration report an increasing upsurge in demand.

INCREASED NUMBER OF ARBITRATION CENTRES

6. New arbitration centres have been established to service this new level of business in Asia and the Middle East. In particular, in April 2009 LCIA opened its satellite branch in New Delhi, India, to create the first LCIA independent office outside London. This adds to LCIA’s previous joint venture in February 2008 with the Dubai International Financial Centre to form DIFC-LCIA.

7. The ICC also has, since 2008, had a branch of the Secretariat of the Court in Hong Kong and in Singapore, which has added to the dispute resolution options previously available to parties doing business in the Asia Pacific region. To reflect increasing international commercial trade, the balance of which is inexorably tipping geographically eastwards, it is anticipated that there will be considerable growth in international arbitration in India, China, and the Middle East. There is also likely to be growth in Russia (and its neighbouring countries) and South America.

GREATER UNIFORMITY OF THE RULES

8. There is an ineluctable trend towards a uniformity and harmonisation of the rules and laws governing international commercial arbitration. The last 20 years or so has seen an increase in uniformity of both arbitration rules and national legislations [2]. This is perhaps not surprising as national legislators will continue to be pushed by their own constituencies, particularly their business communities, to adapt their respective legal frameworks to the demands of international business practice for efficient dispute settlement machineries. Part of this process can be seen in the fact that since 2006 UNCITRAL has had its Working Group II engaged in a revision of its Rules, and have held many meetings at different locations across the globe to seek the views of a wide group of users of arbitration services.

9. Once the UNCITRAL Rules have been revised, it is expected that other institutions will follow suit. The ICC has already started to revise its Rules, and the LCIA will no doubt follow suit.

10. It has been said that the rules of the ICC, LCIA, and AAA, for example, “have much more in common than one would expect taking into account their locations and the legal traditions of the host countries” [3]. If one looks closely at the different Rules one can see many similarities and often identical solutions, which contributes to a global harmonisation of the Rules. This also reflects the fact that lawyers and arbitrators engaged in international arbitration are less dependent on their specific national particularities and more open and flexible to the specific needs of disputes in the international context. This increasing harmonisation of the rules is likely to continue; particularly once the new UNCITRAL Rules are adopted in the summer of 2010.

A FURTHER “JUDICIALISATION” OF ARBITRATION

11. There is also a perceived trend towards “judicialisation” of international commercial arbitration, meaning that arbitrations tend to be conducted more frequently with the procedural intricacy and formality more native to litigation in national courts [4]. The problem seems to be most acute in the United States, where there is a tradition of broad-ranging “discovery”, as well as the possibility of challenging arbitral decisions [5].

12. The “judicialisation” has also occurred with more intervention by local courts in some parts of the world that has rendered the arbitral process more often akin to a formal judicial one. This has been described as a “tidal wave of arbitral law submerging international commercial arbitration” [6]. It would be helpful to check this trend, and to recalibrate; otherwise some of the positive features of arbitration – such as expedition, reduced cost, relative informality – may be lost. Arbitration does not need to be a mirror image of litigation. One should always bear in mind that each arbitration can be different and tailored to the specific needs of the dispute. Provided the parties remain, in effect, in control arbitration will remain true to its roots: “a peacemaker and not a stirrer-up of strife” (see Para 1.5 above)

INCREASING DIVERSITY IN THE SUBJECT MATTER OF INTERNATIONAL ARBITRATION

13. In terms of the subject matter of arbitration, as the past has shown us, changes in technology and in international contract practice will dictate what the future subject matter of international arbitration will be. For instance, new types of contracts in fields such as telecommunication, the transfer of technology, genetic engineering, electronic commerce, entertainment and sports will in the future probably take a greater share of arbitration cases. The growing significance of intellectual property will also mean that the World Intellectual Property Organisation (“WIPO”) will need to expand.

INCREASING USE OF MEDIATION AND OTHER FORMS OF ADR

14. There is presently a great variety throughout the world as to what role arbitrators may play in the promotion of amicable settlements between the parties. In countries such as China, Germany, and Japan, at least in domestic arbitrations, there is an expectation by the parties and their lawyers that the arbitrators, at some stage in the procedure, and in consultation with the parties, will try to promote an amicable settlement and suggest solutions for such settlement. In these countries, this is permitted by law and leads to a majority of domestic arbitration cases ending in such amicable settlement. In many other countries, such a role of the arbitrators is either not permitted by law or at least not performed in practice.

15. Research has shown that companies would often like to have an option for mediation available, because an amicable settlement provides a better basis for future business relations between the parties. The traditions in countries such as China may have an impact on arbitration in other parts of the world in promoting arbitral procedures in which an amicable settlement is proactively sought with the consent of the parties.

16. Recently, in December 2009, the Centre for Effective Dispute Resolution (“CEDR”) published its own Rules for the Facilitation of Settlement in International Arbitration. If these Rules are adopted by parties, either on an ad hoc basis or as part of the underlying contract between them, the arbitral tribunal would then be able to invite the parties to participate in a first procedural meeting, at which it will “ensure that [they] are aware of the different resolution processes such as mediation which, in the opinion of the tribunal, might assist the parties”; will allow the tribunal to give a preliminary view on the merits and issues in the case; and the parties will agree to the inclusion of a mediation window in the arbitration proceedings to make it easier for them to come to an amicable settlement, with arbitration proceedings being adjourned so that the mediation can proceed. The CEDR Rules are akin to the pre-action protocols in English Court proceedings; and it is, perhaps not surprising, that it was Lord Woolf who introduced the new Rules in December 2009.

Click here for information on the origins of international commercial arbitration.

References

[1]There are now more than 2,400 BITs that provide for arbitration between the host state and foreign investors

[2]See James H. Carter, “The International Commercial Arbitration Explosion: More Rules, More Laws, More Books, So What? in (1994) 15 Mich. J Int’l 785 (noting the “marked trend towards relative standardisation of a number of aspects of transnational arbitration law and procedure”).

[3]Elena V Helmer, “International Commercial Arbitration, Americanized, “Civilised”, or Harmonised?” (2003) Ohio St. J on Disp, Resol 35 at 55 .

[4]Lillich and Brower, International Arbitration in the 21st Century: Towards Judicialisation and Conformity (Brill, 1994)

[5]Joshua D Rievman, “How the Creep of United States Litigation-Style Discovery and Appellate Rights Affects the Efficiency and Cost-

Efficacy of Arbitration in the United States”

[6]Fali S. Nariman, “The Spirit of Arbitration: the Tenth Annual Goff Lecture” in (2000) 16 Arb Int’l 261 at 262

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