Capital gains

Brexit potentially disadvantaged the UK in respect of international litigation, with the loss of automatic recognition by European jurisdictions complicating the enforcement of UK judgments. But it makes little difference to arbitration, where enforcement of decisions and awards is governed by the New York Convention, rather than reciprocity. This and other benefits to commercial parties and individuals involved in high-stakes disputes are fuelling an arbitration boom. How is London fighting its corner as a leading destination for international arbitration?

Arbitration v litigation

Ben Giaretta, partner and co-head of international arbitration at Fox Williams, is a board member of the Chartered Institute of Arbitrators (CIArb) and immediate past chair of its London branch. He explains that as more international commercial contracts include arbitration clauses, activity has increased. While the choice of jurisdiction is a key factor in resolving differences between international parties by arbitration, comparing litigation and arbitration is not comparing like with like. ‘What parties understand by litigation will vary by jurisdiction, whereas arbitration is a more flexible process,’ he says. ‘Rationally, the benefits of arbitration include enforceability under the New York Convention, but in a negotiating situation, neutrality is key. Arbitral parties [from different jurisdictions] can opt for a neutral location.’

The private nature of arbitration is a key benefit. Unlike court cases, arbitrations are conducted in private, and parties appoint an arbitrator and agree the venue. A less adversarial approach without the risk of negative press allows companies to manage a dispute and continue a business relationship. However, Giaretta adds that opting for arbitration does not guarantee confidentiality, which is a legal duty and may be subject to reporting obligations. For example, listed company filings in the US include arbitration, and investment arbitrations are reported in the Global Arbitration Review.

Artem Doudko, partner and head of Russia and CIS disputes at Osborne Clarke, London, identifies flexibility and party autonomy as arbitration’s key advantages. ‘Disputes are about getting the final result, and getting paid what you think is owed,’ he says. ‘Under the New York Convention, an arbitral award signed in any of more than 160 countries can be enforced in the others.’ Another advantage is the consensual nature of arbitration. While litigation is a prescriptive process which includes budget plans and disclosure requirements, parties to an arbitration have more flexibility around the details of the procedure and how it will run, under the terms of the Arbitration Act. He believes that amendments proposed by the Law Commission are about modernising the rules, rather than introducing substantive changes.

Arbitration is popular in sectors such as energy and construction, where multinational companies commonly engage in major infrastructure and engineering projects in third countries involving specialist skills. In the event of a dispute, parties can engage an expert arbitrator; whereas if they go to court, the judge may not have technical expertise or sector experience. The ability to choose an arbitrator with particular expertise, for example in construction matters or with specific language skills, and to choose an appropriate arbitral seat such as London, helps parties manage litigation risk.

As Doudko explains, arbitration generally involves international cases with parties from different countries seeking to resolve disputes arising out of corporate transactions. It is a useful option for businesses who need to resolve a matter privately, but wish to continue a working relationship. He believes the increase in arbitration since Brexit may have arisen partly because it has proved to be a reliable mechanism which continues pretty much unchanged as it is governed by the New York Convention and the Arbitration Act. 

London as a global seat

London has always been a leading global centre for international arbitration because of its geographical location, English language and English common law, and its judicial independence.

As well as being a centre of expertise in multiple sectors – maritime, energy, transport and so on – London is recognised for its range and depth of legal talent and specialism, its international focus, and the quality of arbitration knowledge. Unlike New York, for example, where arbitration tends to focus on the US legal market, London arbitrators work internationally and are therefore ‘subconsciously promoting London’, observes Giaretta.  

Dr Kabir Duggal, senior international arbitration adviser at Arnold & Porter in New York, highlights the judicial system in England and Wales as a major factor in London’s popularity as an arbitration destination. ‘Government and court involvement is useful, in comparison with the US where nobody in Congress cares about the Federal Arbitration Act. The UK’s stiffest competition is probably from Singapore, but that may be because of the cost and bureaucracy involved in travelling to the UK for a hearing.’

London is the home of prominent arbitration institutions: the London Court of International Arbitration, the International Dispute Resolution Centre, and the International Arbitration Centre. It is also a major centre for arbitration education, with institutions such as CIArb, which has 40 branches and provides training and resources in multiple locations, headquartered in London. The School of International Arbitration at the Centre for Commercial Law Studies, Queen Mary University of London (QMUL) offers the widest range of dispute resolution LLM modules worldwide, as well as two postgraduate diplomas, specialist PhD programmes, and a 10-week executive course on international investment law and arbitration designed for government lawyers and officials.

Major events such as London Disputes Week help to showcase London to the global arbitral community. However, as barrister and arbitrator Michael Patchett-Joyce observes: ‘No international arbitration centre can rest on its laurels.’ Indeed, other centres are investing in resources, education and events. The QMUL and White & Case 2021 International Arbitration Survey ranked London, Singapore, Hong Kong, Paris and Geneva as the most popular arbitral seats in the world, and the Singapore International Arbitration Centre (SIAC) as the most preferred seat in the Asia-Pacific. November saw arbitration weeks held simultaneously in Dubai and New York.

The Law Commission’s proposed amendments to the Arbitration Act 1996 were written in light of an international competitive environment, with the aim of helping the UK continue to be the ‘foremost destination for international arbitration’. As Neil Newing and Alasdair Marshall of Signature Litigation wrote in the Gazette last week, the amendments seek to reflect the rules of other international arbitral institutions, increase clarification and confidence in arbitrators’ decisions, and reduce repetition, improving time and cost-efficiency. 

Quicker and cheaper?

While there is a perception that arbitration is less expensive than litigation, Giaretta is not so sure: ‘Magic Circle and White Shoe US law firms have got into arbitration in a big way, and their arbitration teams charge high rates, which are having an impact. And the cost depends on the case. For example, investment treaty arbitrations tend to take a lot of time, so they can cost millions of dollars, while a commodities dispute that is concluded relatively quickly will be much less costly.’

‘In theory, the advantages of arbitration are cost, efficiency and speed, but in reality, they often don’t move as quickly as one would like them to,’ observes Duggal. ‘Travel is a significant factor. The rationale for choosing a neutral destination is that commercial parties don’t want to end up in the courts of the opposing party and arbitration represents a mechanism that is fair and neutral. The focus is on the practical reality of trade, rather than time and cost.’

'Magic Circle and White Shoe US law firms have got into arbitration in a big way. Their teams charge high rates, which are having an impact'

Ben Giaretta, Fox Williams

Patchett-Joyce agrees: ‘The speed of arbitration has been eroded by its “judicialisation”. Some argue that arbitration is more expensive than litigation, and an obstructive party can slow things down too. So the benefits come down to process confidentiality and arbitrator expertise.’

However, more transparent process-driven arbitration brings the advantage of making arbitration more accessible to commercial parties, and as a career. ‘Now a vast range of rules, protocols, guidance on the web, conferences and seminars have made it accessible,’ says Giaretta. ‘Students can access it more easily than in the past because it is standardised.’

Remote hearings and technology

The QMUL White & Case survey highlighted the use of videoconferencing and virtual hearing rooms. ‘If a hearing could no longer be held in person, 79% of respondents would choose to proceed at the scheduled time as a virtual hearing,’ the survey revealed. ‘Only 16% would postpone the hearing until it could be held in person… Post-pandemic, respondents would prefer a “mix of in-person and virtual” formats for almost all types of interactions… Wholly virtual formats are narrowly preferred for procedural hearings, but respondents would prefer to keep the option of in-person hearings open for substantive hearings.’

Doudko’s experience backs this up. ‘Switching to remote hearings for court cases and arbitrations really helped London, especially as some jurisdictions stopped dispute resolution processes entirely [during the pandemic],’ he explains. ‘Remote works well for procedural and short hearings because it is more efficient and cost-effective, but for longer, substantive debates, an in-person hearing may be better. It is down to arbitrators and parties to decide what fits best, or even to go for a hybrid meeting, where participants who are not actively participating can attend remotely.’

Duggal agrees that it makes sense to organise procedural planning over Zoom, but more complicated disputes that are high-value or involve many witnesses may be better in person. However, he highlights the arbitral institutions’ response to the pandemic as a demonstration of their flexibility. ‘One of the great advantages of arbitral institutions is that they keep a pulse on changes in the market,’ he adds. ‘When Covid happened, the courts in New York shut down and it took time to make things work effectively. But the global arbitration centres took just two weeks to modify their rules.’ While initially there were concerns about online privacy and data security, best practices were introduced to maintain credibility. For example, taking an oath saying nobody else is in the room, no use of virtual or blurred backgrounds and so on.

Conversely, Patchett-Joyce suggests that because remote hearings have become increasingly normal in all arbitration centres, ‘they will bring more benefit to centres which do not have such easy travel arrangements [as London]’.

'When Covid happened, the courts in New York shut down and it took time to make things work effectively. But the global arbitration centres took just two weeks to modify their rules'

Dr Kabir Duggal, Arnold & Porter

While technology in arbitration is currently much the same as it is for other legal services – enabling remote hearings and improving efficiency – Dr Paresh Kathrani, CEO of legal support app Legal Utopia, believes that emerging technology will be transformative. He says: ‘As complexity increases and more technology is used in commercial transactions, arbitral institutions will need to look at substantive and procedural areas such as evidence, as well as integrating blockchain and other technology to deal with disputes, including contract and digital asset disputes. Will the metaverse and other spaces require dedicated dispute resolution centres?’

As international dispute resolution moves online, with the pandemic accelerating the development of online courts, there is increased potential to gain insights from the data produced by online and hybrid interactions. ‘Data presents a very interesting opportunity for arbitration,’ explains Kathrani. ‘There are already platforms that use data for case analytics, however we may see more data being used for disputes analytics. This could enable us to understand the anatomy of a dispute, how and when disputes may arise, and project how they may evolve based on different scenarios.’

Greener arbitrations

The move online has sharpened the focus on sustainability. Research by Herbert Smith Freehills found that the carbon impact of an in-person hearing is 19 times that of a fully remote hearing. Yet the QMUL White & Case survey shows that while the environmental benefits of remote hearings are recognised, this does not generally drive decisions around virtual hearings. However, respondents showed a willingness to switch to paperless practices and would welcome more ‘green’ guidance from tribunals. This reflects the work of the Campaign for Greener Arbitrations, founded in 2019 by independent arbitrator Lucy Greenwood. This invites arbitration practitioners to sign the Green Pledge, a commitment to minimising the environmental impact of their practice.

‘Arbitration practitioners are finally acknowledging that their practices have a significant environmental impact and are taking positive steps to address this, thanks to the tireless efforts of supporters of the Campaign for Greener Arbitrations over the past three years,’ says Greenwood.

Arbitration as a career

Traditionally, arbitration has been a lucrative second career for former judges and this creates succession issues. The skills are also different – litigation requires inductive reasoning while arbitration is more deductive, less rules-oriented. But Patchett-Joyce believes former judges ‘can contribute an important dynamic to the arbitral process. Given the private nature of arbitration, [personal] brand should not play a big role – although it sometimes does. The real values are incisiveness, no-nonsense/fearlessness, and proven experience in big ticket cases,’ he says. ‘However, leading arbitrators dominating the practice slows down succession.’

It is worth noting that although the career path is generally via legal practice, anyone can become an arbitrator – it does not require a law degree. For example, architects sometimes work as arbitrators in construction cases.

Duggal is concerned about the ‘serious diversity deficit’ in arbitration. ‘It’s a great career but it is also a club,’ he says. ‘The key players in Dubai are all from UK institutions and major law firms – you wouldn’t realise you’re in the Middle East.’

‘The parties are international, so there is inbuilt diversity,’ says Duggal. ‘In the US and the UK, general counsel are making sure they are representative and diverse, because there’s so much pressure from the public. Again it’s law firms that need to change.’

Greenwood is more positive. ‘There has been a sea change in international arbitration,’ she says. ‘Diversity initiatives and environmental initiatives are really gaining traction in the community, with arbitrators embracing technology in a way that would have been unheard of even five years ago.’

As arbitration becomes more structured and better known, it is becoming an early career choice for younger lawyers. ‘The past 20 years have seen an explosion of arbitration law and commentary,’ says Giaretta. ‘The huge range of arbitration textbooks, and degrees in arbitration attract people who are aspirational and want an international career.’

Both Duggal and Giaretta emphasise that building a career as an arbitrator takes time and focus. Arbitrators tend to start out as lawyers, then represent parties before getting appointments as an arbitrator. Formal training can be an advantage, as can membership of public bodies such as CIArb. Some law degrees include alternative dispute resolution modules. The challenge is getting noticed and attracting early appointments. ‘For people who are internationally inclined, arbitration is a dream job,’ says Duggal, who was born in Saudi Arabia and educated at Oxford and Harvard. ‘But it takes time to build credibility.’

Will arbitration limit common law?

Potential challenges that remain in this sector include litigation funding – the extent to which parties to commercial disputes should be able to sell on litigation risk using third-party money – and the relationship between arbitration and other forms of alternative dispute resolution. Finally, there are questions concerning the effect of increasing the number of private hearings on the development of common law. The common law system rests on contentious cases going to court and setting precedents, and the law evolves in response to changing needs. If matters are dealt with privately, there is potentially a limitation of common law. And in some matters, for example involving human rights, it may be difficult to arbitrate and enforce because of privacy concerns. Perhaps these issues will be resolved by increased awareness of arbitration as a solution, increased transparency, and the Law Commission’s consultation on the Arbitration Act.

 

 

Joanna Goodman is a freelance journalist