Khawar Qureshi examines the results of two recent surveys on arbitration, and pinpoints areas lawyers need to address



As many lawyers are all too aware, commercial clients attach great importance to avoiding disputes. While good legal advice and management can reduce the risk of disputes arising, as and when they do, the route through which they are dealt with is acquiring greater significance.



Most legal systems have developed an approach whereby parties are free to 'opt out' of the court process and resort to alternative methods. Alternative dispute resolution (ADR) is the term often referred to that embraces three different types of processes, all of which can only be engaged in if the parties agree to use them:



Neutral evaluation (the appointment of an independent person who gives a non-binding opinion of the strengths and weaknesses of the parties' positions). This can be a very cost-effective process for avoiding lengthy litigation.



Mediation (the appointment of an independent person whose function is to 'neutrally' steer the parties towards a sustainable compromise).



Arbitration (the appointment of one or three persons who adjudicate the dispute between the parties, rendering a decision that is then enforced by domestic courts).



Increasingly, parties are entering into contracts with multi-step ADR provisions. This means that the parties agree to try to resolve any dispute by negotiation, failing which they will mediate, and finally arbitrate.



Care needs to be taken when parties enter into contracts to ensure that dispute resolution has been dealt with in a manner that is as advantageous and free from ambiguity as possible. All too often, the focus is on closing the deal. However, careful and forced prior consideration of the dispute resolution process will save time and money later.



There are four main reasons perceived by clients for choosing international arbitration: a process that is neutral of the parties and avoids possible issues that may arise with domestic courts; speed; finality; and confidentiality (arbitration is generally confidential as between the parties) (see the Court of Appeal in Moscow City v Bankers Trust (2005) QB 207 (CA), where it explained the rationale for this approach).



Until recently, the answer to the question, 'How do you know why clients prefer arbitration?' would be met by practitioners like myself with the response, 'My experience tells me'.



Two surveys this year have, in large part, confirmed this insight. US law firm Fulbright & Jaworski looked at trends in international arbitration, while PricewaterhouseCoopers and Queen Mary University of London conducted in-depth interviews with the general counsel of leading multi-national corporations.



There are several key findings. While the number of cases before the English commercial court has declined by almost 50% in the past six years, the likes of the International Court of Arbitration and the London Court of International Arbitration have maintained a steady caseload. Indeed, there has been a 25% increase in the number of international arbitrations over the past five years.



Most parties devote little attention to the details and strategic considerations underpinning the use of a particular arbitration clause. The clause is often a 'boiler-plate' provision with some tinkering.



Parties overwhelmingly prefer to arbitrate without any appeal to the domestic courts. In England, it is possible to exclude a right to appeal on a point of law from an arbitration award by including a clause in the arbitration agreement to that effect (see section 69(1) of the Arbitration Act 1996 and Mr Justice Coleman's ruling this year in Sumukan v Commonwealth Secretariat).



Parties perceive a shortage of good arbitrators and choose from the available pool on the basis of reputation, experience and suitability to the particular issues involved, including cultural sensitivity. And parties are concerned at the cost of arbitration - it is not seen as cost-effective, save perhaps in cases where large sums are involved. The length of time taken for a matter to move from the initial filing of a reference for arbitration to the delivery of a decision is seen as too long in many cases.



Some argue that arbitrators do not assert enough control over processes such as disclosure, witness evidence and oral submissions. Section 65 of the Act enables the parties to ask the arbitrators to place a cap on legal costs. This provision is little known among clients, and seldom used.



The choice of the venue for the arbitration is often not influenced by legal considerations. While the decision is of critical importance because it determines the legal regime within which the arbitration will operate, those parties that make a conscious choice do so on the basis of personal convenience and familiarity with a location. The result is that 57% of US parties questioned prefer New York. Likewise, 78% of UK parties prefer London. Paris was chosen by 5% of US parties and 10% of UK parties. Other venues for arbitrations include Geneva, Singapore, Houston, Stockholm, Berlin, Hong Kong and Amsterdam.



The increase in investment-related disputes (whether under bilateral investment treaties or the Convention on the Settlement of Investment Disputes between States and Nationals of Other States) is seen as the largest growth area for international arbitration, while it is also growing quickly in South America.



The relative ease with which arbitration awards can be enforced is seen as a big advantage. There are 137 states bound by the New York Convention, between which recognition and enforcement of an arbitration award is much easier. Parties that make sure the arbitration is seated in a convention state, and that any arbitration award is enforced in such a state, can greatly enhance the effectiveness of their arbitral process.



Some 95% of corporations expect to continue to use international arbitration.



A theme that emerged from the surveys was the perception that more training was required for in-house counsel on issues such as drafting arbitration clauses. The research also revealed that not all in-house lawyers appreciated the importance of a dispute resolution policy. Again, this is an issue that can be addressed by greater training.



Lawyers should take careful note of the criticisms over costs and delay. With the emergence of centres in locations such as Singapore and Dublin, traditional venues such as London may find their dominance challenged as and when these other (currently cheaper) venues become more established.



The strengths of London as a venue include the unrivalled expertise of the bar (as arbitrators and advocates), law firms, and experts in other disciplines such as accounting and finance. Indeed, the past five years have witnessed an increasing tendency among foreign clients in particular to instruct a barrister directly without recourse to a law firm, which they find much more cost-effective.



There is no denying the fact that many clients consider that engaging law firms in London leads to greater expense than use of lawyers from other jurisdictions. Lawyers should address this by providing more competitive and transparent billing, regular and detailed fee breakdowns, greater use of 'fee capping' on a task-by-task basis, and providing recourse to the costs-capping provision in section 65. They should also narrow factual and legal issues as early as possible, focusing on reducing the volume of disclosure/documents, witness evidence and oral submissions.



The surveys confirm the general satisfaction of commercial parties with the process of international arbitration. The advantages to commercial parties continue to outweigh disadvantages such as delay and cost. However, the surveys do highlight concerns that might well make arbitration less attractive if lawyers do not take steps to tackle them.



Khawar Qureshi is a barrister at Serle Court in London, specialising in international arbitration, and a visiting professor in commercial law at the University of London