29 May, 2016
International arbitration is now the most popular choice of dispute resolution mechanism for cross-border transactions, a trend reflected both across the Herbert Smith Freehills network and by a major UK-based international arbitration survey published in October 2015. Japanese corporates, increasingly party to arbitral proceedings both in Japan and around the world, should be aware of significant developments in the field.
We set out below some anticipated developments in 2016:
- a continued drive to improve transparency in international arbitration;
- potential rise in third-party financing of international arbitration proceedings; and
- implementing new measures tailored to investment arbitration.
The continued drive for transparency in international arbitration
The issue of transparency in both commercial and investment arbitration has been an increasing focus in recent years, and will be a key theme for 2016. Improved transparency has been driven largely by the needs and demands of users. In today's increasingly competitive market, Japanese companies should bear the below measures in mind when selecting an arbitral institution to name in an arbitration agreement.
ICC announcement of two new transparency measures
The ICC is continuing to build on last year's drive for improved transparency, which included an announcement in October 2015 to communicate reasons for many of the administrative decisions it makes under the 2012 ICC Rules. It has announced two further measures in January 2016.
First, for any ICC cases registered on or after 1 January 2016, the names and nationalities of arbitrators sitting in ICC cases will be published on the ICC International Court of Arbitration website. From a practical perspective, this will provide parties with a useful resource for identifying the likely availability and case-load of potential appointees in ICC arbitrations. Availability is an important factor in choosing an arbitrator: an appointee having a full case load could impact the efficiency of the proceedings and the length of time it takes for an award to be rendered. This policy comes with an important caveat, however: parties may, by mutual agreement, opt out of disclosure altogether to preserve their "expectations of privacy".
Second, the ICC will encourage the prompt submission of awards by arbitrators to the ICC Court for scrutiny, by tying the arbitrators' remuneration to the time taken to submit the award. The new policy provides that Tribunals should submit draft awards to the ICC Court for scrutiny within three months (or two months for sole arbitrators) of the last substantive hearing or written submission (whichever is later). The ICC Court can impose discretionary financial sanctions for noncompliance, from a 5 to 10% reduction where a draft award is submitted up to four or five months late (in the case of tribunals and sole arbitrators respectively), up to a reduction of 20% or more for draft awards submitted 10 or 11 months late.
LCIA's published data on time and costs
In November 2015, the LCIA released data on the costs and duration of its cases. The data is based on all LCIA arbitrations which progressed to a final award between 1 January 2013 and 15 June 2015, and were for a quantified sum. In producing the data, the LCIA calculated the total amount it received for administering the arbitration, together with the arbitrators' fees. The mean average cost of an LCIA arbitration was revealed to be USD 192,000: on a par with the Hong Kong International Arbitration Centre, and lower than ICC or the Singapore International Arbitration Centre.
As regards duration, the LCIA calculated the time from the Request for Arbitration being received by the LCIA to the date of the final award, including any stay. The mean average duration of an LCIA arbitration was found to be 20 months.
There is currently no available comparable data for other institutions.
Rise in third-party financing in international arbitration
While third-party financing in litigation is a well-established concept, it is relatively new – though increasingly popular – in international arbitration.
Third-party financing is an arrangement whereby a party that has no connection with the legal proceedings in question funds the legal costs of one of the parties. If that party is successful, then the third-party funder receives a proportion of the award.
Third-party funding is particularly new and untested in the Japanese market, though certain funders have shown interest in exploring this possibility. As this practice grows, Japanese clients and counsel must be aware of the implications for issues such as privilege (particularly a third-party funders' right to see lawyer-client communications and attorney work product), confidentiality (again, a third-party funder's right to view confidential data and information) and the potential for a conflict of interest between the arbitrators and the third-party funders.
Furthermore, a party seeking to challenge or enforce an arbitral award in a national court could lead to additional complications in jurisdictions which may not be familiar with the concept of third-party funding. In particular, whether specific domestic rules in force at the place of enforcement (or challenge) of an award should apply to the third-party funding framework. For example, Singapore expressly forbids third-party funding in all fora (including international arbitration). The question of whether such a domestic law would have any effect on the enforceability of an award rendered with third-party funding is not clear.
Implementing new measures tailored to investment arbitration
New SIAC Investment Arbitration Rules
Investor-state arbitration, also called investment arbitration, is used to resolve investment disputes between foreign investors and the state into which they have made their investment. Such arbitration usually takes place within the framework of a bilateral investment treaty (BIT) between the host state and the investor's state.
Typically, such arbitrations have been conducted under the ICSID or UNCITRAL Rules. This year, however, SIAC will introduce a new set of rules expressly for use in investment arbitration. A draft of these rules was published on 2 February 2016, and can be viewed here.
The drafting committee has indicated that key provisions of the new Investment Arbitration Rules will address multiple contracts, joinder and consolidation, as well as improvements to the existing emergency arbitrator and expedited
arbitration procedures.
It is anticipated that the introduction of these new investment arbitration rules may mean a shift towards Asia as a centre for investment treaty arbitration.
For further information, please contact:
Peter Godwin, Partner, Herbert Smith Freehills
peter.godwin@hsf.com
