Summit Virtually Beckoning – Australia’s International Arbitration Credentials Stoutly Anchored.

The COVID-19 pandemic has been a catalyst for change in the international arbitration space globally. For Australia especially, the playing field has arguably become more levelled, untethering its ability to optimally compete and ascend greater heights joining the apex hubs for cross-border dispute resolution. Encouragingly, whilst further shifts in conventional practice are still required, recently reported arbitral growth statistics suggest that Australia is in a prime position to fully exhibit its first-rate arbitration credentials and take advantage of this somewhat unorthodox opportunity. Particularly so, given the increased volume and success of virtual hearings negating the frequent jarring appraisal that Australia’s ‘inconvenient’ geographical location will perpetually frustrate its potential to attract the highest-stakes international disputes enjoyed by the more ‘proximate’ leading arbitral seats, such as Hong Kong and Singapore.

 

Background
 

Travel restrictions, border closures and quarantine requirements during the COVID-19 pandemic (COVID) have had a significant impact on all facets of everyday life, business and travel. Owing to its innately cross-border dimensions, the field of international arbitration is no exception. Only very seldom will the anatomical components of an international arbitration bring together disputants, counsel, witnesses, experts and tribunal members all based in the same geographic location or even same time zone. Resultantly, as it so often does, international arbitration has been forced to adapt quickly to the changing environment, embracing virtual hearings and tailoring procedures to address potential issues arising from a delocalised, virtual arbitration reality[1].
 

The Australian Centre for International Commercial Arbitration (ACICA) recently published its 2020 Australian Arbitration Report (ACICA Report)[2] which is the first empirical study of arbitral activity in Australia and offers meaningful insight into the dynamics of the arbitration market Down Under. The ACICA Report considered 223 arbitrations (both domestic and international) concluded, conducted or commenced between 2016 and 2019.
 

The findings indicate a significant Australian connection in respect of the arbitrations reviewed, with the majority of reported disputes arising within the construction and engineering sectors. Overall, however, the findings also reveal that oil and gas disputes with an Australian nexus were much more likely to be the subject of international arbitration as a means of resolving controversies, rather than reverting to domestic arbitration procedures.
 

Across the 223 arbitrations studied, the ACICA Report approximates that the total amount in dispute was AUD 35 billion, with some 75% of that value the subject of international arbitrations. The ACICA Report further states that the inclusion of ACICA clauses in new contracts has become more commonplace, likely leading to an increase in future arbitration filings adopting the ACICA Rules[3].
 

For Australia, and its prospects as an irrefutable leading international arbitration hub, this empirical data makes for a heartening read. Even more so, bearing in mind the reported arbitrations all precede the COVID outbreak; the consequences of which (coupled with the pre-existent growth trends) ought – if anything – to fortify Australia’s confidence that it presents as a compelling arbitral seat of choice. Moreover, this new state of affairs ought to fortify the confidence globally vested in the seat by international arbitration users and participants alike.
 

Furthermore, the Asia-Pacific region’s most active arbitral institutions, the Hong Kong International Arbitration Centre (HKIAC)[4] and Singapore International Arbitration Centre (SIAC)[5] have both enjoyed a strong uptick in case filings for the year 2020 – in fact record volumes in each instance. Other Asian arbitral centres are also statistically thriving, including some striking year-on-year growth trends, such as the Vietnam International Arbitration Centre (VIAC)[6], the Korean Commercial Arbitration Board (KCAB)[7], the China International Economic and Trade Arbitration Commission (CIETAC)[8], and the Asian International Arbitration Centre (AIAC) in Malaysia[9].
 

As these reports collectively bear out, Asia-Pacific is increasingly regarded as one of the most favoured geographical regions for arbitration filings. Despite the neighbourhood competition, for Australia this is surely carpe diem terrain – an opportune window to redirect some of the hitherto gravitational pull towards Hong Kong and Singapore where international arbitrations feature an Australian nexus.
 

Observations
 

Of course, whilst anecdotal evidence may strongly hint at a favourable shifting of the needle, only statistical analyses drawn over the next few years will truly determine whether or not Australia seizes this moment to fulfil its long-held ambitions as a ‘go-to’ arbitral hub.  In that cause, some promising signs emerge from the recent statistics reported throughout the Asia-Pacific region:
 

• As outlined above, Australia has long been considered an attractive seat for international arbitration in all respects but one: the constraints of its geographical location and what has been commonly termed its “tyranny of distance” have often seen international arbitration users opt for more geographically attractive seats in the Asia-Pacific region.  The ACICA Report highlights that this may no longer be the case in the wake of COVID, which has forced international arbitration users and institutions to embrace arbitrating disputes in a virtual world. 
   

• The impact of COVID could result in greater movement away from the long-established and customarily most popular arbitral seats of London and Paris, in preference for arbitral centres in the Asia-Pacific region.  This, for Australia, perhaps represents the ‘circuit-breaker’ it has been waiting for.  Whilst not required, in-person hearings often took place at the arbitral seat.  Virtual hearings, on the other hand, are delocalised.  This allows arbitral seats traditionally considered geographically remote, such as Australia, to come to the fore as a more appealing option.  
   

• Virtual hearings allow parties the freedom to select the arbitral seat based purely on juridical / procedural advantages, without concern for any perceived geographical disadvantages.
   

• Where parties have a clear preference for in-person hearings, Australia possesses within its borders an exceptional calibre of specialist international arbitration practitioners.  This option may, however, require parties to select Australian-based counsel and tribunal members while the international border closures remain in force.[10]  Although this may be considered too limiting for some users, others may welcome the opportunity to hold in-person hearings, particularly where there are perceived strategic disadvantages to conducting a virtual hearing.
   

• Judicial support for international arbitration is robust in Australia, which has continued to demonstrate its ‘pro-arbitration bias’ and enduring policy of minimalist interference[11], ranking it among the gold standard jurisdictions for judicial neutrality, independence and integrity.  Especially so, where recent times have shown other traditionally ‘safe’ arbitral seats to be less stable from a geopolitical perspective, such as Hong Kong.
   

Adding to Australia’s international arbitration cache, it has become a frequent home to ‘mega’ projects whereby the project value exceeds USD 1 billion.  In particular, megaprojects in the construction, infrastructure, natural resources and energy sectors throughout its various states.  Projects of this mammoth scale:
 

• are statistically prone to large risks and significant blowouts in respect of the time, quality and budgetary deliverables, therefore giving rise to complex, substantial value, high-stakes disputes; and
   

• innately involve international stakeholders, asset owners and participants (often operating through joint venture vehicles) along the entire project value chain.  This broad confluence of nationalities, investments and interests characteristically predisposes international dispute resolution, outside the auspices of the domestic Australian courts, as the ultimate ‘neutral’ guardian of those interests when they misalign or splinter.
   

“In the middle of difficulty lies opportunity” stated Albert Einstein.  For Australia, the COVID-catalysed virtual epoch in which arbitration is now immersed constitutes precisely that.  To capitalise on and attain Australia’s wider recognition as a preferred arbitral seat, concerted efforts will be essential in actively promoting its clear strengths, particularly where an Australian nexus exists within the underlying contract or the dispute itself.  Such efforts may entail some legal advisers and arbitration users suffering the initial discomfort of adopting more innovative approaches to their customary contractual drafting and dispute resolution practices.
 

Plainly, absent the ‘tyranny of distance’ headwind, the prevailing conditions are now perfect for Australia to climb the summit of international arbitration hubs.  Indeed, if the moment is not seized now, then when?
 

 

For further information, please contact:

 

Diana Kuitkowski, Special Counsel, Clyde & Co

diana.kuitkowski@clydeco.com