17 January, 2016
Efficiency in arbitration
There has been a continued focus on ways to make arbitration more efficient during 2015: ways to make arbitration quicker and cheaper, without compromising on quality.
The most striking reforms in 2015 have been made in individual countries. In India, the Arbitration Act was amended to include a requirement that arbitrations be completed within 12 months (with up to six months’ extension of time by agreement of the parties, and any extensions thereafter requiring court approval). In the US State of Delaware, a Rapid Arbitration Act was introduced, under which arbitrations must be completed within 120 days (which can be extended to 180 days upon the agreement of the parties). Under both the Indian and the Delaware laws there could be financial penalties for the arbitrators, and in India costs consequences for the parties, if these time-limits are not complied with. This could be a trend that continues in 2016 and beyond, with more countries setting strict timelines for arbitration and specifying consequences for parties and arbitrators if there is a default.
Arbitration institutions continue to promote expedited procedures, which mandate specific timings (typically six months for the whole arbitration) rather than leaving this to the discretion of a tribunal. Various institutions have already introduced expedited procedures, such as the SCC in Stockholm and the SIAC in Singapore. In the past year, ACICA in Australia has revised its expedited procedures, and the Arbitration Club in the UK has published expedited arbitration rules for use in the financial services sector. A case in Singapore (AQZ -v- ARA) also confirmed that if parties have incorporated rules which include an expedited process with a sole arbitrator, this overrides the parties’ choice of three arbitrators in their arbitration clause. The inclusion of a simplified process for smaller value claims was supported by 92 per cent of respondents to a survey conducted by School of Arbitration of Queen Mary University of London (QMUL) in 2015, so we expect this trend to continue as well.
Institutional costs and costs awards
In 2015, the LCIA analysed arbitrations conducted under its rules and found:
- on average, an LCIA arbitration with one arbitrator takes 18.5 months, and an LCIA arbitration with three arbitrators takes 21 months; and
- the arbitrators’ fees and the LCIA’s administrative fees in an LCIA arbitration total just under US$ 200,000 on average. This is less than the ICC and the SIAC, but more than the HKIAC.
The ICC also reviewed costs awards in ICC arbitrations, and found that arbitral tribunals mostly adopt a “loser pays” approach, regardless of the rules used or the seat of the arbitration. However, appropriate adjustments are made depending on how the case has run, the complexity and importance of the dispute, and whether the winning party has succeeded on all parts of its claim. This frequently means that the winning party does not recover all of the costs that it has claimed. Conduct is also taken into account, and in its report the ICC encouraged tribunals to make greater use of costs awards to sanction improper conduct by parties, including conduct that impacts on efficiency.
Third party funding of arbitration cases
Arbitration cases being funded via funding agreements with finance providers has become increasingly high-profile over the last 12 months. Such third party funding has featured prominently in investment treaty arbitration in recent years, and funders are increasingly marketing themselves to parties in international commercial arbitration as well. They are targeting not only parties who may not have sufficient funds to pursue a claim, but also parties who operate under tight budgets and who prefer to bring in funds from elsewhere.
The increasing use of third party funding might also have a positive impact on the efficiency of arbitration, given funders’ requirement for proper project management and budgeting of cases by parties and their lawyers.
That said, international practice and attitudes towards third party funding remains inconsistent: there is no consensus on how to deal with such funders. Australia, the UK, and US have permitted third party funding for some time; in contrast, Singapore maintains the position that third party funders cannot be involved in disputes because of the doctrines of “champerty” and “maintenance”. Hong Kong issued a consultation paper about third party funding in arbitration in 2015: it is expected that legislation permitting this will be introduced there in 2016.
Tribunals are also grappling with the issues that third party funding present, and in particular the potential for conflict of interests, and the recoverability of costs if the funded party loses. Notably, in June 2015 the ICSID tribunal in Ticaret -v- Turkmenistan ordered the claimant to name the funder that was supporting it, citing the importance of transparency in such cases. Disclosure of funding arrangements is likely to be required in other arbitrations in future.
In response to these issues, and the differences of opinion, QMUL has set up a task force to look at third party funding in arbitration. It should report on this in 2016.
Anniversaries in 2015
The Federal Arbitration Act in the USA was first enacted 90 years ago, in 1925.
Several institutions issued guidance in 2015 on best practice in international arbitration. These publicly available documents may contribute to the standardisation of international arbitration practice.
The CIArb has begun revising its International Arbitration Practice Guidelines. The guidelines revised so far include those on jurisdictional challenges, applications for interim measures and security for costs; and work is continuing on the revision of the CIArb guidelines on topics such as interviewing arbitrators, multi-party arbitrations, drafting awards, etc.
The LCIA issued new Guidance Notes for parties and arbitrators, and for use in emergency arbitration.
The SIAC issued new guidance on the use by arbitrators of tribunal secretaries to assist them in administrating an arbitration.
Ethics in arbitration
Ethics has remained a hot topic in international arbitration. After codes of conduct were issued for arbitrators and counsel in previous years, in 2015 the Swiss Arbitration Association proposed that a Global Arbitration Ethics Council should be established. This would be a transnational body, tasked with policing unethical conduct in arbitration. The proposal was discussed by various stakeholders but no consensus was reached; further talks may be held in 2016.
Diversity in arbitration
As confirmed by surveys in 2015 conducted by QMUL and the International Bar Association (IBA), the trend continues of parties using a greater range of seats of arbitration throughout the world. Not only are arbitrations taking place in the established arbitration centres in Asia, Europe and the USA, but also in new seats in Africa, South America and the Gulf Convention Countries.
With a greater geographical spread, a more diverse range of participants are engaging in arbitration, and this is driving (in part) the move towards standardisation of ethical codes and best practices in arbitration, described above. Nonetheless, there remain imbalances among the participants – including an under-representation
of women as both counsel and arbitrators. That topic was highlighted in the ArbitralWomen/Transnational Dispute Management event hosted by Ashurst in July 2015, in London. We expect this to generate further debate in 2016.
Anniversaries in 2015
The ICSID Convention, which established the International Centre for the Settlement of Investment Disputes (ICSID), had its 50th anniversary.
Drafting arbitration clauses
Choosing the seat of the arbitration
As part of its centenary celebrations, the CIArb published guidance on choosing a “safe” seat of arbitration. Called the “CIArb London Centenary Principles” (after being launched at a conference held in London in July 2015), these are ten factors that parties should look out for when they are choosing a seat for their arbitration:
- A modern arbitration law.
- An independent, competent and efficient judiciary that respects the choice of arbitration.
- An independent, competent legal profession with expertise in international arbitration.
- An implemented commitment to education and the further development of learning in arbitration.
- A right for parties to be represented by anyone they choose in arbitration (from within or outside the country).
- Easy accessibility to the country, and safety for the participants, their documents and information.
- Functional facilities (e.g. hearing-rooms) for international arbitration.
- Ethical norms which recognise diverse approaches and the developing international ethical principles.
- Adherence to the international treaties for the recognition and enforcement of awards.
- A right to immunity for anarbitrator, for anything done in good faith in their capacity as arbitrator.
Wording of arbitration clause
A number of arbitration institutions introduced amendments to their standard clauses in 2015. The HKIAC recommended that parties specify the governing law of the arbitration clause; while the SIAC advised parties to state that the arbitration was “administered by” the institution, in particular so as to comply with the arbitration law in China.
Innovations and new developments
New institutions, rules and laws
Two new arbitration institutions were created in 2015:
- the China Africa Joint Arbitration Centre (CAJAC) was announced in Johannesburg in August 2015, with a
- mandate to resolve disputes involving parties from China and Africa; and
- the Abu Dhabi Global Market, the new international financial centre in Abu Dhabi, issued draft Arbitration
Regulations in October 2015, with a view to establishing an arbitration centre in 2016. Elsewhere, there were revisions, relaunches and new arrangements:
- the CIArb revised its arbitration rules, with effect from 1 December 2015;
- in November 2015, the DIFC-LCIA arbitration centre in Dubai was relaunched in the DIFC Gate Building;
- PRIME Finance, which specialises in complex financial disputes, signed an agreement in December 2015 with the Permanent Court of Arbitration (PCA), under which the PCA will administer disputes under the PRIME Finance Arbitration Rules;
- in Australia, the International Arbitration Act 1974 (Cth) was revised, and ACICA published new rules; and
- the Arbitration Act was amended in Brazil.
New international court processes
The Hague Choice of Court Convention came into force on 1 October 2015. It offers the possibility of reciprocal recognition of court jurisdiction clauses and enforcement of court judgments, in a similar manner to the New York Convention in arbitration. It is now in force in 28 countries: all the states in the EU (with the exception of Denmark) and Mexico. Singapore signed it in March 2015, and is expected to ratify it soon; while the USA signed it in 2009 and may ratify it in the future. Other jurisdictions, including Australia and
Hong Kong, are currently considering it.
The Singapore International Commercial Court was launched in January 2015, and the ADGM Courts, supporting the new financial centre, were established in the Abu Dhabi Global Market in October 2015.
Anniversaries in 2015
The Panama Convention (the Inter-American Convention on International Commercial Arbitration) was signed 40 years ago, in 1975.
Enforcement of arbitration awards
New parties to international conventions
The New York Convention gained three new signatory states in 2015: Palestine, Comoros and Andorra. There are now 156 parties. Iraq and San Marino ratified the ICSID Convention, which brings the number of ICSID parties up to 160. In comparison, the United Nations has 193 member states.
The debate continued in 2015 over the “transnational” nature of arbitration – i.e. whether or not arbitration is independent of national legal systems. One of the consequences of independence is that arbitration awards may be enforced regardless of whether they have been set aside at the seat of the arbitration. In high-profile lectures, Lord Mance and Chief Justice Sundaresh Menon argued against such independence, while Gary Born (the President of the SIAC Court of Arbitration) argued in favour. It was played out in practice in the Astro -v- Lippo case, in which enforcement was refused in Singapore but granted in Hong Kong (this is now being appealed in Hong Kong).
Principles of enforcement
Also in Hong Kong, the Court of First Instance in KB -v- S set out the following ten principles for the enforcement of arbitration awards in that territory:
- The primary aim of the courts is to facilitate arbitration and assist with enforcement of awards.
- The courts should interfere only as expressly provided for in the arbitration law.
- Subject to public interest safeguards, parties should be free to agree on how to resolve their disputes.
- Enforcement of an arbitration award should be “as mechanistic as possible”.
The party opposing enforcement has to show a real risk of prejudice and that its rights have been violated in a material way.
Any conduct during the arbitration that is complained of must be “serious, even egregious” before the courts will find that there was an error sufficiently serious as to have undermined due process.
In considering whether or not to refuse the enforcement of an award, the courts do not look into the merits or at the underlying transaction.
Failure to make a prompt objection to the tribunal or the supervisory court may mean a party loses its right to complain.
The courts have residual discretion, and may enforce an award even if sufficient grounds are made out to refuse enforcement.
Parties to an arbitration have a duty of good faith and must act bona fide, and an award might not be enforced if this has not been complied with.
Although only binding in Hong Kong, the courts of other countries may also look to these principles as guidance.
Anniversaries in 2015
The UNCITRAL Model Law on International Commercial Arbitration and the QMUL had their 30th anniversaries.
Investment treaty arbitration
2015 was a turbulent year for investment treaty arbitration. In the 50th anniversary year of the ICSID Convention, more treaties were signed containing arbitration provisions (also referred to in this context as Investor-State Dispute Settlement, or ISDS), and more arbitrations were started; but more protests were also raised about the use of arbitration. Even Bill Gates and Michael Bloomberg became involved, by pledging US$4 million to a fund intended to assist poorer countries in defending ISDS claims brought against them by tobacco companies.
In the USA, 135 academics wrote a joint letter in March 2015 to the leaders of US Senate and House of Representatives, criticising ISDS as “threatening domestic sovereignty and weakening the rule of law”. In response, in April 2015, 50 academics wrote to the US Senate and House of Representatives in support of ISDS, calling for a “robust, even-handed and careful discussion based on facts and balanced representations, rather than errors or skewed information”. The IBA also issued a “fact-correcting statement” in April 2015, to counter the misconceptions and inaccurate information that commonly feature in discussions about ISDS.
The protests have been galvanised in particular by advances in the negotiation of two multilateral treaties, the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP).
The TPP was signed on 5 October 2015, after many years of negotiation. It is one of the biggest multilateral trade treaties ever signed, involving 12 countries and almost 40 per cent of the world’s GDP. The TPP contains ISDS provisions, giving investors from one state the right to commence arbitration against the government of another state if their investments are diminished in breach of the terms of the TPP. The ISDS provisions build on what has gone before, taking into account lessons learned from earlier investment treaty caselaw. The TPP also provides for transparency in the process, for example by making transcripts of hearings publicly available. The TPP still has to be ratified by each country; that may take some time.
While ISDS under the TPP was marked by evolution not revolution, there was a radical departure in the EU proposals for ISDS in the TTIP, released in September 2015. The EU Commission argued that arbitration should be abandoned altogether in the context of investment treaties, and instead a standing investment court should be created to deal with any disputes. It remains to be seen whether this proposal will be accepted by the USA, and there are also open questions about how it will work in practice, for example in the relationship between the investment court and the European Court of Justice. In the meantime, it was announced in December 2015 that Vietnam has agreed to the EU investment court being included in the EU-Vietnam Free Trade Agreement: this may provide useful guidance on how such a court would work in the TTIP.
The end of the year saw the conclusion of one of the most hotly-debated ISDS cases, Philip Morris -v- Australia. Philip Morris had started a claim against Australia in 2011 under the investment treaty between Australia and Hong Kong, as a result of losses that it said it had incurred following the introduction of plain packaging for tobacco products in that country. The tribunal decided it did not have jurisdiction to hear the claim, a result that was an anti-climax in the context of the debate about ISDS: both opponents and supporters of ISDS would probably have preferred it if the tribunal had proceeded to rule on the substantive issues.
Looking forward to 2016
We anticipate a number of developments in international arbitration in 2016. These include:
- New arbitration rules for the SIAC are due to be launched in May 2016.
- Hong Kong may permit third party funding in arbitration, and the QMUL task force may issue its report on
- the same topic.
The TPP may come into force, if it is ratified by the member states (however, the US elections at the end of
2016 may prove a stumbling-block).
Negotiations over the TTIP will continue.
South Africa is expected to revise its arbitration law.
The Yukos shareholders will continue in their efforts to enforce a US$50 billion award against Russia.
Sepp Blatter and Michel Platini will appeal their bans from football to the Court of Arbitration for Sport.
The arbitration between Philippines and China over China’s claim over the South China Sea will continue, and an award should be issued in 2016.
We also expect the digital disruption of new technology in international arbitration to gather pace in 2016 and in the coming years – with greater use of online dispute resolution, in particular, and improvements in video conferencing perhaps reducing the need for physical hearings.
For further information, please contact:
Gareth Hughes, Partner, Ashurst