Improvements and Innovations in International Arbitration – An Overview of the Main Findings
By Dr. Markus Burianski and Alicia von Mangoldt
The School of International Arbitration at Queen Mary University of London (“QMUL”), with support from White & Case’s International Arbitration practice, has conducted a global survey on trends in international arbitration. It is the sixth and most comprehensive survey of its kind carried out by QMUL, and the third conducted in partnership with White & Case. The survey gives valuable insight into desirable innovations and possible future developments in the field.
The survey, “Improvements and Innovations in International Arbitration”, examines key stakeholders’ perceptions of current solutions as well as potential improvements. It was conducted among a diverse pool of knowledgeable respondents, such as in-house counsels, private practitioners, arbitrators, academics and third-party funders. The survey covers the attitudes of respondents toward five areas; international arbitration in general, seats of arbitration and arbitration institutions, innovations to address time and cost issues, soft law and guidelines and regulation of specific actors. This article gives an overview of the findings of the survey.
Views on International Arbitration
The survey confirms the strong preference of stakeholders for arbitration over other forms of dispute resolution, such as cross-border litigation or mediation. 90% of respondents indicate that international arbitration is their preferred dispute resolution mechanism, either as a stand-alone method or together with other forms of alternative dispute resolution. The average respondent had experience in other areas of law, business, and/or dispute resolution besides arbitration, and thus insight into the options available.
According to the study, the strongest feature of arbitration is the enforceability of the award, followed by the possibility to avoid specific legal systems, flexibility and the freedom to choose arbitrators. This view is shared among the various subgroups of respondents. However, in-house counsels rank confidentiality as one of the strongest qualities of arbitration, showing the importance of that feature to the group.
The study indicates that the weakest feature of arbitration is cost, followed by lack of effective sanctions during the arbitral process, lack of insight into arbitrators’ efficiency and lack of speed. These features are perceived as particularly dissatisfying if encountered together: for instance, if the lack of effective sanctions during the process leads to the counsel being less efficient, thus affecting the speed of the proceedings and ultimately increasing the costs. As pointed out, a number of arbitral institutions have introduced feedback mechanisms on the performance of arbitrators. However, the survey shows that further measures are necessary to come to terms with the perceived lack of insight into arbitrators’ efficiency.
The respondents were also asked if arbitral awards should be appealable on the merits. The study shows that the majority of users are against an appeal mechanism on the merits, in both investment treaty arbitration and commercial arbitration. Hence, there is a strong consensus among stakeholders that arbitration should be a “one-stop shop”. If an appeal function nevertheless were to be available for commercial arbitration disputes, a small majority (52%) believes that an appeal should be implemented within the system of international arbitration, rather than via an external forum such as domestic courts. For investment arbitration, a majority of users prefer that appeals are handled by international courts.
The survey examines what improvements should be made to the international arbitration regime in general. It draws the conclusion that the issues of reducing the cost and increasing the speed of arbitration proceedings are the most pressing. Many of the respondents hold the opinion that these issues are exemplified by a phenomenon described as “due process paranoia”: a reluctance by tribunals to act decisively in certain situations for fear of the arbitral award being challenged on the basis of a party not having had the chance to present its case fully. The respondents described situations where deadlines were repeatedly extended and new evidence admitted late in the process due to what was perceived as the tribunal’s fear that the award would otherwise be vulnerable to challenge on grounds of not fulfilling due process requirements. While some of the stakeholders believed that this is a consequence of the party autonomy inherent to arbitration, and thus difficult to change, others argued that the risk of an award being overturned is overstated and that arbitrators thus have the possibility to manage proceedings more firmly and resolutely.
Evaluation of Seats of Arbitration and Arbitration Institutions
The study shows that the seven most preferred and widely used seats are, in order, London, Paris, Hong Kong, Singapore, Geneva, New York and Stockholm. The study indicates that these seats will continue to be popular in the future. The two most trending and improved seats are Singapore and Hong Kong, suggesting that they may both continue to see an increase in their numbers of users in the future.
The study stresses that by far the most important factor when choosing a seat is reputation and recognition. The respondents’ preference for certain seats was based on the quality of the legal infrastructure of those seats, such as neutrality and impartiality of the local legal system, rather than factors of personal convenience, such as location. The seats that had improved the most, however, showed features such as upgraded hearing facilities, that is, aspects of convenience. The study concluded that those factors become more important once a seat’s formal legal infrastructure reaches a certain threshold of quality. The most improved seats are thus not seats that have experienced drastic transformation, but already well-established ones that have increased their user-friendliness.
The survey shows that the vast majority (79%) of international arbitrations are handled by permanent institutions, rather than by ad-hoc ones. When it comes to the question of which institutions are the most popular, the International Court of Arbitration (ICC) and the London Court of International Arbitration (LCIA) continue to rank first and second respectively, as they did in the 2006 and 2010 Surveys previously carried out by QMUL. As with seats, reputation and recognition are important factors, making it a difficult market to penetrate for less established institutions. According to the survey, the main reasons for ICC’s popularity are internationalism and availability of high-quality services in most jurisdictions. The study shows that institution-specific distinguishing features play a less central role than general performance indicators, such as well-functioning administration and neutrality. However, private practitioners are more likely to take overall costs of service into account when choosing an institution, while in-house counsels value availability of matter-specific expertise.
When asked how arbitration institutions should be improved, many respondents stressed the need for greater transparency. The survey shows that users want more insight into areas such as the institutions’ efficiency, arbitrator performance, how arbitrators are appointed and challenged and average length of proceedings. However, respondents agreed that the lastly mentioned issue might be hard to tackle, given the individual variables of each case and the risk that such statistics might be open to manipulation. Many stakeholders are also in favor of institutions publishing awards in redacted and/or summarized form, as a measure to provide insight into arbitrators’ performance and to encourage arbitrators to write high-quality awards.
Innovations Aiming at Reducing Time and Cost
The survey reveals that a majority of users are positive toward the introduction of simplified procedures for claims under a certain value. Most would like this to be an optional feature, while approximately one-third is in favor of making the regime mandatory. Those who were hesitant expressed concerns that the value of a dispute does not necessarily reflect its complexity. There is no strong consensus as to what value threshold should be applicable. Most users believe that disputes exceeding USD 1 million should fall outside of the regime, but only 40% thought that the value threshold should be set at that amount.
Another feature of process management perceived as effective in reducing time and cost is if tribunals commit to a schedule for deliberations and delivery of final awards. Many respondents were unsatisfied about not knowing when an award would be rendered, stressing that it led to clients being frustrated with the length and uncertainty of the process. The study also shows that stakeholders, perhaps unsurprisingly, find that time issues could be reduced by stronger pre-appointment scrutiny of prospective arbitrators’ availability.
When it comes to the parties’ contribution toward streamlining the proceedings, many stakeholders believe counsels for opposing parties should work together to a higher extent in order to narrow the issues of the dispute, limit document production and facilitate settlement. The study also shows that users want to avoid “overlawyering”, that is, for instance, using teams that are disproportionally large for the case at hand. In line with the general wish that arbitrators handle proceedings more firmly and resolutely, most users are positive toward tribunals having the power to sanction dilatory conduct by parties or their counsel.
Many respondents (46%) were hesitant toward the regime of emergency arbitrators and would rather seek urgent relief at domestic courts. Few of the users had experience with emergency arbitrators and many expressed concern about the enforceability of such awards, finding national courts much more efficient in this respect. Approximately one-third described the regime of emergency arbitrators as “not effective”. Nevertheless, a vast majority (93%) would still prefer having the option of resorting to an emergency arbitrator if needed.
When arbitration and mediation are used in conjunction, most users prefer that arbitration is stayed for the length of the mediation. Fewer than half (44%) of the respondents had, however, used mediation to resolve cross-border disputes. The study shows that one explanation might be the lack of understanding of the benefits of mediation. There is no prevailing view with regards to what innovations might make mediation more popular, and respondents were split on the issue of whether more legislation would be beneficial or not. Some believed that it might give mediation more “teeth” and thus make it more appealing, while others expressed that legislation on the matter is superfluous.
Soft Law and Guidelines
By far the most preferred instruments are the IBA Rules on the Taking of Evidence in International Arbitration and the IBA Guidelines on Conflicts of Interest. These instruments are the ones most widely known, most frequently used and most highly rated.
The survey posed the question if international arbitration is overregulated. The findings indicate that most stakeholders (70% of the respondents) are satisfied with the current amount of regulation. Furthermore, there is a positive view on the available instruments. Those who wished to decrease the amount of regulation expressed that it restricted flexibility and independent thinking in the arbitration process.
Regulation of Specific Actors
While there seems to be an agreement that international arbitration in general does not require increased regulation, there are specific areas where a majority of users feel that further regulation is needed. This is foremost the case for the use of tribunal secretaries, for third-party funding and for the conduct of arbitrators.
The use of tribunal secretaries is common in international arbitration, and the study suggests that most stakeholders have a positive perception of their function and think that arbitral institutions should offer their services going forward. Two reasons given by respondents were that it makes proceedings more efficient and that it provides an opportunity to train future potential arbitrators. However, there is a strong consensus that the tasks performed by tribunal secretaries should be limited to administrative ones, together with preparing draft procedural orders and non-substantive parts of awards. Hence, a majority of users do not think that tribunal secretaries should perform substantive or merits-related tasks. Nevertheless, the survey indicates that approximately one in every ten arbitrators does not consider it improper to delegate these tasks. The survey shows that stakeholders wish to have more insight into what tribunal secretaries do in a particular case. This view was, interestingly, also expressed by many arbitrators who felt they did not have sufficient knowledge of what tasks were entrusted to tribunal secretaries by the presiding arbitrator.
The survey shows that the use of third-party funding is quite common. However, stakeholders have mixed feelings about the regime – around half of the respondents replied that they were neutral toward it, while the rest was split between positive and negative perceptions. Interestingly, those respondents who had used third-party funding in practice had a more optimistic view on it than those who had not. A majority of stakeholders advocate making it mandatory for claimants to disclose any use of third-party funding and the identity of the funder, thus making it easier to discover conflicts of interest and provide the tribunal with context as to the financial position of the parties. However, most do not believe that the full terms of the agreement should be disclosed.
In summary, international arbitration continues to be the most appealing mechanism for the resolution of cross-border disputes. This is not least due to the enforceability of arbitral awards and the flexibility of the regime. The challenges facing arbitration are, among others, finding ways to reduce the time and costs of the proceedings. Stakeholders seem to be in agreement that greater transparency, as well as a more resolute managing of the proceedings, is desirable. There is a strong preference for arbitration continuing to be a “one-stop shop”. Overall, there is consensus among users that arbitration is sufficiently regulated. However, for some specific issues, such as the use of tribunal secretaries, further regulation might be needed.