Bouquets and Brickbats
31 December 2015
Amy Hiew provides the highlights of the 2015 International Arbitration Survey.
International arbitration is considered as one of the leading methods for resolving cross-border disputes. As part of a major empirical investigation into the trends in international arbitration, the School of International Arbitration at Queen Mary University of London (under the sponsorship of White & Case LLP) conducted the 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration (“2015 Survey”), which focused on the improvements and innovations in the international arbitral process.
The objective of the 2015 Survey was to collate the views of a comprehensive range of stakeholders on the improvements and innovations, both past and potential, in international arbitration. With 763 questionnaire responses and 105 personal interviews, the 2015 Survey was reported to have one of the largest pools of respondents to date.
Some of the key findings of the 2015 Survey were:
- An overwhelming majority of the respondents chose international arbitration as their preferred dispute resolution mechanism.
- The five most preferred and widely-used seats are London, Paris, Hong Kong, Singapore and Geneva.
- The four most preferred arbitral institutions are the ICC, LCIA, HKIAC and SICC, with the most improved institution being the HKIAC.
- The procedural innovation perceived as most effective at controlling time and cost in international arbitration is a requirement for tribunals to commit to a schedule for deliberation and delivery of final awards.
- Respondents generally have a positive perception of guidelines and soft law instruments in international arbitration.
- A clear majority of respondents felt that tribunal secretaries and third party funding are areas which require regulation.
VIEWS ON INTERNATIONAL ARBITRATION
In line with the growing popularity of international arbitration, an overwhelming majority of the respondents (90%) chose international arbitration as their preferred dispute resolution mechanism, either as a stand-alone method (56%) or together with other alternative dispute resolution methods (34%). This result may be explained by reference to the specific characteristics of international arbitration that respondents find most valuable. Unsurprisingly, “enforceability of awards” (65%) is regarded as the most valuable characteristic of arbitration, followed closely by “avoiding specific legal systems/national courts” (64%). The other commonly known attributes, such as “finality” and “neutrality”, were chosen less often.
On the other hand, the often cited advantage of arbitration, “costs” was by far the worst characteristic (68%). This was followed by “lack of effective sanctions during the arbitral process” (46%), “lack of insight into arbitrator’s efficiency” (39%) and “lack of speed” (36%).
It appears that the common denominator of these worst characteristics is that they relate to the internal working of the arbitral system which is within the control of its stakeholders. It was perceived that the lack of effective sanctions during the arbitral process did not incentivise efficiency by counsel, whilst the desire to appoint productive arbitrators was hindered by lack of insight into arbitrators’ efficiency. In turn, these factors resulted in increased cost. Despite the flaws in international arbitration, the respondents felt that the benefits of international arbitration outweighed its flaws.
Interestingly, it was reported that the one issue that was repeatedly raised when asked what improvement could be made to international arbitration was the phenomenon dubbed “due process paranoia”. “Due process paranoia” describes a reluctance by a tribunal 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. It was perceived that the tribunal’s decision in allowing repeated extension of deadlines, admitting fresh evidence late in the process, or condoning other disruptive behaviour by counsel may be attributed to the tribunal’s fear that the award would otherwise be vulnerable to challenge. It is therefore not surprising that many of the respondents expressed the view that problems such as the lack of speed and increased cost are partly rooted in this due process paranoia.
PREFERRED AND IMPROVED SEATS
Whilst the traditional arbitration hubs of London (45%) and Paris (37%) are still the most widely used and preferred seats, the greatest momentum was shown by Hong Kong (22%) and Singapore (19%), which were the third and fourth most popular seats respectively.
The “reputation and recognition of the seat” (65%) was the main reason for selecting these seats, followed by “law governing the substance of the dispute” (42%). The 2015 Survey also disclosed that the four most important factors (in descending order of importance) for the choice of seats are “neutrality and impartiality of the local legal system”, “national arbitration law”, “track record for enforcing agreements to arbitrate and arbitral awards” and “availability of quality arbitrators who are familiar with the seat”.
The respondents felt that Singapore (24%) and Hong Kong (22%) were the seats that have improved the most over the past five years. Better hearing facilities, availability of quality arbitrators who are familiar with the seat, better local arbitral institutions and improvements to the national arbitration law were the most often cited reasons why the respondents thought their selected seat had improved the most.
The International Chamber of Commerce (“ICC”) (68%) again topped the chart as the preferred arbitral institution. It is reported that the internationalism of the ICC and its high-quality services helped the ICC maintain its dominant position.
The main areas of discontent among users were the lack of insight provided into institutions’ efficiency and arbitrator performance, and the lack of transparency in institutional decision-making in relation to the appointment of, and challenges to, arbitrators. It was suggested that more information about the average length of time of institutions’ cases would enable users to make more informed choices on arbitral institutions. Many respondents also suggested that institutions should publish the time arbitrators took from their appointment to the rendering of the award in previous cases at that institution.
REDUCING TIME AND COST
The respondents considered that cost and lack of speed were among the worst characteristics of international arbitration. The proposed procedural innovation to control time and cost that received the most positive response was the “requirement that tribunals commit to and notify parties of a schedule for deliberations and delivery of final award”. Sanctions for dilatory conduct by parties or their counsel also featured among the more popular innovations to reduce time and cost.
Further, 92% of respondents wanted simplified procedures to be included in institutional rules for smaller claims. At least 94% of respondents felt that simplified procedures should not apply to disputes exceeding US$1 million. However, as only 11% of respondents indicated that the majority of their disputes were valued under USD$1 million, it is debatable whether there is indeed a need for simplified procedures.
The 2015 Survey reported that emergency arbitrators, as a method to control time and cost, received lukewarm responses, with scores of 35% “not effective”, 30% “neutral”, and 36% “effective”. One of the findings relating to emergency arbitrators which merit attention is that only 29% of respondents would prefer to seek urgent relief from an emergency arbitrator, while 46% would opt for relevant domestic courts. Users’ reluctance to seek reliefs from emergency arbitrators could be influenced by the enforceability of the emergency arbitrators’ decisions as 78% of respondents wanted decisions by emergency arbitrators to be enforceable in the same way as arbitral awards.
In response to the question as to what could arbitration counsel do better to reduce time and cost, the four main options chosen by the respondents were as follows: “seek to work with opposing counsel to narrow issues” (66%); “seek to work with opposing counsel to limit document production” (62%); “encourage settlement, including the use of mediation during an arbitration” (60%); and “not overlawyering” (57%). Only 51% of the respondents favoured running an arbitration concurrently with a separate mediation while 78% of the respondents preferred to stay an arbitration pending mediation.
SOFT LAWS AND GUIDELINES
Generally, respondents had a positive perception of guidelines and soft law instruments in international arbitration. On the question as to whether international arbitration is being ‘overregulated’, a clear majority (70%) said that international arbitration currently enjoys an adequate amount of regulation, thus indicating a preference for status quo.
The IBA Rules on Taking of Evidence in International Arbitration and the IBA Guidelines on Conflict of Interest were the most widely known and the most frequently used soft law instruments. These two instruments were also considered to be the most effective.
ROLE AND REGULATION OF SPECIFIC ACTORS
A small majority (55%) felt that the conduct of arbitrators should be regulated more. Among the options proposed in the survey to regulate arbitrators’ conduct were instruments issued by arbitral institutions, a code of conduct by a professional institution or body for arbitrators (such as the Chartered Institute of Arbitrators) and databases that provide the parties with information about the arbitrator’s performance in past cases. However, each of the aforesaid options received about 20% favourable response.
Only 46% of respondents felt that the conduct of party representatives should be regulated more, although interestingly, 68% of the in-house counsel group favour greater regulation. It was reported that interviewees opined that the best way to regulate party representatives was not through more regulation, but through effective use of the sanctions that are currently available.
In general, the respondents had a positive view of the role of tribunal secretaries, with only 9% feeling that they were not useful.
The majority of respondents identified three particular tasks as appropriate for tribunal secretaries to undertake: organisation tasks (93%); communications with the parties (82%); and preparing drafts of procedural orders and non-substantive parts of awards (75%). Whilst the roles of tribunal secretaries are recognised, a vast majority did not consider it appropriate for tribunal secretaries to conduct substantive or merits-related tasks.
Third Party Funding
In recent times, third party funding has attracted a great deal of attention across the arbitration community. In fact, 39% of respondents had encountered third party funding in practice; 12% having used it and 27% have seen it used.
On the issue of regulation, 58% of respondents opined that the best way to regulate this area was through guidelines such as the IBA Guidelines. Generally, respondents felt that it should be mandatory for claimants to disclose any use of third party funding (76%) and the identity of the funders (63%), but not the full terms of any funding agreement.
The 2015 Survey confirms the popularity of international arbitration as a mechanism for dispute resolution. Overall, the respondents appear to be satisfied with the existing framework of the leading arbitral institutions. The control of time and cost appears to be the main concern of the respondents. Greater transparency in third party funding is also called for. The 2015 Survey also provides helpful insights on areas where arbitral institutions could improve upon in order to meet the requirements of the international arbitration community.
The full report can be viewed at: http://www.arbitration.qmul.ac.uk/docs/164761.pdf