This article originally ran in InsideCounsel on May 19, 2015.
Business is global. Dispute resolution is global. Trends that originate in one jurisdiction can, and often do, have an impact around the world. To succeed, businesses and their counsel must stay abreast—and hopefully get ahead—of those trends. Three current trends present important opportunities and challenges to the in-house counsel community and merit close attention.
Development of a Framework for Expedited Enforcement of Conciliation/Mediation Settlement Agreements
It is widely agreed that the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (“New York Convention”) has played a critical role in the growth of arbitration over the last half a century. As of January 2015, over 150 State parties have adopted the New York Convention which, by providing a multilateral framework recognizing the validity of commercial arbitration agreements and enabling expedited enforcement of arbitral awards in convention States has made arbitration the leading form of dispute resolution for cross-border disputes.
Despite the fact that most companies consider conciliation/mediation to be the most efficient and cost-effective form of dispute resolution, its growth on the international front has been inhibited by concerns that, if a party reneges on an agreement, the time and resources invested in the process are lost due to a lack of a global and streamlined enforcement mechanism. With the goal of encouraging conciliation/mediation of cross-border disputes in the same way that the New York Convention has facilitated the growth of arbitration, at the June 2014 Session of the United Nations Commission on International Trade Law (UNCITRAL), the U.S. delegation proposed that Working Group II of the Commission develop a multilateral convention on the enforceability of international commercial settlement agreements reached through conciliation/mediation. The Commission requested that the Working Group consider the issue and report on the feasibility and possible approach of such work.
During its February 2015 Session, Working Group II devoted two days to discussion of the topic, addressing a broad range of issues identified in the U.S. proposal, as well as in the Note prepared by the UNCITRAL Secretariat. In its Report, the Working Group recommended to the Commission that it be given the mandate to work on the topic of enforcement of settlement agreements, and to identify the relevant issues and develop possible solutions, including the preparation of a convention, model provisions or guidance texts. Considering that differing views were expressed as to the form and content, as well as the feasibility, of any particular instrument, it was also suggested that a mandate be broad enough to take into account the various approaches and concerns. This decision presents an enormous opportunity for businesses engaged in global trade to enhance their ability to engage in more effective and efficient dispute resolution.
The Emergence of Codes of Conduct and Ethics in International Arbitration
As the use of arbitration has grown, concerns about how parties and counsel conduct themselves in international arbitration have grown as well. Party representatives from a wide range of jurisdictions are subject to widely varying domestic codes of conduct. Conflict between those domestic codes can easily lead to inequality in arbitral processes. Compounding matters, some say domestic codes of conduct do not apply in international arbitration. Perceptions that international arbitration lacks a consistent ethical framework are resulting in growing concerns that, if the arbitration community does not effectively regulate itself, regulation will be imposed. Responses to this challenge have been varied and include guidelines on party representation promulgated by the International Bar Association, proposals in Switzerland for a global ethics tribunal and in Singapore for a global regulatory framework, incorporation of guidelines for the conduct of parties in certain arbitration rules, and general admonitions to behave more responsibly. At the same time, there is vocal opposition to doing anything at all. One thing is for certain, in-house counsel at companies relying on international arbitration need to engage in the debate. Whatever the ultimate outcome, they will be impacted.
Rising Resistance to Investor-State Arbitration
In contrast to commercial arbitration, in which the authority of an arbitral tribunal is based on agreement among the parties, authority for investor-state arbitration is derived from an investment treaty—either bilateral investment treaties (BITs), multilateral agreements, or regional free trade agreements (e.g., NAFTA)—that set out the terms and conditions for investment in one country (the host State) by private companies and individuals of another country. With the objective of encouraging global investment and trade, investment treaty arbitration provides foreign investors with a predictable rule of law and potential relief if they experience business difficulties in a host State that arise out of acts or omissions of that State (including the executive, the courts, the legislature, administrative, and regulatory officials).
Over the last couple of decades, as BITs, multilateral agreements and regional free trade agreements have grown in number, investor-state arbitration has become a widespread system of adjudication. As that system has grown, so too have grown concerns that decisions by arbitral tribunals can limit State sovereignty. Such concerns have resulted in strenuous objections from some quarters to inclusion of investor-state arbitration in the ongoing negotiations for the Transatlantic Trade and Investment Partnership (TTIP), a proposed free trade agreement between the European Union and the United States, and the Trans-Pacific Partnership (TPP), a proposed regional regulatory and investment treaty among the United States.
Opponents to including arbitration chapters in the TTIP and the TPP assert that national courts can provide sufficient remedies. Such objections overlook the fundamental fact that the growth of investor-state arbitration (and, more generally, international commercial arbitration) is due in significant part to practical obstacles to resorting to courts (lack of jurisdiction and lack of a multilateral framework for enforcement of foreign judgments to name only two) and concerns that local politics may impact judicial decision-making. Absent a stable rule of law and a functional global process for dispute resolution, global investment, trade and economic growth will likely suffer.
A Word to the Wise Inside-Counsel
Each of the above trends has potentially huge impact to global businesses. Opportunities such as a convention that would enhance acceptance of conciliation/mediation around the world may not bear fruit if in-house counsel do not speak up in support. The fate of investor-state arbitration depends, in part, on those who rely upon it to protect their investments and global trade. We should not ignore the fact that perceptions of fairness are essential to any system of dispute resolution. On all of these issues, we should heed Jack Welch’s simple advice: “Control your own destiny, or someone else will.”
Beth Trent is the Senior Vice President, Public Policy, Programs and Resources, at The CPR Institute. She can be reached at email@example.com.