Choosing the most effective and economic method of resolving cross-border disputes is an issue which vexes many international companies. This issue is becoming ever more acute for such businesses, as the economies of many leading countries around the world encounter headwinds, begin to slow down, and as oil and gas and commodities prices continue to fall.
In such difficult trading times, the security of investments becomes less clear, obtaining payment becomes more difficult, and the number of international disputes grows. Against this background, it is not surprising that international companies are deciding to opt for international arbitration as their preferred means of dispute resolution in ever increasing numbers.
Some recent studies by a centre of higher education and two leading international arbitration institutions have highlighted the rise of international arbitration around the world.
Last year, Queen Mary University of London released its '2015 International Arbitration Survey: Improvements and Innovations in International Arbitration', which investigated the popularity of international arbitration amongst its users and potential users, and its perceived pros and cons.
In addition, two major international arbitral institutions, i.e. the London Court of International Arbitration (LCIA) and the International Centre for Settlement of Investment Disputes (ICSID), have recently published statistics, which demonstrate current international arbitration trends.
The LCIA's 'Costs and Duration Data Report' examines the average durations and costs of arbitrations conducted under the auspices of the world's major international arbitral institutions, including the LCIA, ICC, SIAC and HKIAC. ICSID has also published its 2015 Annual Report and Caseload Statistics, which demonstrate the direction in which investor-state arbitration has headed in recent times.
We comment on these studies and the trends which can be drawn from them below.
Queen Mary's '2015 International Arbitration Survey: Improvements and Innovations in International Arbitration'
According to 90% of the respondents to Queen Mary's Survey, international arbitration was their preferred method of dispute resolution, either alone or in conjunction with other forms of dispute resolution, most notably negotiation and mediation. These respondents indicated that this was because international arbitration offered a winning combination of flexibility in procedure, widespread enforceability of awards, and the minimisation of local court intervention. Also, in-house counsel were particularly attracted to international arbitration by the ability to select arbitrators with industry specific knowledge and neutrality, the finality of arbitral awards, and the usual confidentiality of the process (in many common law countries, confidentiality of the arbitral process is implied because of its very nature, and institutional arbitral rules now typically make express provision for it).
In contrast, the survey suggested that the cost of international arbitration was a significant concern, with more than 68% of participants complaining about such cost. In addition, 46% of those surveyed criticised the lack of effective sanctions for breaches of the arbitrators' directions and delaying tactics, and 39% complained about the lack of insight which parties were given as to the likely efficiency of the arbitrators appointed in their cases.
The survey noted a growing concern amongst arbitration users about due process 'paranoia'; that is, a perceived reluctance by arbitral tribunals to act firmly and decisively in certain situations, for fear of their awards being challenged on the basis of a party not being afforded a proper opportunity to be heard. Other significant concerns from respondents about the arbitral process involved delays in reaching final awards, the risk of local court intervention, and the inability to join third parties.
Interestingly, the survey found a groundswell of support from in-house counsel for including an appeal process into arbitration procedures, by which another arbitral tribunal would review the awards of a previous arbitral tribunal, rather than a court. This would seem to add a tier of cost to the arbitration process, which was a separate concern. However, 77% of the total respondents, i.e. not just in-house counsel, preferred the finality of an award without any appeal process.
The survey found that London was the most popular seat of arbitration, followed closely by Paris. In our view, this is probably due to the number of years over which arbitrations have been conducted in those jurisdictions, the neutrality and impartiality of their local courts, their favourable national arbitration laws, and their perceived positive track records for upholding arbitral agreements and enforcing arbitral awards. Other seats growing in popularity included Singapore and Hong Kong, which reflects the ever increasing use of arbitration in Asia. Geneva, Stockholm, and New York were also popular seats.
92% of respondents thought that institutional rules should be simplified for claims of modest value, and that parties should in such cases work together to narrow issues, limit document production, and reduce costs as far as possible.
Statistics from the LCIA and ICSID
The LCIA's 'Costs and Duration Data Report' provided statistics from recent LCIA arbitrations. These identified that the average total duration of an LCIA arbitration, from initial request to final award, was 16 months (this average period became 15 months where a sole arbitrator was appointed, and 19 months where a panel of three arbitrators was sitting).
The average charge by the LCIA for LCIA arbitrators' fees and its own administrative costs was US$192,000 per case. The LCIA proceeded to say that this typical cost was significantly lower than the equivalent average charges of the ICC and the Singapore International Arbitration Centre (SIAC), and comparable to those of the Hong Kong International Arbitration Centre (HKIAC).
The LCIA also concluded that, for claims below US$1m, its charges were comparable with those of the ICC and SIAC, but were higher those of HKIAC. However, for claim values exceeding US$1m, the cost charged by the LCIA were less than those of the ICC and SIAC, but comparable with those of HKIAC.
As regards the data published by ICSID, ICSID noted that an increasing trend in the number of investor-state disputes referred to it. 2015 was ICSID's busiest year since its inception in 1965, with it registering 52 new cases.
ICSID's statistical analysis showed that 21% of its new cases were registered against Western European States, whereas claims against States in Eastern Europe and Central Asia comprised the majority of newly registered cases (33% of them in 2015). New claims against South American States actually decreased from 7% in 2014 to 5% in 2015.
ICSID noted that the majority of its cases arose from bilateral investment treaties between States, followed closely by the Energy Charter Treaty, and multilateral trade agreements, such as North America Free Trade Agreement (NAFTA) and Central America Free Trade Agreement (CAFTA). 8% of ICSID cases emanated from specific arbitration agreements contained in investment contracts entered into between foreign investors and States.
Turbulence in the global economy is likely to increase the number of international disputes. International arbitration is increasingly popular as the means of resolving them. However, users of international arbitration are expressing concern about the costs of the process, and the lack of imposition of sanctions for procedural infringements, and the absence of transparency regarding the efficiency of arbitrators in publishing awards.
The data published by the LCIA and ICSID reflects some of these concerns. The LCIA is keen to show that its services come at a reasonable level of cost, which is comparable to, if not cheaper than, the charges of other international arbitration institutions around the world.