Looking to the future

 MARKET VIEW – ARBITRATION

Three Crowns’ Jan Paulsson looks at how little we know about arbitration in the present and what that means for predicting the future

Speculating about the future of international arbitration is a more comfortable activity than speculating about its present, because as long as we are not talking about the near future we will not be proved wrong, or be criticised for not knowing the unknowable. But are we really entitled to assert very much about the future when we in truth know so little about the present? We are indeed reduced to speculating about the present, and it is worth reflecting on the causes and consequences of finding ourselves in such a frustrating (and humbling) predicament.

It is not complicated: we simply don’t know the facts. We are data deprived. By contrast, potential car buyers have access to very specific information about how much fuel a particular vehicle consumes at given average speeds when compared to those offered by competing manufacturers. Yet businesses facing the statistical inevitability of disputes in some percentage of their transactions, and wondering whether they should follow a policy of preference for arbitration, have nothing of the kind. They are told by the arbitration community that it’s too complicated; it depends on too many situation-specific factors, including the plausible alternatives. And anyway, there are other criteria apart from cost-effectiveness.

All this may be true, but it still amounts to this: we don’t know. What we have is anecdotes and more or less accurate, more or less relevant suppositions. It’s not good enough.

We don’t even know how to analyse arbitration in a dynamic sense, based on the relatively recent past. In the 1970s, the number of international lawyers active on a full-time basis in arbitration might have been counted on one’s fingers (without double counting). Today, it seems (at least from their self-descriptions) that the number is in the thousands. What has this astonishing evolution done to the cost of arbitration? Let us take a few stray examples. How have costs evolved as a percentage of the average $5m case, or the average $50m case? What fraction of these costs are attributable to debates about, and work on, the exercise of documents disclosure? How does this compare with the situation a generation ago? Were the ‘civil law’ respondents to the Queen Mary International Arbitration Survey in 2012 right when only 17% of them accepted that document production materially affected at least half of their arbitrations, or indeed when no more than 41% of even the ‘common law’ respondents — presumptively more sympathetic to the practice – accepted that proposition? Who is prepared to pay so much for such meagre results? Is it true that parties truly achieve superior decision making by using the opportunity to select arbitrators who are expert in the field? What are the consequences, in terms of cost, delay, and difficulty of enforcement, of the common practice of unilateral appointments of arbitrators?

We do not have data, only anecdotes.

Lord Maurice Peston, an eminent English economist and Labour peer, was a committed co-sponsor in Parliament of the Bill which became the Arbitration Act 1996. (He made two supporting speeches in the House of Lords in December 1995, duly recorded in Hansard.) Only one year later, in his Ronald Bernstein lecture on arbitration, he shocked the audience by suggesting that he had had a change of heart; he would have been happier, he said, if there had been some empirical studies of the usefulness of arbitration under the ancien régime before the legislators went ahead to overturn it. Surely there must be ways to monitor and record what actually happens in practice, he ventured, so that one can appraise its utility in relevant respects on the basis of sound research and scholarship when the time inevitably comes to reconsider the law of arbitration once more.

Fourteen years later, VV Veeder QC revealed in the course of a debate at the London School of Economics that Lord Peston’s public lecture had in fact masked far more fundamental private criticism on his part. Speaking frankly when off the podium, Peston had made clear that if he had understood how little is known about the process, he would actually have opposed the Bill! Mr Veeder went on in the course of his spirited intervention to opine that not much has changed. Yet questions continuously arise as to the need for the law to evolve. He gave a few current examples of questions being raised in England. Should appeals from arbitral decisions generally be a matter of opting-in? Should the rules of confidentiality be revisited and altered or clarified? How should forms of arbitration under ‘religious law’ be dealt with as a matter of public policy? How do we resolve the intricate cascades of injunctions and anti-injunctions when courts and arbitral tribunals joust over jurisdiction and litispendence across borders? What do we say about our ethical safeguards when occasional scandals arise, involving abuse of the arbitral process in dramatic ways? Will it help to say ‘it hardly ever happens’ when the scandal – precisely because it is a scandal – becomes the focus of commentary in the mainstream media, and by politicians and taxi drivers?  When legislators consider such matters, as they will, Veeder said: ‘we shall pay a heavy price for our complacency’ if once again we bring nothing to the table save anecdotes.

Practitioners are of course well placed to know of the problems that raise issues of legitimacy as well as cost-efficiency. The leading arbitral institutions are constantly engaged in appraisals of the process, reacting to the lessons learned in practice. Leading arbitrators, taking pride in their work, set the example and are rewarded for their diligence and good practices by repeat appointments — notably to preside over tribunals. From all corners of the community, ideas are presented as to useful innovations to achieve better preparation of arbitrators, more intelligent use of experts, less time waiting for awards, and the like. Those who become aware of blind spots, where ethical lapses might go unchecked, suggest remedies.

Such reformist impulses are not to be derided; they are the essential and pragmatic responses of participants in the arbitral process who are convinced of its value and committed to its enduring success. But pragmatism is not enough. The process has become too important to depend on the use, no matter how intelligent, of anecdotes. The words ‘trust us’ do not do the trick when they come from the mouths of bankers or accountants, or indeed licensed physicians and architects. Why would arbitration practitioners and institutions be in a more privileged position?

In sum, we have something to prove. The future of arbitration is cloudy if its practitioners complacently refuse to consider how to analyse it.