Made to measure?

 MARKET VIEW – ARBITRATION

CMS Cameron McKenna’s Guy Pendell and Lindy Patterson QC assess industry sectory arbitration and the role of the specialist institution

Arbitration is available to resolve almost any dispute between parties capable of giving legal consent. Arbitration is available for religious groups through Beth Din (for the Jewish community) and the Muslim Arbitration Tribunal (providing arbitration in accordance with Islamic Sacred Law). Meanwhile, disputes between the NHS and service providers, salary disputes for US National Hockey League players and disputes over sharemilking in New Zealand’s dairy regions can all be determined by specialist arbitration procedures.

As arbitration grows in popularity, institutions (and practitioners) look for more ways to differentiate themselves. Statistics of the major institutions are now reported by industry sector. Is it possible to detect a shift in the preference for arbitration by industry sector? It is hard to say, but International Chamber of Commerce (ICC) statistics published over the last four years broadly show that construction and engineering remains the most common sector, followed by energy, with finance (including insurance) and technology coming in third position.

In 2013, the School of International Arbitration at Queen Mary University of London attempted to gauge attitudes to arbitration across three of those industry sectors with their excellent annual survey. Consistent with statistics published by the ICC, respondents in the construction and energy sectors ranked arbitration as the most popular dispute resolution mechanism (above court litigation), while respondents from the financial services sector ranked court litigation above arbitration. In technology, the World Intellectual Property Organisation (WIPO) also published the results of its survey on dispute resolution in 2013. WIPO’s survey indicated that technology respondents preferred litigation to arbitration, marginally.

Bespoke institutions

Do these statistical trends establish a case for more ‘specialist’ arbitral institutions? A number of such institutions have been in existence for years. One example is WIPO, with a real focus on technology, entertainment and other disputes involving intellectual property. Established in 1994, it now offers bespoke arbitration rules for specific areas, including film and media, franchising and trade fairs (including fast-track procedures). At the other end of the spectrum are more niche providers. The Electricity Arbitration Association (EAA) was formed in 1989 to promote efficient dispute resolution in the electricity supply industry. Its current rules are tailored for the industry and a limited costs edition exists which was established in 2001. Very little information is published by the EAA but its clauses exist (based on the authors’ own experience) in many supply agreements and much of the founding documentation in the industry.

‘As arbitration grows in popularity, institutions (and practitioners) look for more ways to differentiate themselves.’ Guy Pendell, CMS

Newer entrants offering specialist sector arbitration services include Prime Finance, which opened in January 2012, and the International Centre for Energy Arbitration, which is still in a consultation phase intended to support the preparation of bespoke energy arbitration rules. Another example of the promotion of specialist sector arbitration is the well-established Court of Arbitration for Sport and numerous and well-established commodities arbitration services (including those which exclude lawyers at hearings absent agreement such as the Grain and Feed Trade Association). In an extreme example of specialist arbitration, in Portugal, specific legislation has been enacted mandating arbitration for intellectual property disputes in the pharmaceutical sector (Decree Law 62/2011).

The case for the specialist institution is that they can provide experienced industry professionals who, through their experience, are able to provide a more suitable and, therefore, more efficient form of arbitration. Prime Finance has adopted an innovative approach in offering two lists: one comprising finance experts, the other dispute resolution experts. The challenge for many specialist institutions will be the small pool of industry experts who are willing to (or can) accept appointments as arbitrators. Those from large corporates in the relevant sector may have some of the best industry expertise around but are unlikely to be released by their employer to sit for potentially long periods of time as an arbitrator. Accordingly, ‘experts’ are more likely to be assembled from the ranks of private practitioners seeking arbitral appointments.

One difficulty is that private practice lawyers looking to develop a career as an arbitrator cannot expect a flow of appointments from a single institution. Through tailored rules, a specialist institution can offer a ready-made procedure, designed for disputes with a specific sector in mind. Specialised rules can be extremely attractive for the right dispute. However, users might be reluctant to adopt rules that are relatively untested. Prime Finance avoids this by adopting the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules 2010, with some limited amendments.

‘Competition among institutions is to be encouraged where improvements to the arbitral process are available, however small or incremental.’ Lindy Patterson QC, CMS

Even once the rules are established and a panel of experts assembled, parties will need to adopt the institutions’ arbitration clause with their contracts. One way to accelerate this process is to encourage specialist arbitration rules to be written into contracts as an industry standard. From our experience, this does not happen often. The EAA has achieved some success in having its arbitration clause written into industry contracts in the UK given the comparatively small pool of generators and distributors. In the 2013 International Swaps and Derivatives Association (ISDA) Arbitration Guide, Prime Finance was able to secure its arbitration clauses and rules as appendix G. Quite an achievement, but it is one of seven providers of model arbitration clauses, which themselves many only be chosen in a minority of ISDA master agreements where the parties do not prefer court litigation.

Evolution

The main institutions, however, continue to evolve and, arguably, improve. By way of example, the ICC and London Court of International Arbitration updated their rules in 2012 and 2014 respectively. A significant feature of those updated rules is to promote speed, efficiency and a reduction in costs – precisely the advantages offered by many sector specialist institutions. Appropriate appointments of arbitrators (where the institution is required to so appoint) will be an important indicator of an institution’s ability to service specialist sector disputes. The main institutions take the appointment process very seriously, although in many large cases, the parties will already have nominated their party-appointed arbitrators or agreed upon the sole arbitrator.

Competition among institutions is to be encouraged where improvements to the arbitral process are available, however small or incremental. Specialist institutions play an important role in this process and it is perhaps easier for a new entrant to take a more radical approach to arbitration than a major institution with an existing large caseload. The challenge, of course, is to persuade parties to try something new and persuade their counterparts to do the same.