The International Arbitration Summit

Arbitration specialists gathered for our first summit in London in September. Read full coverage of the key debates.

Lifting the veil: Transparency and protocols in international arbitration

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The morning session of our debut International Arbitration Summit tackled the contentious issue of transparency and analysed recent changes to arbitration protocols.

Two discussions dominated the first half of our inaugural International Arbitration Summit: one looking at the issue of transparency in arbitration proceedings, asking whether it is still adequate for the process to be shrouded in secrecy, with no hard facts about the track records of arbitrators. The second discussion examined whether the recent flood of initiatives, guidelines and proposals in arbitration is delivering for clients or whether they are adding to an already overburdened process.

Kicking off the discussion, Michael Schoepe of Siemens said that at his company, which has arbitration clauses in all of its contracts that traditionally contain confidentiality clauses, it is impossible to keep all arbitrations confidential. As a publicly-listed company, some disputes have to be mentioned in annual reports. Although Siemens is an advocate of confidentiality, Schoepe says there are different aspects of transparency that would be beneficial to everyone, such as knowing how a tribunal will approach procedure, and having some precedents would be useful in making outcomes easier to predict.

He concluded: ‘In the end, I would not mind if an institution were to come and say: “This was really interesting. Would you allow it to be published?” If it helps to give precedents or develop a procedure, we would probably agree, but we would never agree to have everything in public.’

But when asked by the chair, Three Crowns’ Constantine Partasides QC, if – given concerns he has over the lack of data about the process – he believed a way forward might be to jettison the blanket approach to maintaining confidentiality, Schoepe was clear that such an approach was unworkable. This point was echoed by Peter Rees QC of 39 Essex Chambers who, as a former legal director at Shell, said that a large company has to have a robust approach to transparency and make a few exceptions or risk inefficiency.

As a litigation funder, Susan Dunn, co-founder of Harbour Litigation Funding, is always looking for certainty of process and costs. While there is quite a good degree of certainty in arbitrations about the cost of the arbitrators and the costs of running the process, she believes there remains a lot of uncertainty on the side of cost awards and security for costs.

‘Because you do not find out what happened within a case, you do not know how your case might run,’ she commented. ‘We only have that visibility in the ICSID [International Centre for Settlement of Investment Disputes] matters and, therefore, we can only derive statistics from the ICSID areas. People like Harbour and the claimants we fund are not interested in the dirty laundry, but we are very interested in knowing if we can look at 12 others like it and have a general sense of the direction of travel we might expect to be applied when our case is being considered.’

Partasides added that certain aspects of arbitration are more transparent than they were ten years ago.

Stephen Anway of Squire Patton Boggs picked up the point, outlining various international initiatives designed to promote transparency in arbitration, including UNCITRAL Rules on Transparency, the UN Convention on Transparency and the arbitrator intelligence project, led by Professor Catherine Rogers at Penn State University, which aims to provide a comprehensive database about arbitrators to give parties in commercial arbitration a better idea of who they are selecting.

Partasides sounded a note of caution: ‘This raises the question of the inadequacies and misuse to which such partial information might be brought. How much can you learn from the average length of time that it takes an arbitrator, post-hearing, to render an award? That figure will depend on so many things that the arbitrator has not themselves been responsible for.’

Rees picked up this point, raising concerns about the study. ‘We have to avoid the risk of moving from anecdotal stories about arbitrators to anecdotal data. Yes, it is going to help us understand a little more about arbitrators, but the fact that an arbitrator has been involved in a tribunal that has taken a long time to issue an award, even if that arbitrator was chair, does not necessarily mean that the chair was at fault.’

He added that some partial published information on arbitrators’ decision-making in so-called ‘public’ arbitrations could give rise to estoppel challenges ‘on the back of what could be anecdotal data, as opposed to statistically significant data’.

In the second discussion, looking at the plethora of protocols for improving arbitration, debate chair Linklaters’ Roland Ziadé said: ‘It is unquestionable that there has been exponential increase in regulatory activity. More and more organisations have been busy compiling and publishing principles, codes, rules, protocols, models, recommendations, guidelines, notes, best practices and the like. There is clearly an ever-increasing web of arbitral soft law norms from various sources, on various topics and with various effects. Some of these norms are even revised on a regular basis. Are those arbitration protocols and attempts to overhaul them delivering for clients? How much progress has been made and are the clients really getting what they want?’

Christopher Newmark, chair of the International Chamber of Commerce (ICC) Commission on Arbitration and ADR, while outlining various initiatives and studies the ICC Commission has been working on to improve costs in arbitration, pointed out: ‘The most important factor in whether a particular arbitration proceeding is efficient and effective is not the arbitration rules that govern it. The most important factor by far is the quality of the individuals who are working on the case. That is not just the members of the tribunal; it is also the counsel instructed and the individuals within each organisation who are instructing them.

‘However, if all or at least some of the participants in the process are minded to construct an efficient and effective procedure, the various protocols and rule revisions that we have all been working on do provide some improved and helpful tools.’

Hogan Lovells’ Kieron O’Callaghan argued that such protocols are not helping clients. ‘Everybody knows that two of the main concerns of clients are: “How long is this going to take and how much will it cost me?” In the last five to ten years, I do not think there has been a marked shift in the average time for a typical international arbitration and the same applies to costs.’

However, he was quick to stress that some improvements have been made and institutions, such as the ICC and the London Court of International Arbitration (LCIA), have been serious in addressing this point. As for soft law, there has been a ‘mind-boggling proliferation of guidelines’ but with little material impact on costs and efficiency. Such guidelines help develop a culture and best practice that may ultimately deliver a benefit to clients, but one needs to be mindful of the tension between client desire for cost and efficiency, and the need to have a fair process resulting in an award that is less susceptible to challenge.

Anthony Sinclair of Quinn Emanuel Urquhart & Sullivan then focused on guidelines concerning the availability and efficiency of arbitrators, born out of the perennial concern of delay in arbitrators delivering their awards, particularly ICC and LCIA guidelines on delay and arbitrator availability. However, all the guidelines and soft law in the world cannot prevent the inevitable: ‘All too often the soft law rules that urge arbitrators to issue awards within a certain timeframe are met with a request from the tribunal that they be allowed more time, which is a request that most participants will find nearly impossible to oppose,’ he said.

However, citing recent examples where the delay in delivering an arbitral award has been successfully challenged and set aside by the courts, Sinclair believes delays will negatively impact the enforceability on awards. ‘We will see similar challenges in the future, only they will be bolstered more and more by arguments that, perhaps, the arbitrators misrepresented their availability at the outset or that they violated their contractual commitment to deliver awards on a timely basis.’

In response, Ziadé referred to a 2013 Queen Mary University survey that found in-house counsel felt it was more important to appoint the arbitrator best suited to the case, rather than one who could complete the mandate faster. This segued into comments from Nayeem Syed, assistant general counsel (GC) of finance and risk at Thomson Reuters, who said the average GC doesn’t spend much time thinking about arbitration, least of all looking at guidelines that are 60-70 pages long. More useful would be developing clear frameworks that would help a GC assess their situation.

‘More practical maps to try to understand choices would be very helpful,’ said Syed. ‘It would probably give GCs more confidence to use arbitration. What happens is that if you do not understand it, you will not choose it. Ultimately, no-one is going to fire you for choosing litigation as the default option in your transaction.’ More pragmatic and practical methods will give GCs more confidence to choose more creative methods of dispute resolution. Greater clarity over enforcement will also go a long way to help.

The problem, alluded to by Ziadé, is that in introducing so many rules and protocols, the system has become too rigid and is eradicating the creative advantages of arbitration. Newmark said the mood at the ICC now is to continue to inform a community of people who are not perhaps as familiar with arbitration, but steer away from formal guidelines.

Ziadé concluded with a warning shot: ‘The arbitration community in general and the arbitrators in particular must continue to strive to streamline the arbitral process in order to maintain and foster legitimacy with its user. If used properly, soft law may help; if not, it could in certain instances further contribute to the dissatisfaction in the system.’ 

World view: Looking at the growth of arbitration in Africa and Asia

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The afternoon session of our arbitration debate covered the development of arbitration in Africa and Asia’s greater role as the forum for resolving Russian disputes.

Two geographical hotspots – Africa and Russia – were the focus of discussion for delegates in the second half of the summit. Herbert Smith Freehills’ Craig Tevendale, chairing the African discussion, began with a housekeeping point: ‘Let us be clear about one thing from the outset: there is no such thing as African arbitration,’ he said, referring to the fact there are 54 jurisdictions in Africa with diverse approaches to dispute resolution.

That said, arbitration in the continent is flourishing because business is booming. Eversheds’ Stuart Dutson, who returned to Africa to work in 2013 after working elsewhere for 12 years, said the ‘difference in that time was absolutely manifest’, mostly down to the influx of Chinese and Indian money. Thirty-six African nations have signed up to the New York Convention, including in the last six months the Democratic Republic of the Congo.

The UNCITRAL Model Law on International Commercial Arbitration is being implemented in ten countries in Africa and Ghana’s new arbitration law is heavily influenced by the Model Law. The Organisation for the Harmonization of Business Law in Africa (OHADA) agreement – comprising 17 states in west and central Africa – has created a legal community that has unified arbitration legislation and a unified arbitration court, which acts both as an arbitral institution and as a court. As a result, there has been a proliferation of arbitration institutions set up throughout Africa. The problem, said Dutson, is where the International Chamber of Commerce (ICC) and London Court of International Arbitration (LCIA) rules are not deemed fit for purpose in Africa: ‘What they have not done is reflect local conditions and local facts. One thing we experience in Africa is, while there are large disputes – multimillion-dollar disputes – there are many more lower-value disputes than you might see at the LCIA and the ICC. The vast majority of disputes that are arising do not really warrant long, expensive procedures. However, the institutions have set out rules that do not have expedited procedures.’

Another problem is the multiplicity of arbitral institutions throughout the continent, some of which are largely untested and do not have the support of the court system.

‘There are some systems in Africa that are very good,’ Dutson said. ‘Rwanda and Kenya are two good examples of that; Ghana and South Africa are other ones. However, there are some systems in Africa that are not so good, and that need support and maybe more visibility.’

Simmons & Simmons partner Jayne Bentham then examined the rise of arbitration in Africa and whether that is translated into an increase in caseloads for local and regional institutions. Her conclusion: there is a great deal of rhetoric from many African arbitral institutions, but it is difficult to find clear statistics on growth in caseloads. While the Legal Business/Simmons & Simmons African arbitration report showed a desire to use local or regional African arbitration, or even consider an African seat for arbitration, the ICC and the LCIA retain much of their stranglehold over the continent. Indeed, the number of African parties involved in ICC arbitrations has more than doubled in the past ten years.

As for African institutions: ‘There is a relative paucity of information and you can probably infer from the lack of information that the caseload just is not there at the moment to report.’

Reasons for this include the obvious point that many of these institutions are still establishing themselves and the apparent lack of disputes does not mean that parties are not putting African arbitral institutions in their contracts; it just means the disputes are not filtering through yet. However, for more established institutions, such as the Cairo Regional Centre for International Commercial Arbitration, caseloads have increased, but they have not yet broken through into the international market.

The crux of the problem, said Bentham, is the chicken and egg situation in which African institutions currently find themselves, with the lack of experienced African arbitrators deterring clients.

‘Until parties and their counsel start selecting African institutions and arbitrators to administer their disputes, the institutions and arbitrators will struggle to gain the experience necessary to allow them to compete effectively. However, as long as they lack experience, parties will continue to be reticent to select them,’ she concluded.

Tevendale pointed out that the key is to identify the factors that favour one centre in a particular case, before going on to note the increasing prominence of North Africa in investment treaty arbitration. Egypt is the African state most frequently sued at the International Centre for Settlement of Investment Disputes, having been named as a respondent on 25 occasions – six in 2013 alone. And, after losing three of its earliest cases, Egypt has tended to prevail in the majority of its cases since then. This experience, combined with effective legislation and whether you believe there will be a significant recovery in investment in the region, could set the scene for North Africa to continue to play a central role in investment treaty arbitration in the region.

Turning to Russia, or more specifically the attractiveness of arbitration in Asia as a way for Russian investors to resolve their disputes, chair David Goldberg of White & Case began the discussion by reflecting on Russian investors’ growing dissatisfaction with London as a venue, and the efforts made by Hong Kong and Singapore to attract Russian disputes.

Matthew Saunders of DLA Piper argued that London still holds sway with Russian clients, with about 25-30% of the work that the LCIA does having a Russian element. The debate over the decline in Russia-related arbitrations in the UK, he said, is driven by the Russian economic crisis and sanctions.

‘There is a real desire to have first recourse to Russian resources. There is also the impact of reforms to the Russian civil code and how far it is any longer possible to have anything other than Russian law and Russian dispute resolution concerning what are solely Russian commercial relations. What these have all given rise to, without question, is a change of mindset. No longer is London the automatic choice. Anyone sitting in this room who is in a firm with an office in Singapore knows how significant Singapore is becoming as an international arbitration centre.’

He concluded that there is a sensible reason why institutions in Asia will start doing more work in Russian-centred disputes: because there is going to be more Russian investment and more client activity in the region.

It was also pointed out that London as an arbitration venue has problems to deal with, not least having too small a pool of arbitrators to choose from.

Inevitably, said Signature Litigation’s Natalia Chumak, the sanctions prompted a political reaction in Russia and there is some anecdotal information that state representatives and large Russian corporates are moving arbitrations away from London.

‘If these statements reflect the true position of the Russian big state-owned entities, it is not unreasonable to suppose that some other corporates, such as some of my clients, who are not state-owned, will follow suit and may move to Asia. But I have not seen any evidence of that so far.’

As for disputes coming out of the post-Soviet bloc, Chumak said she has seen no evidence of less interest in London as the venue for the disputes.

‘I can see some grounds for concern, but it is over-rated and there is no need for practitioners to panic. I do not think we are going to lose our jobs,’ she concluded.

Michael Swainston QC from Brick Court Chambers was far less optimistic. He argued that the Asian arbitral centres have been particularly aggressive in their marketing to Russian investors, while attacking the UK on sanctions. Hong Kong has been gaining much traction from the line that it is less politicised in dispute resolution than the UK. He added that anecdotal evidence suggests the political backdrop to all this means, while Russian clients like English law, they now want a non-English venue, such as Singapore.

‘So far, the big-ticket cases have not gone there,’ he said. ‘Singapore’s average arbitration size is less than $10m, so quite small compared with the big-ticket disputes that have supported London for the last 15 years. But there is a lead time with a dispute resolution clause and a change in fashion.’

He ended with a downbeat appraisal: ‘There is not much that we can do to encourage LCIA arbitration, or more arbitration of major commercial players in London, until in this country we adopt and espouse a more independent foreign policy, which is more focused on the interests of the UK and of London.’

Jason Fry of Clifford Chance said that he had taken some soundings with former colleagues at the ICC, Hong Kong International Arbitration Centre and, indirectly, the Singapore International Arbitration Centre to get some statistics, of which there was nothing concrete. However, he believes that none of the institutions have seen a discernible trend, or change, to date in their statistics for Russian and CIS disputes.

‘To the extent that there is going to be any shift towards Asia, that might suggest that it would be for entirely understandable economic reasons,’ he concluded.

However, he noted Swainston QC’s comment that there is a lag time and we cannot expect to see a dramatic shift towards Asia manifest itself for another two to three years. He noted that his corporate colleagues had not seen a material shift towards Asia by Russian clients either – although cases such as Yukos have created unease.

Goldberg wrapped up the discussion by observing that the LCIA has been working hard to deliver its message to the Russian legal community – that sanctions are a threat to London arbitration, but so far not a realistic one. That, and the fact it is a very long flight to Singapore.

Investor-state arbitration: Into the spotlight

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The last session of the International Arbitration Summit examines the issue of third-party intervention and the negative stereotypes surrounding the English courts.

The final debate of the day looked at international arbitration between investors and states, an area that has been subject to serious public scrutiny and criticism. As such, chair Sir Frank Berman KCMG QC of Essex Court Chambers turned first to a heavyweight of the profession – Lord Hoffmann of Brick Court Chambers – to discuss how practitioners should be responding to calls for reform.

Lord Hoffmann observed how a political head of steam has built up about investment arbitrations and joked that their abolition would probably form part of the platform of Labour leader Jeremy Corbyn.

He said: ‘Three years ago, at a dinner party in Hampstead if you said that you did investment arbitrations your dinner companion’s eyes would glaze over, but now they will look at you as if you admitted to being a child molester.’

Hoffmann went on to consider some of the criticisms of investor-state arbitration. First, that decisions are inconsistent and unpredictable; there is no doctrine of precedent, no Court of Appeal.

‘That is true, but even if there were both, I do not think it would make much difference: the facts of each case are so varied that precedent is not much use and the application of a many-faceted concept like “fair and equitable”, involving taking an enormous number of considerations into account, and giving each different weight and so forth, is just the kind of case that the Court of Appeal would have nothing to do with, at any rate not in our jurisdiction.’

He added that there have been alternative proposals, such as the famous debate that arbitrators should all be appointed by the institution, or that there should be a permanent panel of investment treaty arbitrators or a permanent international court deciding investor-state disputes. However, he felt that none of these proposals are calculated to create as much confidence in the system as allowing each party to appoint his own arbitrator.

Then, he said, there are the kind of complaints that apply to any sort of judicial system. Hoffmann referred to an article in The Economist that said because arbitrators are paid so well by the hour they had little incentive to dismiss hopeless claims.

‘I would not attribute such venal motives to any of my colleagues, but it is true that arbitration panels sometimes make rather a meal of claims which, in court proceedings, would have been summarily dismissed or alternatively summarily succeeded,’ he said, pointing out that there is no procedure in any of the arbitration rules of striking out a claim as showing no cause of action or giving a summary judgment. ‘I sometimes rather miss the ability I had as a High Court judge to take proceedings by the scruff of the neck and to say to counsel: “Look, there is only one point and you should be able to deal with that in half an hour”.’

He concluded that one of the reasons arbitrations dragged on is an investment treaty culture of leaving no stone unturned, but also because arbitration awards are written with an eye to enforceability in the home courts of the losing party. They are written to be read in bad faith by a domestic judge, who can say there was a denial of due process because the tribunal failed to deal with some point or other.

He summed up: ‘I have identified no magic bullet by which investment arbitrators can streamline the process, make it more acceptable, because in the end you are trying to make it acceptable to people who think their governments should never have gone down that road in the first place.’

Sir Frank then turned to Robert Volterra, founder of public international law boutique Volterra Fietta, to discuss whether there was an abuse of process in investor-state arbitrations. Having had throughout his career a balance between acting for states and investors, Volterra feels there are abuses of rights that happen, but there is also confusion about what constitutes an abuse. He cited one example of how Venezuela is conducting the defence of its cases before the International Centre for Settlement of Investment Disputes (ICSID), in particular the repeated number of challenges to arbitrators that it makes in cases.

‘Why is that possibly an abuse of rights? Well, we all know how the ICSID system works. As soon as there is a challenge to an arbitrator the proceedings are suspended, so what Venezuela does is wait until a few weeks before a hearing, challenges an arbitrator and immediately the hearing is suspended and it automatically, by virtue of the realities of who sits in arbitrations, gains a 12-month delay,’ he said.

He pointed out that Venezuela is not acting in the expectation of removing the arbitrators, but because of the way the ICSID Convention and arbitration rules are written, there is no discretion – the proceedings have to be suspended. ‘It is a neat little trick Venezuela has come up with and there is nothing anyone can do about it.’

Another bone of contention is interventions by third parties – non-disputing party interventions – a topic that Mark Levy of Allen & Overy explored. Because investment treaty arbitrations allow investors to bypass local courts and attack what is often democratically enacted legislation, Levy said the effects of such treaty claims often have much wider political ramifications. That raises concerns regarding secrecy – the accusation that investment tribunals are, in fact, nothing more than secret trade courts – and that is damaging to the process. If the legitimacy of the process is undermined, that makes states much less likely to be willing to comply with orders and it will make investors less inclined to take action.

‘Allowing interventions by non-disputing parties is a way of bringing back some of that legitimacy and the thinking behind the changes in the ICSID rules – rule 37(2) of the ICSID rules that expressly allows non-disputing parties to make submissions – was expressly brought in off the back of criticisms about the secrecy and this does go some way to address it. In the right cases, with the right kind of intervention, on the right kind of point, it can actually improve the award writing and assist the tribunal in reaching the right decision.’

However, there are criticisms – the biggest tending to be that interventions cause an increase in the delay and costs of the process. This is a problem as investment treaty arbitrations are already very long.

‘The criticism regarding cost and delay, personally I take with a pinch of salt,’ said Levy. ‘The main reason that ICSID proceedings take so long is because the parties involved in the proceedings either plead every point, take every point, produce hundreds of pages of repetitive pleadings, or make challenges that are designed to slow things down. The extra cost caused by non-disputing parties making interventions is a drop in the ocean in my view and, again, can be controlled by tribunals.’

The other complaint is inequality: usually the intervention by the non-disputing party is to make points that are pro-state and anti-investor, and the accusation arises that this puts the investor in an unfair position. Linked to that is the argument that often these interventions are not by truly independent parties, but parties that have a similar interest to the respondent state.

However, Levy points out: ‘The tribunal is more than capable of deciding what weight to add to the submission, and just because a party does have an interest and is closely aligned to one of the parties, it does not necessarily mean that its submissions carry no weight. The cons of intervention can be managed and tribunals will increasingly be called upon to do so.’

Finally, George Burn of Vinson & Elkins looked at the underlying theme of equitability between investors and states/states and investors. One issue he highlighted was the position of arbitrators.

‘There are problems in this area; I would absolutely recognise that,’ he said. ‘The pool of regularly appointed arbitrators for these types of cases is small; it is also western, white and male. Those issues of diversity can and should be challenged. At the very least, they represent a legitimacy problem, though probably it means more than that, with hard-wired cultural assumptions from a narrow group probably affecting the way cases go forward. One of the problems in arbitrator selection is there is something of a lowest common denominator approach taken by both sides, with a tendency to appoint investor-sympathetic arbitrators on the one side and state-sympathetic arbitrators on the other side.’

Another issue is some individuals mixing their practice, sitting sometimes as arbitrator and other times as counsel. Burns believes it represents a particular problem in investor-state cases, with respect to conflicts.

‘I have literally seen this where there has been an arbitrator sitting in a case and he is one of three determining a particular issue, and then he has appeared as counsel on a very similar problem. Hey presto – in the lifetime of the second case he can then refer to his decision. Whether or not there is actual bias is not the point; it is that the perception of bias is extremely unhealthy.’

Burn concluded that there is an enormous disconnect between the debate in public about investor-state arbitration and what really happens. The arbitration community needs to find ways of addressing that.

‘We should always have engaged with the transparency debate; we should always have been thinking of allowing non-disputing parties in. This is not the same as commercial arbitration; confidentiality is not a pre-requisite. It is not implied just because we use the word arbitration – it is not the same and it does not need to be seen the same. If we had engaged with that more productively five, six, seven years ago, today we would have a much more nuanced, more informed debate.

‘It is a shame that we are running to catch up, to try and explain to people what it is that is fair about this process, that is healthy about this process, why taxpayers and citizens should trust in this process to deliver something that is right; namely, the enforcement of norms of the rule of law.’