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Hong Kong Arbitration Week: a note from a small island

by Matthew Rushton on 02 Nov 2016

Hong_Kong_Arbitration_Week

For all the commendable change in international arbitration, we're still squeezing the wrong end of the toothpaste tube.

Despite two typhoons, a black weather signal, and the potentially bleak theme of "arbitration challenged", Hong Kong Arbitration Week (17-21 October, 2016) was an upbeat affair. And why not? Numbers of international arbitrations have been growing steadily worldwide for the last decade, with notable success in the Asia Pacific region.

But, as every investor knows, past performance is no guarantee of future results. Sir Vivian Ramsey outlined four areas of concern to the arbitral community in his keynote speech at the ADR in Asia conference: time and cost; competition (both from other ADR methods, and from new and existing commercial courts); the so-called "Thomas Point" (concern that courts should intervene more in arbitration to develop the common law); and, finally, ISDS issues and the prospect of a two-tier court for investor-state matters. 

ISDS issues

To take the final point first, ISDS has been the subject of much handwringing, but little else. Popular distaste, informed by a steady diet of misinformation, is not only damaging ISDS but having a knock-on effect on international commercial arbitration. While certain criticisms have a superficial appeal, they are, on the whole, without substance.

The problem is not the process – which is inherently flexible, and able to adapt in response to criticism – rather, it is a matter of (mis)perception and therefore a public relations problem. It follows that there should be a public relations solution. Anyone who lived under the stringent media management of the UK's New Labour government has seen effective PR in action. This means not only setting the agenda, but forcefully and immediately rebutting falsehoods whenever and wherever published. By contrast, the response from the international arbitration community to date has been piecemeal, sporadic and reactive.

The "Thomas Point"

Continuing in reverse order, Sir Vivian referred to the "Thomas Point", after Lord Thomas, the Lord Chief Justice of England and Wales. In a controversial speech, Lord Thomas advanced the claim that for the sake of the continued development of the common law, and parallel concerns for London's continued attractiveness as a global dispute resolution centre, that rights to appeal to the courts from arbitration on a point of law should be extended.

Ramsey, alongside most others found this thesis "misplaced", pointing out that "north of 95% of cases brought in court are resolved by mediation and negotiation", which do nothing to develop the law. He went on to liken Lord Thomas to "King Canute, trying to hold back the sea of development against court involvement. And like King Canute, will find that’s an impossible task". He concluded: "I don’t think London or the international community want the courts to interfere more in the process."   

Others took up the point at separate events, notably Christopher Moger QC, who expressed a preference for publication of "sanitised awards" as a possible way forward. John Beechey also found issue with Lord Thomas's subsequent (partial) retraction, in which Lord Thomas denied attacking arbitration but said instead he was "was trying to explore in an open way how…you make certain that, where we have got excellent retired judges who sit as arbitrators, decisions get into the public domain". As Mr Beechey pointed out, there may be others sitting as arbitrators, besides retired judges, with something to say as concerns the law.

The competition to arbitration

While competitors to arbitration are various, Sir Vivian sought lessons from adjudication, which in a short timescale killed off domestic construction arbitration in the UK. Adjudication offers resolution of a dispute in 28 days, which, said Ramsey, "most lawyers would consider impossible in arbitration". The decision can only be challenged on jurisdiction or breach of natural justice, and though only temporarily binding for the duration of the build, Ramsey noted that "98% of parties are happy to live with the temporary determination". Importantly, both sides bear their own costs.

For Ramsey, the lessons were clear: "Parties are not so concerned about cost recovery…parties to dispute resolution are looking for a quick decision, don’t mind costs, will live with the result and move on." Noting the lack of success with 100-day arbitration, he concluded that this was a challenge for the community: "How within arbitration [to] deal with requirements of clients."

Other sources of competition to international arbitration include new and existing commercial courts. In assessing whether to draft clauses providing for court, or for international arbitration, Ramsey identified nine points of comparison, which make uncomfortable reading for uncritical fans of international arbitration. They are as follows:

  1. Interim remedies: Ramsey suggested that arbitration cannot match court, particularly as concerns ex parte matters.
  2. Selection of tribunal: Ramsey noted that selection is getting very tactical, and questioned whether a judge isn't as least as good.
  3. Procedural rules: Courts offer far greater certainty.
  4. Number of parties: in arbitration, it is generally limited to contracting parties.
  5. Cost of the process: arbitration is now generally considered more expensive.
  6. Cost decisions: as Neil Kaplan QC opined later that week, if you deal with costs upfront quantum and liability tend to deal with themselves. Again, courts offer more certainty of approach.
  7. Confidentiality and privacy: Ramsey noted the shift towards greater transparency and away from presumed confidentiality in a private process.
  8. Need for appeal process: Ramsey noted that both sides don't want court until the award is handed down. He noted, too, that other institutions (including JAMS) offer arbitration with appeals processes.
  9. Enforceability of awards and judgments: In Ramsey’s view: "On analysis enforcement of court judgments is more straightforward." His view was that the Hague Convention was not previously needed as court judgments were enforced in other jurisdictions as a matter of course.

Ramsey concluded that arbitration needed to rise to the challenge of offering some of the significant advantages of the courts in London, Singapore (in which Ramsey continues to sit part-time as a judge) and new courts such as that proposed in the Netherlands in 2017.

Time and cost

Finally, the perennial issue of cost and time in international arbitration was a feature of the week's events. Again, Ramsey favoured the costs management approach of the courts, going so far as to recommend cost budgeting which has been much resented by City solicitors. While papers like the ICC Arbitration Commission Report on Techniques for Controlling Time and Costs in Arbitration dealt with matters such as third-party funding, recoverability of costs and contingency fees, it failed to address the overall costs of arbitration to the parties.

The ICC's own statistics make plain the scale of the challenge: 83% of the costs of arbitration remain counsel's fees, 15% are the arbitrators' fees, and 2% are institutional costs. And while arbitral institutions are to be congratulated on their willingness to change and adapt to control or cap their costs, and arbitrators' fees, it's all too obvious that they've been squeezing the wrong end of the toothpaste tube.

While the problem is obvious and solutions straightforward, the rewards that await those individuals or institutions that might try are equally straightforward: commercial oblivion.

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Topics: International Arbitration, ADR, Arbitration

Matthew Rushton

Written by Matthew Rushton