International Arbitration: Its Growth and Importance
In the Resolution of Commercial Disputes
Introduction
In the course of conference carried out at Peking University School of Transnational Law in 2013, Professor of law named Philip McConnaughay (2013) stressed in his speech two salient aspects which, in his view, were unfolding with a growing tendency in the field of international arbitration. The given speech revealed that the adoption of the New York Convention of 1958 had considerably fostered the development of cross-border commerce and business relationships (pp. 10-15). This fact is not surprising since business counterparties received the opportunity of settling any disputes arising out of their agreements by means of commercial arbitration implying an option to select private judges meeting the required professional background, country of proceedings, and the law governing the contract itself and settlement of likely conflicts.
In autumn 2015, the Central America, namely Guatemala and Honduras, witnessed a conference on “English Common Law and Arbitration for Trade and Investment in Latin America” (Feria-Tinta, 2015). The conference’s participants admitted that a due respect and tribute should be given to international arbitration and its role in the region given a number of bilateral and multilateral trade agreements functioning in the Latin America. The Trans-Pacific Partnership Agreement is thought to influence the legal framework of the area by a likelihood of an increasing evolvement of trade disputes (Feria-Tinta, 2015).
Other Dispute Settlement Means Revealed by Surveys
2015 White & Case Survey
The survey findings obtained by legal practitioners of White & Case LLP with the assistance and under the auspices of the Queen Mary University of London and School of International Arbitration, which were published in 2015 report, revealed the significance and predominant role of arbitration in the industry of commercial dispute settlement. More specifically, the authors of the report illustrate that 90 percent of individuals and companies who participated in the survey would choose international arbitration as a paramount and more preferable means of transnational dispute settlement (Friedland & Mistelis, 2015, p. 5). However, more than 30 percent of survey participants admitted that they focused on arbitration along with amicable dispute resolution as an additional option.
Moreover, places of arbitration proceedings which are called “seats” apparently affect the outcome of the case directly, given differing legal systems, legal culture, and other individual peculiarities of a particular place. The specialists taking part in the survey responded that the places most frequently chosen by them in the arbitration clauses covered London (47 percent), Paris (38 percent), Hong Kong (30 percent), Singapore (24 percent), Geneva (17 percent), New York (12 percent), and Stockholm (11 percent) (p. 12). The answers to the question of which places of arbitration proceedings were chosen more frequently by the participants during the past several years, turned out to have virtually reflected the tendency shown by the previous question relating to seats selection (p. 12).
The report has also determined that such arbitration organizations as the International Chamber of Commerce and the London Court of International Arbitration are among those places which are incorporated by reference into dispute settlement agreements most often, due to their high productivity and performance, as well as impartiality, international legal nature, and capability to carry out hearings worldwide (p. 18). What is fairly characteristic: the popularity and frequent choice of a particular institution apparently depend on its capability to conduct arbitration hearings in the places (seats) which are selected by parties to arbitration agreements most often (pp. 19-20).
2013 PwC Survey
Another landmark survey relating to statistical findings on the use of arbitration as a means of resolving transnational disputes was conducted under the direction and guidance of PwC experts and released in 2013. In contrast to the previous 2015 survey directed by White & Case practitioners, the value of PwC’s questionnaire was that it ascertained the importance and frequency of arbitration usage in different industries such as energy, construction, and provision of financial services (Lagerberg & Mistelis, 2013, pp. 6-9). More specifically, construction and energy fields have been determined to have resorted to international arbitration most often in comparison to financial services sphere. When asked whether international arbitration was the most suitable means of settling conflicts in their commercial fields, the survey participants’ answers were split as follows: 78 and 84 percent of respondents from the energy and construction fields responded positively, while the positive responses from the participants of the financial sector accounted for 69 percent (p. 8).
As it has been obviously demonstrated, the financial services industry tends to resort to international arbitration less frequently when compared to construction and energy spheres. The survey participants explained this trend by a strong necessity to address questionable issues in the disputes between creditors and borrowers by referring to long-standing mandatory precedents interpreting a technical nature of complicated financial definitions utilized in loan contracts. Therefore, the above peculiarity of financial contracts requires their counterparties to submit their disputes to state courts (p. 7). Moreover, given the needs of the all three fields encompassed in the survey, the vast majority of interviewees considering arbitration as the most effective method of dispute settlement in their spheres claimed that they chose it most often due to its impartiality, qualification of arbitrators, flexibility, and confidentiality (p. 8).
Nevertheless, 2013 survey participants have also indicated which potential problems may reduce the overall popularity and importance of international arbitration. Arbitration expenses and delays in the resolution of disputes are most frequently regarded to be the negative factors diminishing the role and dominance of international arbitration (p. 9). However, these factors are not field-related obstacles, but are commonly referred issues. Not surprisingly, the world financial crisis which had come from the United States, contributed to an increased number of financial disputes submitted for arbitrators’ consideration (p. 10).
A noticeable finding obtained in the 2013 PwC survey pertains to the issue of when it is most desirable for companies in construction, energy, and financial industries to resort to international arbitration: an overall pattern of responses to this question has illustrated that before filing arbitration claims, the companies assess such three main aspects as a leverage of their legal arguments, strength of proofs, and a likelihood to be awarded the compensation of damages incurred (p. 17). In addition, the vast majority of the survey respondents accounting for more than 80 percent also explained that they incorporated arbitration clause into the contracts with their business partners regardless of the potential sum of the transaction and did not possess any internal corporate policy allowing an arbitration refusal in certain conditions (p. 18).
Basically, when companies encounter the issue of selecting and nominating appropriate arbitrators, they have been found to pay a considerable attention to a prospective arbitrator’s professional awareness of a particular commercial field, his familiarity with a legal system of the state which, in accordance with a contract, is to regulate the business relationships of parties to a dispute, as well as his previous experience in participating in arbitration hearings, technical background, language skills, reputation, and recommendations (p. 22). The survey respondents stated that they often regarded these factors as those which may play a dual role in the outcome: from the one side, this constitutes a leverage of international arbitration in contrast to litigation, for instance, but the very these obstacles may also result in additional constraints where there is a limited choice in available arbitrators.
Conclusion
The research findings presented and discussed above have apparently shown that businesses steadily tend to resolve cross-border disputes via international arbitration in most cases accounting for 90 percent (either by means of arbitration only or with additional methods such as mediation). Furthermore, there have been defined industries where international arbitration is the most popular dispute settlement method: construction, energy, and financial markets with a slight difference in percentages. Despite having certain entrapments (arbitration-related expenses and likely delays in the passage of awards), international arbitration has steadily maintained its inherent benefits: choice of the seat of proceedings, legal system governing the dispute, and arbitrators; impartiality; the opportunity to select arbitrators possessing skills and expertise in a particular commercial sector; confidentiality and flexibility.
References
Feria-Tinta, M. (2015, December 11). Growing appreciation for arbitration for trade and investment disputes in Latin America. Retrieved from http://kluwerarbitrationblog.com/2015/12/11/growing-appreciation-for-arbitration-for-trade-and-investment-disputes-in-latin-america-moving-towards-english-common-law/
Friedland, P., & Mistelis, L. (2015). 2015 international arbitration survey: Improvements and innovations in international arbitration. Retrieved from http://www.whitecase.com/sites/whitecase/files/files/download/publications/qmul-international-arbitration-survey-2015.pdf
Lagerberg, G., & Mistelis. L. (2013). Corporate choices in international arbitration: Industry perspectives. Retrieved from https://www.pwc.com/gx/en/arbitration-dispute-resolution/assets/pwc-international-arbitration-study.pdf
McConnaughay, P.J. (2013). The role of arbitration in economic development and the creation of transnational legal principles. Retrieved from http://www.pkusz.edu.cn/uploadfile/2013/1008/20131008051334815.pdf
