INTERNATIONAL ARBITRATION: An Introduction

Contributed by Wendy J. Miles QC (partner) and Conway Blake (associate) Debevoise & Plimpton LLP

International Commercial Arbitration in the United Kingdom

The growth of international arbitration has continued apace over the last year, both in terms of the volume of disputes and the uptake of arbitration in new industries and sectors. Among the many legal, political and economic developments affecting this area of legal practice, Brexit looms large. With Brexit negotiations firmly underway and ever increasing competitive pressure in the global arbitration market, it is an opportune moment for members of the arbitration community to reflect on London’s position as an international arbitral seat and the challenges likely to face the practice of international arbitration in the United Kingdom in the coming years.

London as International Arbitral Seat 

London’s future as a leading centre for business and legal services post-Brexit has been, and will continue to be, much debated. The consensus is that there has yet to be any perceptible negative impact on the arbitration sector. The most recent Queen Mary University global survey of practitioners, arbitrators, in-house counsel and other stakeholders, revealed that London continues to be the preferred arbitral seat, with its popularity increasing by almost 20% in the last two years. While 47% of respondents reported that London was their preferred seat in 2017, 64% did so in the 2018 survey. Notably, 55% of respondents forecast that London's appeal as a seat will remain unchanged after Brexit. This is in contrast to 37% of respondents who believe that London will lose its title of top seat post-Brexit; with respondents predicting that Paris (70%), Singapore (22%) and Geneva (22%) are the most likely candidates to replace London.

These results should not come as a surprise given that the key factors making London an attractive arbitral seat are likely to be insulated from Brexit, regardless of Britain’s future relationship with the European Union. However, it would be misguided for arbitral institutions, practitioners and users of arbitration in the UK to be complacent.

In the wake of the Brexit referendum a number of business entities have announced plans to relocate parts of their operations from London to alternative financial centres within the European Union. Frankfurt, Paris and Dublin have made firm attempts to lure businesses away from the United Kingdom. The risk of further business migration will intensify as the likelihood of a “no-deal Brexit” increases. If, over time, another European city were to topple London from its perch as the financial capital of Europe, we might well see future contracts following the exodus of businesses by designating other European cities as the seat of arbitration

The Choice of English Law 

The popularity of English law as the governing law of choice in international contracts may also be impacted. A study of 94 UK and international law firms, businesses, public authorities and academics conducted by Thomson Reuters in 2018, found that 97% of respondents indicated that some or all their existing international contracts include English jurisdiction and choice of law clauses. However, the same survey revealed that 35% of respondents reported that Brexit has affected their approach to selecting jurisdiction and choice of law. While these results relate directly to the use of the commercial courts, they may have implications for international arbitration. The popularity of London as an arbitral seat is undoubtedly linked to the respect accorded to the commercial courts in the United Kingdom.

However, the significance of a reduction in the choice of English law clauses should not be overstated. London is likely to continue to enjoy popularity as a seat, notwithstanding any decline in the designation of English law as the substantive law in international contracts. 

Competitive Pressure 

Beside the challenges posed by the geo-political upheaval of Brexit, there is also the continuing rise of Asia’s role in international arbitration. A 2017 ICC report noted that Singapore was the third most frequently used seat, and Hong Kong ranked fifth. Singapore’s growing success in establishing itself as an attractive seat was further confirmed by a SIAC report released in March 2018, which showed that SIAC registered one of its highest caseloads since the institution’s inception (452 new cases were filed in 2017; a 34% increase from 2016). In comparison, the LCIA has reported a decrease in its caseload in its April 2018 report. The forecast of sustained economic growth in Asia will only increase the competitive pressure from that region.

Both Singapore and Hong Kong have facilitated growth through the adoption of new arbitral rules and legislation to better meet the needs of commercial parties. A prime example is in the area of third party funding. As noted in the 2018 report of the ICCA-Queen Mary Task Force on Third Party Funding, since the Financial Crisis, the changing nature of business and legal services has led to a dramatic increase in demand for third party funding in litigation and arbitration. In order to meet this demand, both Singapore and Hong Kong adopted legislation allowing third party funding. Jurisdictions in Asia and elsewhere are quickly catching up with more established arbitral seats, including through the proliferation of successive amendments to arbitral rules and procedures.

Opportunities and New Frontiers 

However, the present moment presents not only challenges but also opportunities. Brexit may influence a shift towards international arbitration in the financial services sector, given the predictability of enforcing arbitral awards worldwide in comparison to the uncertainty surrounding the enforcement of English court judgments in the EU after Brexit. While international arbitration has been the preferred dispute resolution mechanism in a whole host of industries, the same cannot be said of the financial sector. Clients in the financial sector have previously shunned arbitration, including because of a lack of legal tools frequently used in banking disputes – such as summary procedures for the swift disposal of low value or unmeritorious claims.

However, the arbitration community is responding to these concerns. In 2016 the ICC Commission released its Report on Financial Institutions and International Arbitration, which recommended various reforms aimed at addressing the concerns of the financial sector in relation to arbitral proceedings. This has influenced a wave of recent developments aimed at increasing efficiency in resolving arbitral claims. For example, in January 2017, the Stockholm Chamber of Commerce (SCC) adopted a new summary procedure. In March 2018, the ICC Arbitration Rules were revised to provide for expedited proceedings for disputes of less than $2 million.

It is therefore disappointing that the Law Commission of England and Wales declined the opportunity to revise the Arbitration Act 1996 in its upcoming programme of work, including proposals to introduce amendments providing for summary proceedings. While the Law Commission has acknowledged that such reforms are desirable to ensure London's continued success as a premier venue for international arbitration, it was unable to secure the necessary cross-government support for the project at this time.

Beyond legislative reforms, London’s future will also depend on its continued role as a centre for progressive developments in arbitral practice. In this regard, it is notable that the LCIA was recently named the top international arbitration institution for the appointment of female arbitrators. Continued progress on pressing issues such as diversity will be important for the continued legitimacy and viability of international arbitration. 

Conclusion 

There is no doubt that the fundamentals of international arbitration in the UK remain sound. The key factors which make London an attractive arbitral seat are likely to be insulated from Brexit, regardless of Britain’s future relationship with the European Union. However, the continued success of international arbitration in the UK requires that all stakeholders consider ways to make arbitral procedures more responsive to the needs of the business community and redouble efforts to affirm London’s pre-eminence as a centre for international arbitration.