INTERNATIONAL ARBITRATION: An Introduction to UK-wide

Introduction   

International arbitration remains the foremost dispute resolution method for parties enmeshed in cross-border commercial and investment disputes. Businesses remain attracted to the flexibility, neutrality, confidentiality and (relative) ease of enforcement of awards in arbitration. And, England remains a market-leading jurisdiction for international arbitration, with a very deep bench of expert arbitration practitioners, including those ranked below.

Arbitration’s attractions are promoted and protected by the Arbitration Act 1996, and the English courts are correspondingly supportive of the arbitral process. Our courts enforce agreements to arbitrate, interfere as little as necessary in arbitral decision-making, and respect the finality and enforceability of arbitral awards. Slated reforms to the 1996 Act, described below, will enhance the legislative regime and London ought therefore to retain its popularity as a venue for arbitration through 2024.

The strengths and predictability of English law to govern contracts and procedure play a significant role in attracting foreign parties to choose London as the seat for the resolution of their disputes.

While the future of international arbitration in England looks promising, challenges are ever-present. These include the UK’s treaty commitments and recent developments affecting third-party funders. Brexit’s impact on international arbitration in England is a card still played opportunistically by practitioners in other jurisdictions seeking to wrest work away from London. But the impact of Brexit on England’s attractiveness as an arbitral jurisdiction has either been irrelevant or, arguably, net-positive for users of arbitration.

Below, we outline the key issues, opportunities and challenges that we expect to impact the international arbitration market in England in 2024.

Global instability continues 

Uncertainty continues to cloud the global economic order in the aftermath of the COVID-19 pandemic and the war in Ukraine. Clients are therefore increasingly turning to their legal advisers for strategic advice on how to avoid or settle disputes. Nonetheless, the enduring energy and supply chain crises leave some businesses with no choice but to assert rights through international arbitration. Significant increases in asset values, or value disruption, has also shaped the appetite for arbitration in sectors such as life sciences and technology. The demand for premier legal advice in the UK in such areas remains strong.

Whereas London had long been a preferred destination for Russia-related disputes, Russia’s invasion of Ukraine severely stemmed that flow. The proliferation and enforcement of sanctions has raised material obstacles to conducting Russia-related work in London, even where leading firms are willing to take such work on. For example, UK arbitrators and arbitral institutions will in some cases be prohibited from taking certain actions or receiving fees in an arbitration involving a Russian party, which can make matters difficult and administratively burdensome.

The withdrawal of Russia-related work from the London market has driven efforts to diversify the sources of arbitration work in England and to increase demand from existing sources. 2024 is likely to see further efforts in that respect.

At the same time, the increase in sanctions has generated work for firms with intersecting international arbitration and public international law practices. As the war continues, so too will the demand for counsel able to navigate the complex web of sanctions and their impacts on commercial relationships and cross-border investments.

The UK will continue to attract international arbitration

Investment arbitration  

In 2023, the European Commission’s campaign against investment arbitration between EU-domiciled investors and EU Member States continued, which increased the UK’s attractiveness as a jurisdiction from which to launch European investment or enforce intra-EU investment treaty awards. The High Court has recently offered a way through to those seeking to enforce awards arising out of such disputes. The claimants in the Antin v Spain proceedings obtained recognition of their award of over EUR100 million in respect of Spain’s breaches of the Energy Charter Treaty (ECT), with the High Court rejecting Spain’s defences based on EU law and sovereign immunity. Coupled with the enhancements to the 1996 Act discussed below, the UK’s status as a non-EU state could lead to a sustained period of growth for the UK market in investment treaty-related disputes work. Advocacy-led practices are likely to be especially in demand for such work given the value to clients of having a single team managing all aspects of an investment dispute.

That optimism must, however, be tempered by the UK’s recent signal that it may withdraw from the ECT. 2024 is shaping up to be a telling year in this area.

Further changes to the investor-state dispute settlement (ISDS) landscape in the UK might flow out of the UK’s accession, in mid-2023, to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) as its first European signatory. This can be expected to increase trade and investment flows between the UK, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The CPTPP contains sophisticated ISDS provisions that, while unlikely to generate disputes during 2024, are certainly a potential source of future disputes with a UK nexus.

Third-party funding 

The UK Supreme Court set hares running in the UK litigation funding market in mid-2023, when it ruled that litigation funding agreements entitling funders to payment based on the amount of damages recovered are ‘damages-based agreements’ (DBAs) and therefore subject to a separate stringent regulatory regime. The general perception is that this development constitutes a wrinkle rather than an impediment, and funders have been able to move rapidly to tighten up their contractual arrangements to address the judgment’s consequences.

The Arbitration Act 1996 

The long-awaited reforms to the 1996 Act are among the most significant developments that market players can expect to take hold in the UK in 2024. The Law Commission published its final report and draft legislation in September 2023 after a two-and-a-half-year review and consultation process.

The reform proposals seek to fine-tune rather than overhaul the existing legislation. If adopted, those modifications that are most likely directly to affect international arbitration clients include:

• provisions allowing arbitrators to dismiss summarily legal claims lacking merit;

• clarifications regarding the courts’ powers to support arbitration proceedings and emergency arbitrators;

• improvements to the framework for challenging arbitrators’ decisions on the basis that the arbitrators lacked jurisdiction; and

• clarification of the rules determining which laws govern an arbitration agreement.

The next step in the legislative process will be for the UK government to decide whether to table the draft legislation, which could be expected to happen in 2024.

Issues du jour  

Two hot topics at the moment are climate change and diversity. Both can be expected to impact arbitration in England.

Climate change 

While negotiations continue around the ECT, the proposed modernised version has been heavily criticised for its inadequacy in promoting Paris Agreement commitments, in particular that it provides undue protection to fossil fuel investors. Signatory states (particularly EU Member States) are withdrawing in droves and the ECT’s future hangs in the balance. The ECT may yet be salvaged; if not, a reduction in the number of ECT claims advanced or ECT awards enforced in England can be expected. More broadly, an ECT-free world would carry regulatory instability and uncertainty for renewables investments, which are important to the success and timeliness of the green transition.

Diversity   

While the proposed reforms to the 1996 Act have been resoundingly welcomed, those reforms cannot alone unlock all of England’s market potential for arbitration. Recent comparisons with Singapore have drawn the observation that the English arbitration market could be more diverse and accessible to foreign practitioners. During the 2023 London International Disputes Week, it was suggested that London was well placed to reclaim the top spot from Singapore for India-related work due to cost now being comparable and a growing perception of more efficient claims management by institutions and courts here. However, the absence of visa-free or visa-light travel for all participants in arbitration, and the relatively lower proportion of foreign arbitrators on panels and foreign practitioners in counsel teams leading proceedings here, were identified as remaining areas for improvement. Addressing these would make London best-in-class across all measures as an arbitral seat. We hope to see further improvements in those areas too in 2024.