What Do End Users Want From Arbitration Today?

In summary

The past couple of years have seen wide-ranging revisions to global institutional rules, in a bid to increase their competitiveness, efficiency and provide long-awaited clarifications on the scope and breadth of the tribunal’s powers. While there are a broad range of subjects that may appeal to today’s arbitration’s customers (including diversity, a bigger commitment to ‘green’ arbitration, transparency and ethics), this article focuses on procedural changes concerning the tribunals’ powers across the major European institutions to address the question of whether the rules and their changes have delivered.

Discussion points

• Why do parties use arbitration to resolve their disputes?
• Summary disposal and expedited procedures
• Sanctions and powers in relation to third parties
• The importance of the choice of seat

Referenced in this article

• Consilient Health Ltd v Gedeon Richter PLC
• AOP Orphan Pharmaceuticals AG v PharmaEssentia Corporation, ICC
• AOP Orphan Pharmaceuticals AG v PharmaEssentia Corporation, ZPO
• English Arbitration Act 1996
• Gerald v Timis

When it comes to discussing trends in arbitration procedures, the past few years have been characterised by a singular focus: the covid-19 pandemic and its impact on global dispute resolution – Queen Mary University of London’s 2021 survey identified ‘administrative/logistical support for virtual hearings’ as the number one adaptation that would make institutions and arbitral rules more attractive to users.^[1] The immediate aftermath of the pandemic is beginning to settle; remote proceedings will certainly not be abandoned, although time will tell to what extent they will continue to be used in high-value cross-border complex disputes. But other trends have sprung from the disruption of the pandemic – in a bid to have business carry on as normal, arbitral institutions all over the world saw revisions to their institutional rules to accommodate what end users want: speed, efficiency and low cost. Between 2020 and the date of this publication, industry-specific as well as jurisdiction-based institutions revised their arbitration rules. Changes were truly global,^[2] but among those with headquarters in Europe, to name but a few: CEPANI (the Belgian Arbitration Centre, January 2020), the London Court of International Arbitration (LCIA, October 2020), the International Chamber of Commerce (ICC, January 2021), the Swiss Arbitration Centre (June 2021), the Vienna International Arbitral Centre (July 2021), WIPO Arbitration and Mediation Center (July 2021) and PRIME Finance (January 2022). In many cases, parties opting for arbitration under these rules select a European seat. This article looks at the procedural changes implemented by a number of these institutions in the broader context of the question: what do end users want from arbitration today?

Why do parties use arbitration to resolve their disputes?

Arbitration has long been held as the preferred method of resolving international commercial disputes – its classical advantages were that commercial disputes could be resolved by judges who would apply the laws and practice of the market rather than common law,^[3] and in disputes with cross-border elements (as tends to be the case in international commerce), it provided a neutral forum in which the local jurisdictions of each party could be avoided.^[4] A major side effect, although possibly not the primary reason, at least initially, for user demand, was the associated efficiency and speed of arbitral proceedings, and resulting lower costs. The flexibility of arbitration distinguished it from the rigid rules of civil procedure in court litigation – and the awards would bite under the New York Convention, with more ease than a foreign judgment. What is not to love?

In Queen Mary’s 2018 survey, the three most valuable characteristics of international arbitration were said to be enforceability, avoiding specific legal systems and national courts, and flexibility.^[5] The survey also identified the three worst characteristics as cost, lack of effective sanctions and power in relation to third parties and – inevitably – delay.^[6]

The pandemic provided a good excuse to overhaul existing rules to provide better compatibility with virtual proceedings. At the same time, many institutions sought to revise their rules to increase the speed and efficiency of the process – particularly in circumstances where much delay to arbitral proceedings had been garnered by the mere fact of the pandemic.^[7] Certain of these changes traverse into territory traditionally considered the domain of litigation. If the traditional attraction of arbitration was its dissimilarity to litigation, however, is a move towards procedures that are more akin to those available in court what end users desire from arbitration? Research suggests that parties want arbitrators to have the scope of powers available to judges, but without the rigidity of national rules of procedure. Of course, the breadth of powers available to judges cannot be available to tribunals, who are creatures of consent. But this is why the seat of the arbitration – in its capacity as the supervisory jurisdiction – is such an important choice.

Summary disposal and expedited procedures

Despite the preservation of neutrality, enforceability and autonomy, there is a quiet dissatisfaction with the perceived efficiency of international arbitration.^[8] Arbitral proceedings are taking longer to resolve, coinciding with increasing costs. Queen Mary’s 2021 survey asked users of arbitration what adaptations would make arbitration rules more attractive to users, and high on the list were the provision of expedited procedures and costs sanctions for delay by arbitrators.^[9] Queen Mary’s survey is often the first port of call for lawyers and other researchers investigating demand in the field – but the large majority of the interviewees are private practitioners, arbitrators or other interested parties^[10] – and only 7 per cent of their interviewees for the 2021 survey (and 10 per cent for the 2018 survey) comprise in-house legal counsel.

So what do the clients desire? It has traditionally been considered, for example, that banks prefer litigation.^[11] According to the ICC Commission’s Task Force on Financial Institutions and International (whose research was carried out in 2016), 70 per cent of their interviewees^[12] did not have substantial experience of international arbitration.^[13] The perceived limitations of arbitration from financial institutions’ perspectives focused largely on forms of relief understood to be unavailable in arbitration – including interim measures, summary awards and consolidation.^[14] These concerns were perhaps a misconception – many major institutional rules (including the ICC) already had provisions for ‘emergency’ arbitrations to lead to rapid interim awards, as well as detailed rules on consolidation. Summary disposition was lacking at the time of the Task Force’s initial report, but fast forward six years and the majority of arbitral institutional rules have sought to deal with those deficiencies by giving tribunals the express power to grant summary awards. In October 2020, the LCIA introduced express provision for summary disposal (early determination) under article 22.1(viii) (although it was lagging behind several other major institutions, which had already made provision for this in years prior).^[15] Despite the late introduction, for many years the banking and finance sector has been in the top three industry sectors dominating the LCIA’s caseload. In 2021, it topped the list with 26 per cent of the LCIA’s cases emanating from that sector (with the energy sector coming in closely behind at 25 per cent).^[16] These statistics are in stark contrast to other institutions with published statistics^[17] – suggesting that despite the Task Force’s findings, it is not the specific powers provided for in institutional rules that are determinative, but likely reputation and tradition, the choice of the LCIA being a reflection of London’s pre-eminent and historical status as a global financial centre.

PRIME Finance, an arbitral institution dedicated to arbitrations in the finance sector, is a good illustration of this point. Although statistics are difficult to locate, anecdotal evidence suggests that it has not had the uptake that might be expected for a specialised institution. Leading arbitration practitioners have suggested that there is an inherent difficulty with trying to carve a new space in what is a tight-knit, closed arbitration community: new institutions (through no fault of their own) do not have the experience and pre-existing reputation and customers do not want to bring their cases to an inexperienced, relatively unknown institution.^[18] In 2022, PRIME Finance made wide-ranging changes to its rules in response to feedback from users, including the introduction of an expedited procedure and a summary procedure. It remains to be seen whether these changes will have any real impact on the institution’s caseload.

While English or New York law jurisdiction clauses appear to remain a favourable choice of dispute resolution clause in financial transaction documents, arbitration clauses are finding more traction.^[19]

In the flagship lecture of Dr Georges Affaki (a co-chair of the ICC Task Force on Financial Institutions and International Arbitration) at the Chartered Institute of Arbitrators in April 2018,^[20] Dr Affaki emphasised that financial institutions do use arbitration. In particular, he noted that it was important to recognise that there are multiple types of financial sector disputes and one size does not fit all. Export finance differs from advisory banking involving no lending, for example.^[21] Dr Affaki’s point was that while arbitration can offer a lot in each of these fields, it is vital that the economics of each field are properly understood and the procedure specifically adapted thereto.^[22]

The institutions have made efforts to make themselves more attractive; the structures are in place. So other than the LCIA, why isn’t the finance sector using arbitration more widely? The answer is probably that it will take time. Many of the procedures that have been introduced have been introduced in recent years, and the financial world may be slow to uptake (if it ain’t broke, don’t fix it). But the financial sector is in a constant state of evolution. As fintech develops, and the cryptocurrency market grows, there will no doubt be room for further adaptations to the arbitration offering to accommodate the changing needs of the financial sector, which may well find that arbitration is actually better suited to their disputes.

Another sector traditionally considered to favour litigation over arbitration is the life sciences industry,^[23] perhaps because of its close interaction with IP disputes. IP disputes have not typically been considered within the purview of arbitration, but times are changing – enough to cause GAR to publish its first guide to arbitrating IP disputes in 2021.^[24] Statistics published by the major arbitral institutions suggest, however, that the arbitration of life sciences disputes is not really increasing. Information published by the WIPO Arbitration and Mediation Centre suggests that approximately 15 per cent of its caseload concerns the life sciences sector: that figure apparently has not changed between 2015 and 2021.^[25] Numbers do not appear to have changed for the ICC or the LCIA either: the ICC Reports suggest that between 2017 and 2021, the life sciences sector has not accounted for more than 8 per cent of all filings; the LCIA caseload for 2016 to 2021 figures is even lower, at 3 per cent. There is plenty of room for growth if we can understand what exactly it is the sector is looking for and tailor the arbitration offering to provide it.

In contrast to the financial sector, little empirical study on the involvement of the life sciences sector in international arbitration has been carried out – perhaps because the life sciences sector has not traditionally been considered as large of a potential client as financial services and banking. But if there is one thing that came out of the pandemic, it is the importance of public and accessible healthcare, vaccinations and drugs. Collaborations required to research, develop, manufacture, market and sell new products have new markets. This leads to fertile ground for what are often cross-border, high-value disputes. And recent cases in the public domain suggest that the life sciences industry uses arbitration, demonstrating the breadth and nature of arbitration disputes in the field:

• On 7 July 2022, the High Court in London stayed enforcement proceedings pending a set-aside application in the Netherlands.^[26] The enforcement proceedings were brought by an Irish pharmaceuticals company that sought to enforce a Dutch-seated ICC award arising out of a collaboration agreement for the production, marketing and distribution of oral contraceptives in the UK and Ireland. The defendant was responsible for manufacturing, while the claimant was responsible for marketing and distribution. Following a dispute between the parties, the result of two separate arbitration tribunals’ findings were that the defendant had breached the contract, and in the event the claimant exercised an option (to which it became entitled in the event of a substantial breach of the collaboration agreement) to purchase trademarks belonging to the defendant, the defendant was obliged to provide such information as the claimant or third-party manufacturers required to understand how to manufacture the relevant products, which went beyond the information contained in the common technical documents. The defendant’s concerns about the confidentiality of its know how could not be resolved between the parties, and the defendant eventually issued an application to set aside the second award in the Netherlands. In the meantime, it sought to stay enforcement of the English enforcement proceedings pending the decision in Amsterdam. The Court agreed to do so on the basis that if the award was ultimately set aside, it would be very difficult to reverse or undo the impact on the defendant of handing over its know-how.
• In February 2022, the German Supreme Court released a judgment from the previous December, setting aside a €140 million damages award in favour of an Austrian pharmaceuticals company, which had concluded a licence agreement with a Taiwanese entity to develop and commercialise a blood cancer treatment. The claim alleged that after the claimant had developed the drug, the respondent terminated the agreement without cause. The Frankfurt-seated tribunal agreed with the claimant and awarded substantial damages,^[27] but when the matter came before the German Supreme Court, it set aside the damages part of the award on the grounds that, among other things, the tribunal had relied only on the claimant’s quantum evidence.^[28]
• Finally, the existence of a CEPANI award issued in late 2021 in an M&A dispute in the life sciences sector shows how the sector can be involved outside of collaboration disputes.^[29] That case involved the acquisition by US pharmaceuticals company Perrigo of Omega, the owner of several cough and cold, skincare, pain relief and weight management brands. Perrigo was awarded approximately €355 million by the tribunal on account of what it described as the accuracy and completeness of information disclosed about Omega pre-sale.

These cases indicate that in spite of the interaction with IP disputes, many life sciences sector disputes are ripe for arbitration, and parties in the sector are in fact using arbitration clauses to settle their disputes.

Sanctions and powers in relation to third parties

Another innovation of the new rules closer in nature to the scope of powers exercisable by judges has been the development of rules to reach parties not party to the original arbitration agreement at all – particularly, consolidation – but also joinder and intervention. The Swiss Arbitration Centre has perhaps gone the furthest in its 2021 update. While joinder (of a non-party, on application of a party) and indeed intervention (of a non-party, on its application) of third parties was already provided for in the 2012 Rules, the 2021 Rules provide further clarity on the process for joinder and intervention. Tribunals are afforded wide discretion to allow joinder and intervention^[30] – rather than basing any such request on the consent of the joining party as is required under the LCIA and ICC Rules (which provide only for joinder, and not intervention).^[31] The Swiss Rules go further still and expressly provide in the 2021 rules that the tribunal has a broad discretion to consider requests by non-parties ‘to participate in the arbitration proceedings in a capacity other than an additional party’ (such as through the submission of amicus curiae briefs).^[32] This type of participation is highly unusual in private commercial arbitration, unlike investor-state dispute settlement where arguably a certain level of transparency is demanded. Proceedings remain confidential, and it is difficult to find any evidence of the use of these types of provisions in practice – but for users of arbitral systems, they know they are available if they opt for arbitration under the Swiss Rules.

Further changes have been made across the scope of institutional rules to broaden the scope of consolidation provisions. The LCIA Rules 2014 required all parties to the arbitration to be the same; but the 2020 rules allow consolidation in circumstances where the arbitration agreements are compatible and – even if the disputing parties are not the same – the arbitrations arise out of the same or related transactions.^[33] This could considerably increase the attraction of the rules to a variety of commercial parties where transactions are characterised by the involvement of multiple parties, such as in the financial, construction and energy sectors, so that one forum can resolve all disputes arising out of the same transaction. Beyond the classic sectors that may benefit from wider consolidation rules, the revisions are welcome. In a recent case known to the author under the LCIA Rules, the new provisions were used in a family shareholder dispute, where the same family members were party to a number of different shareholder agreements reflecting their interests in the various family companies. After the family fell out, multiple arbitrations that had been commenced against the companies and their members under each shareholders’ agreement were able to be consolidated into a single forum dealing with the broader issues that gave rise to the claims.

These changes on the scope of the tribunal’s powers in relation to third parties reflect the increasingly complex, multiparty disputes being handled by arbitration – its maintained popularity as a choice of dispute resolution, and its ever-growing capacity to adapt to suit the client’s needs.

Conclusions: the importance of the choice of seat

On 22 September 2022, the Law Commission of England and Wales published Consultation Paper 257, concerning proposals to reform the English Arbitration Act 1996, which is the principal legislation governing arbitration in England, Wales and Northern Ireland.^[34] Despite the changing needs of arbitration users, and reforms to other arbitration legislation around the globe, the English Arbitration Act has not been revised since it came into force 25 years ago. Nevertheless, parties have not been deterred from choosing England-seated arbitration for their disputes – indeed, it might be said that the Act has only cemented the predictability and certainty that comes with English-seated arbitrations, supported by arbitration-friendly courts. The Law Commission has, thus, confirmed that the goal is not wholesale reform, but to ‘maintain the attractiveness of England and Wales as a destination for dispute resolution and the pre-eminence of English law as the choice of law’.^[35]

Among the areas that the Commission has identified in the Consultation Paper are the courts’ powers exercisable in support of arbitration proceedings. In that regard, one set of changes to institutional rules that has been introduced since the Act came into force are provisions for emergency arbitrators to address interim relief. In Gerald Metals v Timis [2016] EWHC 2327 (Ch), the Court was asked to grant a freezing order in support of an LCIA arbitration that had been commenced, but the tribunal had not been fully constituted. The claimant had sought the appointment of an emergency arbitrator, but the LCIA Court rejected the request after the respondent gave various undertakings. The claimant then approached the English Court for relief under section 44 of the Arbitration Act. The Court concluded that the test of ‘urgency’ set out in section 44(3) of the Act, coupled with the requirement under section 44(5) that the tribunal has no power or is unable for the time being to act effectively, meant:

the test of exceptional urgency must be whether effective relief could not otherwise be granted within the relevant timescale – the relevant timescale for this purpose being the time which it would otherwise take to form an arbitral tribunal. Likewise, under Article 9B the test of what counts as an emergency must be whether the relief is needed more urgently than the time that it would take for the expedited formation of an arbitral tribunal.^[36]

The fact that the LCIA had already rejected the claimant’s request likely meant that it was not persuaded that the application was so urgent that it needed to be decided before the arbitral tribunal was constituted.

Article 9.12 of the 2014 LCIA Rules provided that the emergency arbitrator provisions: ‘shall not prejudice any party’s right to apply to a state court or other legal authority for any interim or conservatory measures before the formation of the Arbitration Tribunal; and it shall not be treated as an alternative to or substitute for the exercise of such right’. In Gerald, the Court said that while this article made it clear that the emergency arbitrator provisions were not intended to prevent a party from exercising a right to apply to the Court, it did not prevent the powers of the Court on such an application from being limited as a result of the existence of the emergency arbitrator provisions.

Following Gerald, the 2020 LCIA Rules revised the wording of (what is now) article 9.13 as follows:

Notwithstanding Article 9B, a party may apply to a competent state court or other legal authority for any interim or conservatory measures before the formation of the Arbitral Tribunal; and Article 9B shall not be treated as an alternative to or substitute for the exercise of such right.

The change appears to be largely semantic and, if before Leggatt J in Gerald Metals again, is unlikely to be interpreted differently.

In the Consultation Paper, the Law Commission said that stakeholders consider the perceived consequence of the Gerald decision to be that the existence of emergency arbitrator provisions precludes an application to court, given section 44(5). The Law Commission said that the reach of the decision had been exaggerated, and Gerald was little more than a restatement of section 44(5). However, given that section 44(3) contains a criteria of urgency, which the Law Commission (like the Court in Gerald) said was to be determined by the ability of arbitral regime to produce an order within the necessary time period, the Law Commission was in favour of repealing section 44(5).

It remains to be seen whether section 44(5) will in fact be repealed from the Arbitration Act, but one thing is clear: for commercial parties, the choice of the seat is just as important as the selection of the institutional rules.

Footnotes