Arbitration far from home: Practice and principles of international arbitration through the scope of three key geopolitical events

By Florian Hamel Cooke, First year Law & Finance MA Student at Sciences Po Paris & LLB student at Panthéon-Assas University.

“The aim of this article is to give an introduction to the study of international arbitration. It builds on Gary Born’s statement about how its practice is profoundly intertwined with geopolitics. Thus, international arbitration does not only illustrate the uncertainty of global society, but can also be a way to resolve conflicts arising out of this uncertainty. This article will describe the principle of party autonomy in arbitral procedure with the example of changes caused by the Covid-19 pandemic. It will emphasize the importance of the choice of the seat of arbitration, building on the example of London as a popular seat and the consequences of Brexit. Finally, it will illustrate the difference between investment arbitration and commercial arbitration in the context of Russia-related disputes arising out of the war in Ukraine.”

Introduction

When the clock struck six on the evening of March 6^th 2023, I was entering the elevator of number 8 Connaught Place in the Exchange Square in Central Hong Kong. On my last day before returning to Paris, I was going to attend the Hong Kong International Arbitration Centre (HKIAC) conference given by the Hong Kong barrister Ms Queenie Lau. The conference was also attended by lawyers from the London, Singapore and Hong Kong offices of Simmons & Simmons, who came to give talks on the topic of “Recent developments in International Arbitration”. As a first year Master’s student from France, attending a conference on international arbitration on the 38th floor of a Hong Kong skyscraper, I felt as though I had nothing and everything to do there. 

International arbitration is a way to settle legal disputes. In general, disputes are settled in two ways. Whereas traditional domestic settlements require a standing court, arbitration is designed by the parties and allows the choice of the arbitrators. These disputes arise either between two States, between States and non-State actors or between two (or more) non-State actors.^[1] Arbitration may be ad hoc, i.e. based on procedural rules agreed upon by the parties, or ‘institutional’, with the parties relying on the procedural rules of a chosen arbitration institution. The subject most often concerns commercial law disputes between private parties or disputes relating to an investment made by foreign investors on the territory of a host State. In short, arbitration is a consensual means to resolve disputes by a non-governmental decision-maker selected by –or on behalf of– parties in order to obtain a final and binding decision.^[2] What makes arbitration ‘international’ is that international arbitration conventions, in this case the New York Convention for commercial arbitration, only apply to arbitration agreements that have some “foreign” or “international” element.^[3]

The discussion that took place at HKIAC’s event focused on the influence of geopolitics on the practice of international arbitration. I will here elaborate on geopolitical issues quoted during the conference and discuss their relationship with arbitration law, theory and practice.

Two quotes lead to this path. First, Gregory Shaffer argued that “[a] useful way to look at modern international commercial arbitration is to view it as a process that has been developed to meet the geopolitical needs of business and lawyers.”^[4] Secondly, Gary Born’s statement: “[a]t a more fundamental level, international commercial arbitration merits study because it illustrates the complexities and uncertainties of contemporary international society – legal, commercial and cultural – while providing a highly sophisticated and effective means of dealing with those complexities.”^[5] The aim of the present article is to provide an overview of the main principles of international arbitration while illustrating their interplay with three recent geopolitical events.

I.              The party autonomy principle as the main rule that applies to arbitral procedure

It is important to begin with the principle of party autonomy. Arbitration is largely designed by the parties themselves, which involves the choice of the procedural law and of the law to the contract–and the dispute. Moreover, the parties define the issue and subject matter to be decided by the arbitral tribunal themselves. Finally, the choice of arbitrators is quintessential. The parties are the ones to choose those who they believe will ensure a fair hearing of their case or rely on a third party or an institution to choose them.^[6] The parties cannot, in principle, change the rules fixed by the terms of the parties’ agreement. Thus, arbitrations are typically conducted by one or three arbitrators who are referred to as “the arbitral tribunal”. 

Although there is no consistent international arbitration practice and procedural rule, general principles and practices have emerged.^[7] In terms of procedure, most arbitrations take different forms and are resolved on the basis of written submissions, hearings and by relying on expert and witness testimony. The proceedings usually start with the request for arbitration, followed by the respondent’s answer. After appointing the tribunal, a procedural hearing defines the timetable. The debate then starts with an exchange of the claimant’s full statement of case and the respondent’s full defense and counterclaim.

The fundamental feature of party autonomy is guaranteed by arbitration statutes in virtually all modern jurisdictions, facilitated by the rules of arbitral institutions. Autonomy is most famously guaranteed under the New York Convention, which provides for the non-recognition of awards following proceedings that did not follow the parties’ agreed procedures or are contrary to national public policy.^[8] Procedural autonomy is also guaranteed by national arbitration legislation in most States. The UNCITRAL Model Law is a case point, providing, in Article 19(1), that “subject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.”^[9] Thus, most countries have based their arbitration legislation on the Model Law –with the exception of some countries like France, which provides a unique set of rules that are very favorable towards arbitration. Finally, another dimension of procedural autonomy is the freedom to agree to arbitration pursuant to institutional rules like those of the London Court of International Arbitration or the International Court of Arbitration in Paris.

II. Masks off: Post-pandemic changes in international arbitration procedure

Choosing the topic of the pandemic was evident, especially as the day of the HKIAC conference was also the day that marked the end of the obligation to wear a mask in Hong Kong.

How does international arbitration illustrate the current complexity and uncertainty of international society, in particular considering the changes since the Covid-19 pandemic? This is an opportunity to introduce how arbitral proceedings function and discuss how they have been influenced by the SARS-Cov-2 pandemic.

Covid-19 and the digitalization of arbitration 

The pandemic has impacted various aspects of international arbitration, including procedural rules, party autonomy, and the conduct of hearings. Many commentators argue that while the pandemic created significant challenges, it also unearthed new opportunities for innovation and adaptation in international arbitration. Indeed, as a result of lock-down measures adopted by States, hearings were held virtually for case management conferences as well as opening and closing statements of the parties.^[10] Some argue that there had already been an ongoing digitalization process in arbitration proceedings, which was accelerated by the pandemic. Indeed, the increase of online written communication and the development of remote hearings has also been accompanied by the potential development of e-awards.^[11] Moreover, arbitral institutions have revised their rules to enable remote arbitration. For example, HKIAC revised its 2018 HKIAC Administered Arbitration Rules encouraging greater use of technology.^[12] The International Centre for the Settlement of Investment Disputes (ICSID) has also adopted policies like replacing paper filings with electronic-only filings.^[13]Although opinions are divided on this trend for digitalization, there are no overriding legal arguments to hold it back. Therefore, remote hearings are likely to establish themselves as a standard.^[14] When it comes to question a fully digital arbitration process and how it would affect party autonomy, this question will likely have to be answered by the parties. Platforms like Kleros are emerging, which claim to conduct dispute resolution in a fully digital landscape thanks to blockchain technology enabling anonymous human decision-makers to act as ‘jurors’.^[15] Since arbitration’s ambition is to tailor a procedure to its users’ needs, digitalization of arbitration will thus depend on how parties react to these new tools and not on how institutions choose to recognize them.

Finally, digital tools may ensure a fairer and more efficient process. With voices rising against the carbon print of arbitration processes, these efforts are also motivated by the goal of “going green”.^[16] Overall, many voices are calling for changes in arbitration procedure, also in terms of transparency and inclusivity. 

III. Brexit. London: A changing global disputes hub

How does international arbitration illustrate the complexity and uncertainty of international society, in particular the change brought by Brexit? This raises the issue of the importance of the “seat” in international arbitration and the impact of Brexit on its choice. 

The seat of arbitration

The seat of arbitration is the location selected by the parties as the legal place of arbitration, which determines the procedural framework of the arbitration. Thus, the seat of the arbitration has to be distinguished from the place of the hearing. The seat will determine the lex arbitri, the procedural law of the arbitration that acts as a “gap filling” mechanism for the arbitration rules that the parties have not agreed on. The parties are usually free to agree on the seat, except in some frameworks like the ICSID Additional Facility Rules (2006) that limit the choice of place of arbitration to the States that are parties to the New York Convention.^[17] The United Nations Commission On International Trade Law (UNCITRAL) notes that many factors influence the choice of seat like suitability of arbitration law of the place, its practices (the intervention of domestic courts for example), as well as the multilateral or bilateral treaty on enforcement of arbitral awards it is party to.^[18] Thus, the choice of the seat is a serious matter that plays a strong role in determining if an award is annulled and enforceable or not.^[19]

London, a global dispute hub

London is famous for being a “safe seat” and is seen by many as one if not the most popular seat of arbitration.^[20] This can be explained by the fact that the UK is a signatory to the New York Convention and has clear legislation with the Arbitration Act 1996. Furthermore, its judiciary and court system is viewed as impartial and known for enforcing arbitral awards.^[21] Empirically, a Law commission consultation indicated that with international arbitration growing 26 % between 2016 and 2020, a good chunk of it was based in London.^[22] The capital of the UK is also seen as the preferred seat of arbitration according to 54% of respondents to a 2021 survey by White & Case and Queen Mary University, closely followed by Singapore.^[23] It is thereby interesting to question the effects of Brexit on if London still wears the “arbitral crown”.

A “Brexit-proof”^[24] dispute resolution mechanism?

Although authors consider that international arbitration has been “Brexit-proof” overall, a few points deserve to be clarified. By leaving the EU, the UK’s popularity when it comes to civil litigation, compared to arbitration, has been damaged, which could have a salient impact. Moreover, the rising attractiveness of other European legal systems is also to bear in mind. There is nevertheless room for optimism. 

Indeed, the legal change brought by Brexit has had no direct effect on international arbitration in the UK because the 1996 Arbitration Act and the New York Convention are not part of EU law. Thus, arbitral awards from the UK can be enforced in all of the other New York Convention States. Furthermore, non-arbitral proceedings before the English courts have been strongly impacted. By way of example, the UK is not a party to the Recast Brussels Regulation anymore, which enables recognition of judgements made within the EU on civil and commercial matters. This involves, therefore, additional ‘procedure’ and ‘red tape’. Furthermore, new litigation courts have appeared in Europe like the International Chamber of the Paris Commercial Court in February 2018 and the Netherlands Commercial Court in January 2019. Thus, these courts aim at boosting attractiveness for English-speaking litigants engaged in cross-border transactions.^[25]

Although Brexit can be considered as a “Messy but Not Disastrous Divorce” for the field, it could have indirect implications for arbitration in terms of reputation and global popularity since their futures are inextricably bound. Nevertheless, optimism is still on the agenda for the worldwide interest in decisions of the UK Supreme Court. Examples for this are Halliburton Company v Chubb Bermuda Insurance Ltd. on arbitration confidentiality and Enka Insaat Ve Sanayi A.S. v OOO Insurance Company Chubb on the law governing an arbitration clause.^[26] Moreover, one estimates that around three thousand international arbitrations are launched with a London seat each year.^[27]

IV. The war in Ukraine: Investment and commercial arbitration

How can international arbitration provide a highly sophisticated and effective means of dealing with complexity and uncertainties of contemporary international society like the war in Ukraine?

The difference between investment arbitration and commercial arbitration

Whereas commercial arbitration refers to arbitration of disputes between private or public parties to a contract containing an arbitration clause, investment arbitrations refer to disputes between a host State and investors in this host State.^[28]The second form is based on public international law as a matter of substance grafted onto international commercial arbitration (as a matter of procedure). In commercial arbitration, States are understood to be acting in their private capacity because of the applicable substantive law being private law. Conversely, in investment arbitration, public international law is involved with treaties in addition to, or instead of, contracts, with States acting in their public capacity.^[29]

The opportunity for international arbitration to resolve Russia-related disputes

Russia’s invasion of Ukraine in February 2022 was followed by an unprecedented legal, regulatory and economic response from the international community followed by counter sanctions from Russia.^[30] Investment arbitration claims could be justified by increasing restrictions on companies operating in Russia and potential violations of well-established standards of international investment protection. Indeed, Russia is a party to 63 in-force bilateral investment treaties (BITs), under which affected investors may act to enforce the substantive protections contained in these BITs. Commercial disputes could require arbitration because the war makes some contracts practically unenforceable. Many contracts were suspended or terminated. Thus, a growing number of Russia-related disputes are likely to be referred to arbitration in the coming months and years.

Hence, as the war in Ukraine continues, foreign investors may find arbitration is the best course of action to obtain compensation from the consequences of this war.^[31] It is, however, very likely to be difficult for both claimants in investment and commercial arbitrations to enforce arbitral awards rendered against Russia.^[32] Nevertheless, hope remains that the enforcement of such awards can be achieved through more creative, cross-jurisdictional strategies.

CONCLUSION 

This article is an introduction to concepts like party autonomy, choice of the seat and the use of investment and commercial arbitration to resolve disputes. By using examples like the Covid-19 pandemic, Brexit, and the war in Ukraine, the aim was to underline the interplay of geopolitics in international arbitration as an illustration of modern complexity as well as ways of solving them. The Covid-19 pandemic has been a catalyst for the progressive digitalization of international arbitration, which could lead to a more efficient practice, while making it ‘greener’. International arbitration has overall been marginally impacted by Brexit, although, in the long-run the practice could be impacted by the loss in popularity of commercial litigation in the UK compared to more popular courts in Europe. International investment arbitration is going to become a very popular means to retrieve compensation from the consequences of the war in Ukraine, but enforcing awards in that context is likely to constitute a challenge for deprived investors.

Link to the article:  Arbitration far from home: Practice and principles of international arbitration through the scope of three key geopolitical events.