2020 has arrived now, so what should businesses and practitioners expect? We look at current arbitration trends and where they might lead in the next twelve months and the years ahead.
A year ago it looked as if Brexit was finally about to happen. One year on, we are in the same position again, although a lot has happened in between. At one point it seemed likely that the UK would leave the European Union (EU) without a Withdrawal Agreement (a 'no deal Brexit'), which would have been hugely disruptive, not least in relation to the enforcement of English court judgments in mainland Europe. As a result, many parties chose to include arbitration agreements in their agreements for the first time, and this should lead soon to an increase in the number of London-seated arbitrations taking place.
A no-deal Brexit is still possible in theory, but unlikely now that UK Prime Minister Boris Johnson has renegotiated the Withdrawal Agreement and won a general election with a convincing majority. The Withdrawal Agreement is expected to be ratified quickly by the UK and EU parliaments, allowing Brexit to occur as early as 31 January 2020. However, the UK will remain in the EU until at least the end of 2020 (the Transition Period) for most practical and legal purposes.
Even after that, UK judgments will continue to be enforceable under EU rules, whenever they are issued, providing the relevant proceedings are commenced before the end of the Transition Period. However, there is continuing uncertainty over judgments resulting from proceedings issued after that, although two new Hague Conventions may help (see 'What price arbitration?', below.) So the recent shift towards London-seated arbitration in international commercial contracts may turn into a long-term trend.
Belt & Road Initiative
From a global perspective, Brexit is a side show compared to China's Belt & Road Initiative (BRI) – arguably the biggest investment and construction programme that has ever been undertaken. Needless to say, arbitral institutions in APAC and beyond are eager to pick up disputes work arising from the many complex, multi-party projects that make up BRI. The approach of China itself seems to be to make suitable courts available to parties who prefer litigation (the new Chinese International Commercial Courts in Xi'an and Shenzhen), but to facilitate international arbitration too. This benefits foreign arbitration institutions to some extent, and also parties who feel most comfortable using them.
In April last year, Beijing and Hong Kong announced an arrangement allowing arbitrations seated in the island to be supported by interim/protective measures issued by courts on the mainland. The key point here is that the arbitration can be administered by any institution, so long as it appears on an official list of permitted bodies. The International Chamber of Commerce (ICC) appears on that list, alongside the Hong Kong International Arbitration Centre and a handful of other institutions, and the arrangement went live in October. It will be interesting to see how much it is used.
Meanwhile Beijing is expected to go further in 2020 and allow arbitrations to be administered in mainland China by any arbitration institution with a presence in Shanghai's new Free Trade Zone – again, on condition that its name appears in the relevant official list. This particular list has not been published yet, so we do not know for certain yet whether the ICC or any other Western institutions will benefit from the arrangement. However, it seems likely that they will, and that we will see over time a gradual but significant opening up of mainland China to foreign arbitral institutions.
Hong Kong and Singapore
Sadly, the troubles in Hong Kong are beginning to affect business confidence in the island's economy and institutions. Until the political difficulties are fully resolved, it is difficult to judge what their overall effect will be, but from an arbitration perspective there is clearly the potential for disputes to migrate southwards to Hong Kong's main rival in the region, Singapore. The context is important here: the caseload of the Hong Kong International Arbitration Centre (HKIAC) has remained more or less constant throughout the current decade, whereas that of the Singapore International Arbitration Centre (SIAC) has more than doubled during the same period. However HKIAC still handles more cases in absolute terms – for now.
These developments will serve to sharpen the rivalry which already exists between the two jurisdictions and which is evident in the copycat legislation being passed there. Both have recently permitted third party funding of arbitrations, and now Singapore is expected to imitate Hong Kong's law permitted arbitral awards to be appealed on a point of law, providing parties opt in to this arrangement. This contrasts with the position in England, where appeals of this kind are allowed unless parties opt out (section 69 of the Arbitration Act 1996). Appeals on a point of law rarely occur, however – see this interesting speech which Sir Bernard Eder delivered in April 2019, reviewing recent statistics.
Third party funding
It is not just in Hong Kong and Singapore where third party funding has been in the news. For example, the Supreme Court of Queensland ruled in September that a funding agreement in a class action was enforceable, although the law is not as clear in that state as elsewhere in Australia. These and other developments suggest that third party funding will continue to grow internationally, although how much and how quickly is not yet clear.
As part of this trend, funders are beginning to work more closely with law firms, including Clyde & Co, which set up a ground-breaking funding arrangement between an aviation client and Litigation Capital Management (LCM) in June. This involves LCM backing not just one high-profile case, but a portfolio of cases of different strength and value. Portfolio funding is particularly attractive to companies that are not lacking in financial resources, but prefer to devote those to other projects, and so welcome outside financial help as an alternative to simply letting claims go. We will undoubtedly see more portfolio funding in 2020 and beyond.
New rules for old
The rules of the London Court of International Arbitration (LCIA) are about to be updated, although the changes will be relatively minor. Some points will be clarified, and there should be a new focus on cybersecurity and data protection.
The International Centre for the Settlement of Investment Disputes (ICSID) is also updating its rules – a slow process. Under discussion at the moment are a code of conduct for tribunal members, the need for transparency in third party funding, and a new advisory centre on investor-state dispute settlement. The centre would go some way towards meeting common criticisms of investor-state dispute settlement by addressing costs, the quality and consistency of decisions, and access to justice.
Of particular importance from a European perspective is reform of the Energy Charter Treaty – another slow process, which now looks set to begin. The EU, in particular, wants to modernise the treaty so that it addresses climate change and clean energy issues, as well as promoting sustainable development generally, human rights and international labour standards. However, some commentators fear that reform will lead to a radical watering down of protections for investors, and the EU clearly wants to modify these in some respects.
The future of investor-state dispute settlement
For some time now the current model of investor-state dispute settlement has been under attack. What is at stake here is not just the detail of specific rules, but the possibility of taking a fresh approach altogether. It is surprising how widespread the belief is that something radical must be done - see, for example, the recent parliamentary report on UK investments policy (HC 998) in which alternative approaches were proposed as a response to Brexit. The report is discussed in our article here.
In fact some changes are already being made, and will become increasingly evident in the next few years. For example, the EU has included an investment court system, rather than an arbitration one, in the EU-Canada Comprehensive Economic and Trade Agreement (CETA). The new court system will start to operate after CETA is ratified on all sides - most of its provisions are currently operational, but only on a provisional basis. In the meantime the institutions of the EU are paving the way for the new court system with the Court of Justice deciding in April 2019 that it is compatible with EU law, and the European Commission publishing four proposals in October 2019 regarding procedure, conduct, and related matters.
What price arbitration?
One of the most important recent developments is the strengthening of litigation and mediation as alternatives to commercial arbitration. This is being achieved by the introduction of global regimes for the cross-border enforcement of court judgments and mediated settlement agreements to rival the New York Convention regime for enforcing arbitral awards. First, the Hague Convention on Choice of Court Agreements 2005 entered into force in 2015. Then the Hague Judgments Convention was concluded in July, with the Singapore Mediation Convention 2019 following shortly afterwards.
The process is gradual because there is no 'big bang' of countries acceding to these Conventions, as happened when the New York Convention launched in 1958. However, Mexico, Singapore, Montenegro, Denmark and the rest of the EU have already acceded to the 2005 Convention, with China, Ukraine and the UK (after Brexit) expected to follow soon. Hopefully the same countries (and more) will accede to the new Hague Convention, which supplements the earlier one. In addition, 46 countries have already signed the Singapore Mediation Convention, and several are likely to ratify it in 2020.
What this means in practice is that in a few years' time court judgments and mediated settlement agreements may be as easy to enforce across borders as arbitral awards are today. Parties will no longer have to rely on bilateral reciprocal arrangements or purely national laws (see our article on the subject, here). This raises the interesting question of whether arbitration will lose some of its popularity in the longer term, given that it is not generally cheaper than litigation and is not always confidential. The answer will often depend, of course, on whether a neutral court can be found that is a viable alternative. The courts of some jurisdictions fare much better in official rankings than others, not only in terms of the time and cost of conducting litigation, but also the complexity of the procedure involved – see, for example, the World Bank's latest Doing Business Report, where Singapore comes out top for enforcing contracts in the courts. Needless to say, rankings of this kind cannot take into account the quality of justice delivered, but as we move out of the festive season and into a new decade of international dispute resolution, they are certainly food for thought …