Institutions must step up to protect arbitration ecosystem

    By Donna Huang, International Chamber of Commerce
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    Arbitration is flourishing worldwide, but whispers are persisting that the system is becoming lengthy and expensive. Of the numerous parties involved, institutions are best positioned to balance various and often conflicting needs

    The arbitration sector has been burgeoning for decades. Whether across the European continent from whence it originated, or in Asia and South America where it swiftly gains momentum, or in Africa where it enjoys a newfound presence, there is a growing number of arbitrators and institutions. However, on the flip side of benign competition, the arbitration process is also growing lengthy, expensive and complicated, casting doubt on its effectiveness as a means of resolving disputes. In this regard, arbitration institutions, more than anything else, should take the lead in optimising the system.

    Adapting and surviving

    Arbitration was conceived in the 1780s, more than 200 years ago. In the beginning, only the institutions, the parties and their lawyers were involved in the process, but the list soon grew to include the likes of tribunal secretaries, funding third parties, and nations and entities invested in arbitration.

    It falls to the institutions to balance the needs and benefits of all players. For instance, the arbitrator may wish the parties to seek professional counsel to efficiently resolve a dispute within a common discourse system, but the parties tend to want to reduce the legal fees. An arbitrator wants the institution to provide sound management, but also to be able to adjudicate independently. A counsel wants the institution to offer both detailed guidelines, but also flexible, even tailor-made management. And as some of these appeals can be irreconcilable, arbitration institutions must perform a balancing act.

    The survival of arbitration institutions relies on the subsistence of arbitration as a means of dispute resolution, in other words, the sustainable development of arbitration. Hence, institutions have begun to contemplate the nature of the arbitration process, as well as each party’s rights and obligations within the global ecosystem.

    Donna Huang, International Chamber of Commerce
    Donna Huang
    Director of Arbitration and ADR for North Asia
    International Chamber of Commerce

    Institutional and ad hoc arbitration complement each other in resolving international commercial and investment disputes, but most favour the former. This is because, for one thing, institutions can effectively manage cases and keep the ball of arbitration rolling, and for another, they have accumulated vast experience from decades or even hundreds of years of practice, and are thus able to offer feasible and constructive feedback. Renowned institutions have developed largely identical rules of arbitration, but they differ noticeably in value and governance structure.

    Arbitration is a process where power shifts from the parties to the arbitrator. In the beginning, parties have control over matters such as the venue of arbitration, the governing law, schedule, and the place and language of arbitration. Once arbitration begins, the arbitrator takes charge over matters where party consensus cannot be reached, such as issuing orders to disclose documents, the form of hearing, determination of facts and applicable laws, and eventually making an arbitral award.

    Arbitrators’ responsibility is closely related to its rights, revolving around due process, fairness and authority of the parties. Such rights in turn originate from not only the nature of a contract, but also its adjudicative function. Institutions are able to: (1) dynamically balance between the arbitrator and parties; (2) provide arbitration rules, guidelines and templates, both in terms of a framework and a refined list of standardised documents; (3) minimise case delays by providing interpretations to arbitration rules and precedents; and (4) refine commonalities and add proven innovative initiatives to international arbitration.

    Responsibilities of an institution

    The foremost function of an arbitrator is to resolve disputes in a fair and timely manner, and issue enforceable awards, while for an institution it is to provide efficient, cost-effective case management services in order to support the arbitrators and parties to achieve the above. Institutions are responsible for providing a panel of arbitrators to the parties for their choosing, and sufficient information about the case and parties to the selected arbitrators. On the other hand, institutions also need to uphold their own brand value and “intervene” where necessary.

    The validity of arbitration comes from the collegiality of the parties, as well as the “quasi-judicial” nature it is based on. Party autonomy remains the cornerstone of arbitration. With limited powers, but with sophisticated system designs, institutions facilitate the arbitrators, protect the parties’ interests, and ultimately encourage the use of alternative dispute resolutions.

    Enhancing the quality and enforceability of arbitral awards. An arbitral award is final and binding. This is one of the defining characteristics of arbitration, supported legislatively by, among other things, China’s Arbitration Law. But the lack of an appeal mechanism is beginning to dissuade people from resorting to arbitration. As one can imagine, there is no consensus over this matter within the arbitration community. Institutions wish to exert a certain amount of “quality control” by “reviewing” the verdicts internally before signing off, arbitrators wish for more autonomy in their decisions, while the parties have their own considerations.

    A growing number of institutions have set up internal structures to assist the arbitral tribunals. The Shenzhen Court of International Arbitration initiated an optional appellate arbitration procedure in 2019, while the International Chamber of Commerce (ICC) stipulated under article 34 of the Standard ICC Arbitration Clauses that, “no award shall be rendered by the arbitral tribunal until it has been approved by the [ICC Court of Arbitration] as to its form”. Accordingly, the ICC court, upon receiving the draft form of the award, “may lay down modifications as to the form of the award, without affecting the arbitral tribunal’s liberty of decision”.

    Disclosure of arbitral awards. In the ICC’s Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration Under the ICC Rules of Arbitration, it stated that cases awarded since 2019, once declassified, may be disclosed to the public two years after their completion so as to further improve the transparency of arbitration. From 1 June 2021, the ICC began to publish awards on its website for cases meeting the conditions of “two years of cooling-off”, “desensitisation of parties’ information”, and “express consent of the parties”.

    In 2021, the Hong Kong International Arbitration Centre (HKIAC) also launched its Case Digest system, a searchable database that includes procedural decisions and anonymous summaries made by the HKIAC based on various rules. Many arbitration institutions in China have also compiled model cases to ensure consistency in verdicts.

    While the disclosure of arbitral awards seems to contradict their confidential nature, considering the premise of parties’ consent, and that only the arbitrators’ information is retained, it can be easily concluded that the system aims to maintain the quality of awards without compromising the parties’ autonomy of will, so maintaining the overall stability and enforceability of arbitration.

    In addition, disclosure of awards can go a long way toward urging arbitrators to explain their decisions, which in turn improves the consistency and quality of arbitration. Academically speaking, neither the New York Convention, the Model Law of the UN Commission on International Trade Law (UNCITRAL), nor China’s Arbitration Law has listed “reasoning” as grounds for setting aside an arbitral award.

    While some institutional rules request an explanation of the grounds for the award, it is not generally considered cause for withdrawing a verdict. The court has little control in this matter, but arbitrators nevertheless are obligated to provide a thorough explanation to the parties and the arbitration community.

    According to the judgment in Jivraj v Hashwani (2011), an arbitrator is “an independent provider of services who is not in a relationship of subordination with the parties who receive his services”, and “his functions and duties require him to rise above the partisan interests of the parties and not to act in, or so as to further, the particular interests of either party”.

    Management of arbitration fees. It is a common complaint that arbitration is becoming too expensive, but it should be noted that, according to the Decisions on Costs in International Arbitration prepared by the ICC Commission on Arbitration and ADR in 2015, more than 83% of the costs went to lawyers, witnesses, experts and interpreters. By comparison, arbitrators’ fees made up an unimpressive 15% of the total costs, with ICC administrative expenses at an even lower 2%. Accordingly, institutions’ control over administrative expenses would have little effect over the total costs.

    Nevertheless, institutions are putting efforts into reducing arbitration costs. For instance, the ICC promulgated a “reward and punishment” system for arbitrators’ fees in its above-mentioned note to parties and tribunals, where the ICC court may: elevate arbitrators’ compensation if the tribunal is able to efficiently complete arbitration; and lower arbitrators’ fees to a certain degree if they cannot submit the draft form of the award after the last substantive hearing, or within two months (for sole arbitrators), or three months (for a tribunal of three arbitrators), of the last written submission on the merits, unless there are recognised factors or special circumstances.

    In 2019, 66 tribunals had their arbitrators’ fees lowered by between 3% and 25%. The HKIAC and the Beijing Arbitration Commission are also exploring hourly billing and ad valorem (according to value) pricing to offer the best options.

    Apart from supervising the arbitrators, institutions are putting pressure on themselves as well. According to the above-mentioned note, if the review process is delayed, unless by special circumstances outside of the ICC court’s control, administrative fees will be lowered by up to 20%, depending on the length of the delay.

    If the above-mentioned rules are for supervision only, they may be interpreted as mere wishful thinking by the institutions, but with consideration of the means by which arbitrators receive compensation, and its proportion, it is easy to see that these regulatory measures are not unfounded but further embody the interdependence between institutions and arbitrators.

    Institutions set up rules to ensure the tribunals receive steady and sufficient funds, ensuring that arbitrators’ authority is uncompromised by any expenditure concerns. According to rule 30 of the Arbitration Rules of the Singapore International Arbitration Centre (SIAC), “The fees of the tribunal shall be fixed by the registrar in accordance with the applicable schedule of fees”, and according to article 36 of the ICC Rules of Arbitration, the secretariat may require payment of provisional advance to satisfy administrative expenses.

    In conclusion, a healthy ecosystem of arbitration relies on all participants to move with and against one another in a ceaseless motion of evolution, resistance and renewal, eventually achieving dynamic balance and sustainable development. Arbitration institutions, given their features and advantages, are in an ideal position to manage cases, optimise rules and lead in innovation, thereby keeping the “flames of arbitration” alive and ablaze.

    Donna Huang is the director of arbitration and ADR for North Asia at the International Chamber of Commerce

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