International arbitration
April 2021 | ROUNDTABLE | LITIGATION & DISPUTE RESOLUTION
Financier Worldwide Magazine
April 2021 Issue
International arbitration has proved to be remarkably resilient over the past 12 months, amid the disruption caused by the global pandemic. It is now common for arbitral hearings, including extensive cross-examination of witnesses and experts, to be conducted virtually – a veritable digital revolution. Opinion is divided, however, over the extent to which remote processes will continue once the impact of COVID-19 recedes, with cyber security, confidentiality and data privacy ongoing concerns.
FW: What do you consider to be among the key trends and developments shaping international arbitration over the past 12 to 18 months? How is the COVID-19 pandemic continuing to impact the process?
Speller: The international arbitration sector has proved remarkably resilient in the pandemic. Counsel and clients have adapted smoothly to virtual hearings. It is now common for a heavily contested hearing involving extensive cross-examination of witnesses and experts to be conducted virtually. There has been a sustained focus on efficiency in international arbitration. This has been reflected in recent revisions to the rules of leading arbitral institutions, such as the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA). Equally importantly, arbitrators and counsel are focused on ensuring that the procedure for a particular dispute balances efficiency and active case management with a party’s right to a reasonable opportunity to present its case. The pandemic has disrupted contractual performance in many sectors and has given rise to disputes on where the risks of such disruptions should fall. In resolving such disputes, it is critical to pay close attention to the applicable law and contractual risk allocation provisions, such as provisions addressing force majeure.
Martinez: The coronavirus (COVID-19) pandemic drove international arbitral organisations to focus on protecting their workforces and the continuation of their dispute resolution services, which was an enormous educational process in the transition to remote working and virtual business dealings. Arbitral institutions were forced to reposition their workforces to manage thousands of international arbitrations and mediations remotely, and educate and train staff, arbitrators, parties and their counsel on virtual arbitration via online COVID-19 resource pages, virtual-hearing guides and model orders. Cyber security, confidentiality and compliance with data privacy laws from various jurisdictions were an ongoing concern.
Pendell: 2020 dramatically pushed arbitration online. Institutions and tribunals alike have been quick to adapt with many institutions offering practical guidance as well as encouraging tribunals to consider utilising the flexibility of the process, such as deciding matters on documents only or resolving issues in stages through a series of partial awards. Online proceedings and electronic filing are now here to stay, with both the ICC and the LCIA updating their rules within the last six months to make it easier for tribunals to hold virtual hearings going forward, and making electronic submission the norm. Not everyone is happy with virtual hearings, but as with any new development, it will take time to be accepted wholesale and, post-pandemic, we do expect to see some return to physical merits hearings, particularly in larger ‘witness heavy’ cases.
Dearman: One of the overwhelming trends over the last 12 months has been the enforced transition to virtual hearings. Opinion is divided over the extent to which the revolution will continue once the devastating impacts of COVID-19 recede or whether in-person hearings will return. But there are certainly elements that will be here to stay. The considerable positive environmental impact, cost savings and perceived greater access to justice are all strong advocating factors for the trend to continue. My own perception is that full hearings will gradually return to the traditional in-person format to enable full engagement with the tribunal, for tribunals and counsel to see the body language of witnesses, such as the nervous glances, the shaking of the legs beneath the table, the uncertainty and hesitation in responding to questions. Often critical aspects of evidence such as this can be lost in a virtual environment. There is also the psychological factor of the parties being heard in person, having their grievances aired, and the physical opportunity of party to party discussions during the hearing, which are lost in the virtual environment.
Garcia-Reyes: In the energy, oil and gas industries there have been two significant drivers over the past year. The first, obviously, is the pandemic. The second has been the drop in the price of oil. Both have led to significant increases in arbitrations, but COVID-19 has also shaped how proceedings are conducted. The effects on arbitration practice will not disappear once the pandemic is gone. The changes are here to stay.
Herlihy: In my experience, COVID-19 has affected arbitration in two main ways. In a narrow sense, the pandemic has given rise to new disputes. In one recent example we experienced, the parties had signed a transaction in December 2020, but the buyer later claimed that the pandemic prevented completion, prompting arbitration. Thankfully both sides were able to resolve that case amicably. In a wider sense, COVID-19 has also rewritten how many of us think about the arbitral process. For example, the shift to virtual hearings is bound to have a lasting impact even after the pandemic subsides.
FW: Has there been a rise in international arbitration cases in certain sectors? What are some of the notable underlying themes leading to commercial conflict?
Martinez: In 2020, cases varied, both in complexity and in type of disputes. The underlying disputes varied and were industry specific. Many of the international arbitrations filed concerned life sciences, construction, energy, financial services, and intellectual property and licensing issues. Construction cases involved infrastructure and large-scale projects. Energy and financial service cases concerned loans, payment and reimbursement obligations. While it is still too early to say for certain, we may see a surge in disputes due to COVID-19. With the closures of numerous businesses, we shall see whether the pandemic provides a defence for a party’s alleged breach and failure to perform. Contractual provisions, such as force majeure or other hardships, may relieve a party of liability if unforeseen circumstances prevent performance. These international arbitration cases will be fact specific and dependent on the relevant governing law.
Pendell: The latest statistics from some of the larger institutions all show a rise in cases referred. It is harder to identify sector trends. Not all institutions provide statistics by sector, but we could be seeing a growing preference in some sectors for certain institutional rules. The LCIA and Hong Kong International Arbitration Centre (HKIAC) appear to be increasing references in the banking and financial services sector, probably reflecting London and Hong Kong’s existing influence. The ICC is showing a slight increase in construction and energy references, while the Singapore International Arbitration Centre (SIAC) appears to be picking up a balance of references across many sectors. Technology parties still seem to be avoiding the main institutions, seemingly still preferring litigation. However, technology parties may eventually leapfrog the ‘traditional’ institutions opting for a new ‘platform-based’ arbitration process, with some early examples already in operation. The current notable themes are disruption and delay due to the pandemic.
Dearman: There have been some signs of the impact of COVID-19 with record numbers of arbitrations recorded in the ICC, the LCIA, the HKIAC and the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) in 2020. Two sectors which have contributed a significant number of cases are construction and infrastructure, and energy. Construction has long been a focus of disputes and the continuation of that theme is not surprising given the pandemic has hit the industry hard. The combination of the stop-start nature of projects with global lockdowns affecting progress, reduced finance availability and challenging supply chains are all likely to lead to more disputes as projects near completion and the parties seek redress for perceived breaches and shortcomings. The energy sector has similarly had its challenges with sharp falls in energy consumption, at a time when there is an abundant supply of oil at a depressed price – the first ever negative oil price being recorded in April 2020 – and again challenging supply chains creating an environment in which complex disputes will inevitably arise. Technical accounting disputes arising from revenue recognition, asset valuation, delay claims and issues around impairment, goodwill and provisioning are likely to proliferate.
Garcia-Reyes: The past year has seen a significant increase in international arbitrations. And not just in the energy industries. The growth of arbitration in 2020 has been across the board. All the leading arbitration institutions have reported a boom in new case filings and a record year of growth. Not surprisingly, termination or prolonged suspension of major international projects has been a frequent issue, and even cause of, the increase in arbitrations.
Herlihy: There is no doubt that arbitration as a whole continues to be a growth area. For example, in January 2021, the LCIA reported that its caseload for 2020 was up by 10 percent over 2019, which had also been a record year. Within the arbitration field, we have continued to see strong demand in traditional areas, such as energy and telecommunications, as well as a growing number of disputes arising from new technologies such as FinTech. Even as technologies change, however, many of the same underlying sources of conflict continue. Common examples include disputes over contractual interpretation, changes in regulation that adversely affect a business, or a breakdown in corporate relationships, such as among shareholders or between companies and their directors.
Speller: There has been a rise in arbitrations in post-M&A disputes in the private equity sector, particularly in Eastern Europe and East Asia, and some parts of the financial services sector. There has also been a significant rise in both commercial and investor-state claims in the renewable energy sector. Other sectors that have historically been frequent users of international arbitration, such as the oil and gas and mining sectors, have remained so. There has been a particularly strong rise in the use of international arbitration in East Asia and Southern Asia, Latin America and the Middle East. This rise has been reinforced by the growing number of highly skilled and experienced arbitrators and arbitration practitioners in those regions. International arbitration has enduring appeal to commercial users, particularly those operating across borders. The relative ease of enforcing an arbitral award across more than 166 states under the New York Convention remains a significant practical advantage of international arbitration. In addition, the confidentiality of international arbitration compared to public court proceedings is perceived as an important practical advantage by many commercial users.
FW: In terms of dispute management, how are parties approaching aspects such as case assessment, settlement evaluation and evidence preservation in the current environment?
Pendell: There has been a great leap in the acceptance of technology in some aspects of dispute management. Much of the technology already existed, but uptake has surged since the pandemic began. Evidence preservation and capture can now largely be done remotely with technical teams within well-equipped law firms and their clients coordinating the best approach. For the right cases, this presents advantages in capturing a better set of documents at an early stage and using advanced artificial intelligence (AI) search techniques to identify the key documents. However, the critical element remains the proper evaluation of the issues and the assessment of the evidence directly relevant to those issues. AI will not capture everything, so it is still important for counsel and clients to keep this continually under review as a case develops and revisit any machine learning as necessary.
Dearman: I am naturally a strong advocate of early engagement with a quantum expert when disputes arise. A full expert report is not necessary but a challenging and robust independent assessment of the quantum aspects of a case, by claimant and respondent alike, is critical in guiding the parties, their legal teams and external counsel in setting and following a case strategy that is aligned both to the legal merits but also the amounts at issue. The quantum of recoverable loss should significantly influence the approach to the dispute, the amount invested and the appetite of the parties for settlement. Even the most sophisticated finance teams can prepare quantum assessments which contain common flaws, such as overstating losses, failing to account fully for successful mitigating actions, missing heads of claim, technical accounting shortcomings and other conceptual errors. Early case assessment and settlement evaluation has become increasingly important to funding cases, in an environment when working capital is stretched. Early case assessment from a quantum perspective has meant settlement discussions have ensued at an early stage. We have also seen increasing pragmatism of parties to engage in settlement and to identify innovative commercial solutions to resolving long-term disputes as early as possible.
Garcia-Reyes: It cannot be overstated: COVID-19 has already changed everything, and the changes are not over. If we take case assessment, it is a simple fact that this has been conducted over the past year almost entirely via remote means. We have learned to do this effectively. And in doing this, it is now easier than before to collaborate with highly qualified lawyers and experts from around the world. Why limit yourself to working only with lawyers based out of a particular office, when the lawyers themselves are not working out of that office? Just like us, they are working from their homes. So, we now have witnesses, documents and counsel scattered around the world and yet fully connected. This is a huge development. A year ago, it was normal practice for groups of lawyers to fly across the planet just to spend a half day with witnesses in another country. Today that sounds crazy. The end result of a case assessment has typically been a document, in the form of an early case assessment. And this is usually followed by a – now virtual – meeting to discuss it. While the method of collecting evidence may have changed, the end product has not. Evidence preservation has not changed simply because we had already reached the point years ago in which most evidence exists in a digital format.
Speller: Parties are adapting remarkably well to the pandemic situation. We have no real sense that parties feel unable to pursue claims as a result of the current environment. In practice, all the main steps in preparing for and conducting a dispute, including evidence gathering and claim evaluation, can take place remotely. One significant trend over the past five years has been the rise of third-party funding options and revisions to national arbitration laws and arbitration rules to facilitate third-party funding. This has given commercial parties additional options in pursuing claims and led to a number of strong claims that might not otherwise be pursued. Paradoxically, the increasing use of virtual hearings has, in some cases, led to more active case management by tribunals. Tribunals have become increasingly aware that it does not require an in-person hearing to actively manage cases, and are increasingly inclined to do so through virtual hearings and written submissions and directions by email. In our experience, this emphasis on active case management has enhanced the efficiency of international arbitration. Claim evaluation and evidence preparation remain critical stages for a party involved in an international arbitration. Conducted properly, these steps will ensure that a party is fully prepared and can propose a procedure for the arbitration that is both efficient and facilitates the effective presentation of its case.
Herlihy: The task of assessing a case and evaluating settlement options continues to require largely the same skills that it did before the pandemic: listening to a client to understand its desired commercial outcome, thinking strategically, investing the time to grasp a dispute properly at the outset and giving candid advice. Sometimes that can mean advising to settle, but other times it can involve having the courage to advise against a settlement if that is the right option. Much of this boils down to clear communication and building a client’s trust. That can be more difficult in a remote environment, but in my experience, clients are now used to making important decisions over WebEx, Zoom, and so on. If the content of the advice is sound, then it should cut through any medium.
Martinez: COVID-19 has had a more severe impact on paused or delayed litigation than on arbitrations and mediations. During the early stages of lockdown, parties postponed their cases, hoping to resume in-person hearings quickly. Not long into extended lockdowns, parties agreed to proceed with virtual hearings. Thus far, COVID-19 has not led to major changes in the way parties approach these issues in their arbitrations. It is too early to see if the challenges related to COVID-19 have led to any increase in settlement rates. Anecdotally, we have noted that parties in larger cases have pushed back hearing dates, and we have seen several applications to appoint an emergency arbitrator to handle requests for conservatory measures to maintain the status quo, pending the outcome of hearings and the final award. The issue of preserving evidence for postponed arbitrations has arisen. In some international arbitrations, counsel were not able to proceed, as opposing counsel in another country could not access their offices or proceed with the meaningful exchange of documents. In those cases, arbitrators must take note of the extenuating circumstances and provide for the preservation of the evidence and extended time frames for document exchange.
FW: With more parties involved in remote arbitrations, what insights can you provide into how parties can prepare for the process? What unique challenges need to be addressed around administrative issues, technology solutions, appointing arbitrators, engaging expert witnesses, and so on?
Dearman: The challenges of giving evidence remotely are driven by the precise location of the remote evidence. Evidence has been given throughout this period from the offices of opposing or instructing counsel, from the expert’s own professional offices or from home. Each location has unique challenges but perhaps the most significant exists if the expert cannot travel and must give evidence from home. Wherever evidence is given from, there are a number of issues that need to be considered, such as the inevitable technical and technological factors over the strength of the internet connection, access to hardware and software compatible with systems available to the tribunal and the parties’ counsel, access to documents, and ensuring confidentiality and the integrity of the evidence. Practical considerations include having representatives of parties’ counsel present when evidence is given remotely, ensuring witnesses are not coached or have access to notes or other aides which might influence the integrity of the evidence given.
Herlihy: Above all, it is important to get to the point. There is no vaccine for Zoom fatigue. Some arbitrators may also be in a totally different time zone to counsel, which only heightens that risk. Beyond choosing the right platform, hire an external provider to host the hearings. There is a growing number of those providers in the market. It ensures a smoother hearing and it also avoids having to choose between one party or the other hosting the hearing software. This, in turn, should reduce the odds of the losing party later claiming that there was something improper in the way the hearing technology was managed. Try out the software well in advance and recreate the hearing setting as closely as possible. There is no better way to pre-empt any issues with internet connectivity, backdrops, the e-bundles, screen-sharing and so on.
Martinez: In preparing for their remote arbitration, parties should consider their case counsel as a resource, keeping in mind that the major difference will be whether the hearings will be conducted virtually or not. Shortly after the case is initiated, the case counsel will schedule an administrative conference call with parties and their representatives to discuss the arbitration agreement to be followed and the administrative steps. The parties will be advised of the steps that will be taken from initiation to award and can raise any questions or concerns regarding their preparation and the procedures to follow. The arbitral institution will suggest mediation and virtual hearings. The institution will provide the parties with an overview and access to its electronic case-administration platform. As to the method of appointment, the institution will follow the terms of the arbitration agreement. The institution’s arbitration rules will provide the parties and the arbitrators with options on how the proceedings may be conducted. The framework, procedures and schedule are discussed at the first preliminary conference, including expedited procedures and international document exchange practices where US-style discovery is discouraged. Procedural efficiencies are a focus of the preliminary hearing, for example whether the case should be bifurcated to handle the issue of liability before damages, witness testimony and using virtual hearings.
Speller: In our experience, if handled properly, a virtual hearing can be as effective – or, in some instances, even more effective – than an in-person hearing. However, it is important for parties to bear in mind two key points. First, preparation and experience are critical. Cross-examining a witness or expert via a virtual platform, for example, is quite different to doing so in person. In particular, taking a witness through documents at a virtual hearing requires careful preparation and a different approach to an in-person hearing. In our experience, however, there can be advantages to a virtual cross-examination, including that the cross-examiner – and the tribunal – will typically have a clear and close up view of the witness’s reaction to particular questions. Second, it is important to select the right platform and test it thoroughly beforehand. We have seen arbitral tribunals use multiple platforms and these can be effectively used in conjunction with online document management systems. However, it is imperative for counsel to ensure they can navigate the system and deploy it to maximum effect.
Garcia-Reyes: I would recommend considering above all the arbitration process itself, and how the different participants can effectively take advantage of the changes we have seen. Consider the procedural timetable, which exists in every arbitration. Before the pandemic, the universal practice was for tribunals to issue a schedule for the entire arbitration following a ‘case management conference’, or procedural hearing, after taking input from parties. So, at the beginning of the arbitration, the parties and the tribunal basically had to guess the likely complexity of the entire case in order to plan an entire calendar. Today, by contrast, the practice of scheduling the proceedings has evolved into more of a conversation between parties and tribunals. The convenience of virtual communication makes it easy for tribunals to confer with parties whenever the need arises, presenting the ability to develop or modify the procedures to fit the dispute as it unfolds. I have seen several cases over the past year in which arbitral tribunals have been reluctant to agree at the outset on a particularly short or lengthy schedule. Instead, they build into the timetable a natural pause in the proceedings with a second ‘case management conference’ or ‘midstream conference’, typically after the main pleadings have been submitted. At this point, the remainder of the arbitration is built on how complex the case really is, not speculation. So it is more important than ever for parties is to appoint arbitrators – and experts and counsel – with the ability not only to work effectively within the constraints that COVID-19 has created, but who are willing to be creative, flexible and bold in order to tailor the proceedings to the parties’ dispute.
Pendell: There must be a focus on the technology itself, from broadband speed to the number of screens and the quality of the cameras and lighting, as well as the selection of the platform or hearing provider. IT literacy should now be a relevant factor in the selection of counsel, arbitrators and experts. As to challenges, there are few that are truly unique for arbitration. One challenge which I do not think has been fully addressed is a comprehensive solution to document management in a virtual world. There are excellent solutions for the hearings, but none that promises a cradle to grave approach – from evidence gathering to the hearing bundle. Another issue has been disagreements between the parties as to the format and platform for virtual hearings. Here we favour giving the tribunal the responsibility of proposing an approach, perhaps with the help of a tribunal secretary. In our experience, parties often then fall into line.
FW: How important is to take account of legal issues arising in a remote arbitration context, particularly in terms of ensuring the process is conducted in a way that does not undermine enforcement of the arbitral award? In your experience, are there any common pitfalls on this front?
Martinez: International arbitration awards are complied with voluntarily in an overwhelming number of cases due to the enforcement treaties in place. Challenging an award is difficult, and parties prefer to pay these awards and get back to business. The effects of the pandemic on the enforcement of those cases that were not voluntarily complied with have been largely attributable to court closures or delays that may have affected the enforcement processes and schedule, and not to their being virtual. One issue that may arise with virtual hearings is guarding against any challenge to an award where a party alleges it was unable to present its case as allowed by the New York Convention. The International Centre for Dispute Resolution (ICDR) Rules provide the tribunal with the flexibility to conduct the arbitration in whatever manner it considers appropriate, provided the parties are treated with equality and are given a fair opportunity to present their case. Arbitrators have a duty to conduct the proceedings with a view to expediting resolution of the dispute. They may consider using technology to increase the efficiency and economy of the proceedings. The ICDR virtual hearing guidelines and model orders stress ascertaining that the parties can proceed virtually to avoid potential for mischief if the award is challenged in the courts.
Speller: There is clearly a balance to be struck. On the one hand, it is important that arbitrations are progressed efficiently, notwithstanding changed circumstances. One of the great advantages of international arbitration is its inherent procedural flexibility. Tribunals should not be so beset by due process paranoia that they are unwilling to hold hearings remotely or to deal pragmatically and creatively with the issues that arise from that. On the other hand, tribunals do, of course, need to be conscious of the due process rights of the parties. It is essential that tribunals comply with the agreement to arbitrate and any applicable arbitration rules. It is also important that tribunals give the opportunity to make representations on procedural issues and a fair opportunity to put their case. Provided that tribunals comply with these principles, in most seats, it is likely to be extremely difficult to bring a successful challenge because a hearing has been held virtually rather than in person.
Garcia-Reyes: State courts at the most frequent arbitration seats are using virtual hearings for their dockets, so why should they find it to be a violation of due process if arbitrations do the same? In any event, the leading arbitration institutions have all provided guidance for proceedings to help parties avoid any pitfalls, and these are straightforward. The ICC’s ‘Guidance Note on Possible Measures to Mitigate the Effects of the Covid-19 Pandemic’ has been a helpful source of reference cited in many arbitrations this past year, and not just in ICC proceedings. Personally, I have found paragraph eight of this document to be particularly useful, as it lists many different case management techniques for conducting a more efficient arbitration, most of which do not even contemplate a hearing, let alone a remote one.
Pendell: At the forefront of any tribunal and claimant’s mind will be the enforceability of future awards. Concerns have been expressed that an unsuccessful party may try to resist enforcement of awards following a virtual hearing, relying on New York Convention grounds that it had been ‘unable to present its case’ or was otherwise contrary to public policy. The International Council for Commercial Arbitration (ICCA) is in the process of publishing some 86 national reports looking at whether a right to a physical hearing exists. These reports are due to be presented at its Congress in Edinburgh later this year. Amendments to institutional rules should mitigate this risk going forward, but parties and tribunals would be well advised to take care in dealing with a party refusing to countenance a virtual hearing altogether.
Herlihy: Good counsel will always be keeping an eye on eventual award enforcement. This needs to take into account three main factors: the applicable arbitration rules, the law of the arbitral seat and any specific provisions in the parties’ contract. The latest versions of the main arbitration rules expressly provide for videoconferencing technology. Article 19.2 of the current LCIA Arbitration Rules is a good example. But even where the rules lack that type of express provision, virtual hearings are now commonplace. It is also worth recalling that the main submissions in arbitration are still exchanged in writing. It is probably too early to say whether many losing parties will try to challenge awards merely because the hearings were conducted remotely. The laws that govern challenges to an arbitral award tend to set a high bar. Many of the courts that will hear any such challenges have also embraced remote hearings as well.
FW: In the current market, what general advice can you offer to companies on preventing or avoiding disputes? Or, if that is not possible, how can they lay the groundwork to resolve disputes efficiently with well-drafted contracts and clear communication with business partners, for example?
Herlihy: Draft contracts carefully. I owe much of my career to contracts or treaties whose wording went on to become the subject of intense debate. Of course, there is sometimes a limit to how far a company can do this. In some cases, parties settle on wording to get a deal done, without necessarily agreeing on what that wording means. Hire diverse teams within your organisation and within your external law firms. They tend to spot potential difficulties better and bring a variety of ideas to solving a problem early on.
Garcia-Reyes: Some things never change, and among them are contracts that are less than ideal, or do not anticipate all the situations that can give rise to a dispute. Fortunately, something else that has not changed is the value of including in a dispute clause the requirement to engage in mediation before arbitration. This creates opportunities for better communication, avoidance of misunderstanding, and settlement before disputes devolve into arbitration.
Pendell: For any business of significant size, disputes are inevitable. What really matters is how a company approaches dispute resolution. We see a range of behaviours in international arbitration. The gold standard comes from the highly sophisticated clients and counsel who are focused on a surgical resolution of the dispute based on an efficient and professional presentation of the evidence and legal argument. Companies favouring this approach are likely to resolve all but their most difficult disputes much earlier. Unfortunately, not all arbitrations are conducted like this, leading to a great deal of time and pages being taken up with procedural battles and irrelevant evidence and submissions aimed at colouring a tribunal’s view of the opposing party. There is guidance available from the British Institute of International and Comparative Law (BIICL) as part of its ‘Breathing Space’ series, for companies seeking to avoid or resolve disputes efficiently.
Speller: Often, the dispute resolution provision is addressed only at the last minute. This is a mistake. The substantive rights in a contract only have value to the extent that there is an effective means of enforcing them, so the dispute resolution provision is critical. It is generally sensible to use the model arbitration clauses published by the leading arbitral institutions, such as the ICC and LCIA, and only to modify the model clause when there is a specific reason to do so. It is important to resist the temptation to have an overly elaborate arbitration clause or to seek to provide for every contingency that may arise. Overly complicated clauses can create uncertainty and give rise to satellite disputes. More generally, in preparing for potential disputes, it is important that commercial parties engage with outside counsel at an early stage and before the arbitration has commenced. It is important, for example, that pre-action correspondence is carefully drafted based on a frank assessment of the strengths and weaknesses of the case and does not either adopt untenable positions or make unnecessary concessions.
Martinez: International companies largely opt to include arbitration clauses in commercial agreements. Reasons cited are concern about unfamiliar court processes, finding themselves in the home jurisdiction of the other side with bias against them, and recognition that enforcement treaties support international arbitration awards, rendering them more likely to be complied with voluntarily and enforced by the courts. Incorporating mediation into an international arbitration agreement as a step before arbitration can provide the parties with a greater understanding of the other side’s case, as well as their own. The mediator may be able to assist parties in reaching a settlement or resolve several disputed elements, reducing the issues remaining for arbitration and saving time and money. Counsel should avoid copying an arbitration agreement from a formbook or another contract, which can result in a process unsuited to the particular dispute.
Dearman: Preventing or avoiding disputes starts at the very beginning of a commercial relationship. Whatever the relationship, enhanced due diligence is critical. It is not just commercial, financial and technical due diligence but also a consideration of the assets held by the parties, whether commercial entities or states in bilateral investment treaty (BIT) claims, where those assets are held and the likely success of enforceability of an award in the event of a dispute. While potentially unpalatable at the outset of a commercial arrangement, effective enhanced due diligence of all aspects of a counterparty’s business, personnel and assets is critical groundwork to avoiding disputes. Inevitably it is the contractual terms, their interpretation, and the performance against them which leads to disputes. Often it is the drafting of non-standard or poorly defined financial and technical terms which are open to interpretation which are at the core of damaging disputes. Disputes can arise over what appear to be innocuous words and phrases. A valuable part of the contractual review process is to involve lawyers and technical experts with experience of acting on disputes over the interpretation of such terms. Ensuring ambiguity is minimised at the outset can save a great deal of time and expense dealing with disputes later.
FW: What issues do you expect to dominate international arbitration over the coming months? What overarching trends are likely to unfold?
Garcia-Reyes: Above all, the change in practices in response to the pandemic will not be temporary. We will not experience a sudden reversion to old ways once the virus is under control. COVID-19 has been a catalyst that is bringing about needed changes in how international commercial disputes are resolved. While much of the focus in international arbitration has been on the use of technology to engage in remote hearings and collaborate virtually, it is not lost on parties that this method of communication was in widespread use by businesses long before COVID-19. In the post-pandemic world, the economic fallout may drive more contract disputes into arbitration, while at the same time exerting pressure on businesses to trim expenditures and conserve cash. This will only increase the desire for rapid, cost-effective resolutions, and it is likely that arbitration institutions will respond by providing what the market wants and needs.
Pendell: The ICC promoted updates to its rules on the basis of efficiency, flexibility and transparency. These are good themes. Questions over the transparency of the process remain in some areas, while respecting parties’ rights to confidentiality. Related to that, conflicts of interest will still be topical following the English decisions of the Supreme Court in Halliburton v. Chubb, regarding arbitrators, and of the Court of Appeal in Secretariat v. A Company, regarding independent experts. On efficiency and flexibility, we are not at a point where ‘online arbitration’ will dominate, but many general counsel would still prefer greater efficiency. Finally, with the UK having now left the EU, we may see a focus on the status of the UK’s remaining 11 BIT’s with EU member states, and whether the UK’s withdrawal makes the UK a more attractive entry point for the purposes of investment protection, avoiding the fallout of Achmea.
Speller: The disruption to global commerce caused by the pandemic is likely to give rise to significant further disputes. We have already seen claims arising from such disruption in a number of sectors, including the aviation sector, the energy sector and the oil and gas sector. As with the global financial crisis in 2008 and 2009, the consequences of disruption may take several years to culminate in disputes. It is important for commercial parties actively to anticipate and prepare for such disputes, including by involving counsel and retaining documents and evidence. Climate change and action to combat climate change have been a significant source of discussion in the international arbitration community. This is reflected, for example, in the ICC’s recent report ‘Resolving Climate Change Related Disputes Through Arbitration and ADR’. The growth in the renewable energy sector has already given rise to a significant number of disputes in that sector. The enduring advantages of international arbitration, and its inherent flexibility, ensure that it remains well-placed to respond to a changing world and the changing needs of commercial users.
Martinez: Many business sectors have suffered because of lockdowns, high unemployment and travel restrictions, so there may be surges in cases related to the hardest hit sectors. To gauge the pandemic’s economic impact, we can look to the economic crisis that resulted from the global financial crisis in 2007, when the business community proceeded cautiously with an eye toward economic and fiscal restraint. We expect that international arbitration users will look to the institutions to save time and money as they have done previously. The technology for virtual hearings has evolved significantly, and the savings of time and money where travel is greatly reduced or eliminated is considerable. Virtual hearings for the entire case or in a hybrid form, where some parties, witnesses, experts or the arbitrators participate virtually, is an option whose time has arrived for international arbitration.
Herlihy: As one example, renewable energy disputes should continue to feature prominently. In the field of investor-state arbitration, we have seen dozens of cases in that area, such as against Spain. We are now seeing investors express similar concerns about Mexico. The global push toward clean energy may lead to other arbitrations as well, such as construction claims or disagreements among joint venture partners.
Dearman: As well as the various rule changes, the emergence and proliferation of COVID-19-related claims, and the funding of those claims, will be key themes. Not only will there be a growing emergence of COVID-19-related claims – including non-performance of contracts, warranty breaches from historical acquisitions, non-payment claims, frustration or material adverse change challenges, for example – financing those disputes with corporates facing liquidity issues and competing pressures on scarce working capital resources will be challenging. Funding is the one theme that is dominating conversations and is likely to continue as one of the overarching themes in 2021 and beyond. Companies will be keen to shift funding requirements off balance sheet. Corporates will also increasingly need to consider claims as commercial assets, the return from which will be assessed like any other asset, adopting commercial investment strategies aligned with the funders they are working with.
David Dearman is a senior managing director in Ankura’s London office specialising in international dispute advisory and expert witness services with a focus on cross-border disputes and international arbitration. He is a leading testifying expert in the UK with over 25 years of experience of preparing expert reports and giving oral evidence in complex international disputes, including asset expropriation, contractual, warranty and post transaction disputes, damages and loss assessments, and technical accounting disputes. He can be contacted on +44 (0)20 7015 2378 or by email: david.dearman@ankura.com.
Teresa Garcia-Reyes is senior counsel for Baker Hughes in Houston, Texas. She represents her division in commercial disputes worldwide, with a focus on leading negotiations, mediations, arbitrations and litigations in North and South America. Her experience includes acting as counsel in commercial disputes under the rules of various international and regional institutions and coordinating the activities of outside counsel in domestic court and arbitral proceedings. She can be contacted by email: teresa.garciareyes@bakerhughes.com.
Guy Pendell is a disputes partner and solicitor advocate based in London. He has been a partner at CMS since 2005 and has over 20 years’ experience handling disputes for mainly corporate clients. He has been credited by the legal directories as “giving clients the best chance of winning”. His main areas of work include international arbitration involving complex corporate and M&A, TMC, international projects and finance disputes. He also has years of experience handling disputes in the hotels and life sciences sectors and he sits as an arbitrator. He/She can be contacted on +44 (0)20 7367 2404 or by email: guy.pendell@cms-cmno.com.
Luis M. Martinez is vice president of the International Centre for Dispute Resolution (ICDR). Mr Martinez is based in New York and serves as an integral part of the ICDR’s international strategy team. He is responsible for international arbitration and mediation business development in various parts of the US and the world. He oversees the administration of cases that focus on Central and South America, along with cases that include states or state-related entities. He can be contacted on +1 (212) 716 5833 or by email: martinezl@adr.org.
David Herlihy focuses on complex international commercial arbitration and investment treaty arbitration, as well as broader issues of public international law. He was named as a 2019 International Arbitration MVP by Law360. Additionally, Chambers UK and The Legal 500 identify him as a leading individual in his field. He has a broad range of experience in commercial and investment treaty disputes across multiple industries, including Spanish-language disputes in Europe and Latin America. He can be contacted on +44 (0)20 7519 7121 or by email: david.herlihy@skadden.com.
Duncan Speller is a partner in the firm’s litigation/controversy department, and a member of the international arbitration practice group. He joined the firm in 2002. He has represented clients in numerous institutional and ad hoc arbitrations, sited in both common and civil law jurisdictions, including England, New York, Hong Kong, Singapore, France, Switzerland, Sweden, Austria and Germany. Mr Speller is based in the London office, where he practices international arbitration and English High Court litigation. He can be contacted on +44 (0)20 7872 1084 or by email: duncan.speller@wilmerhale.com.
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