Adrian Winstanley

Director general and registrar of the London Court of International Arbitration

Evolution in dispute resolution

Changes in the practice and procedure adopted in resolving commercial disputes are, quite properly, driven by the end-user, the international business community.
Despite complaints about cost and delay, about which none in the arbitration community, least of all the administering institutions, can afford to be complacent, arbitration still holds its place as the first choice for the binding resolution of commercial disputes in the widest range of contractual relationships and across many jurisdictions.
The much-repeated virtues of private procedures for the resolution of commercial disputes include party autonomy, neutrality, confidentiality, cost effectiveness and speed and, in the case of arbitration, finality and enforceability, with the range and flexibility of such procedures now also frequently cited. In truth, the most significant and enduring of these is enforceability under the remarkable New York Convention, and it must be said that arbitration is not infrequently chosen simply as the lesser of two evils, the other being litigation.
Nonetheless, even as the use of arbitration has become more prevalent, so an ever-increasing number of alternatives have been introduced for use independently of arbitration, or as adjuncts to it.
Disputant parties are now more often willing to venture into the less-tried alternatives to arbitration, including early neutral evaluation, dispute review boards, expert determination and adjudication. The ‘softer’ options, such as mediation and, increasingly, ‘dispute avoidance’ also find favour with many major corporate players.
And, while litigation in the courts may still be seen as the more expensive, time-consuming and contentious alternative, the courts in a number of jurisdictions, including England and Wales, have responded to the challenge by greatly simplifying, and improving, case management procedures.
Which of the options is to be chosen in the contract documentation, or once a dispute has arisen, will depend upon the desired outcome of the process.
Is a binding decision required, either for enforcement purposes or for insurance purposes? Or is an expert opinion sufficient? Is time likely to be of the essence? To what extent will an investigation be required? In an infrastructure dispute, for example, should the procedures be tracking the project? How many contracting parties and how many separate contracts may be involved?
Consequently, many of the leading institutions, including the LCIA, now offer a wide range of procedures and administrative services to meet the changing requirements of their ‘customers’.

Does insitutional arbitration still add value?

Despite the greater diversity in dispute resolution techniques and the willingness of some institutions, at least, to embrace this diversity, the binding nature of arbitration and the extraordinary reach of the New York Convention, which brings such dependable enforceability to the process, keep arbitration in a class of its own.
But given that there are effective arbitration laws in place in the jurisdictions of most of the important trading regions of the world, and that there is growing expertise and sophistication shown by parties and practitioners in this field, it is perhaps not surprising that the number of ad hoc arbitrations still exceeds the number of administered arbitrations by some margin.
It is, therefore, worth reflecting on whether the administering institutions, like the LCIA, still add value to the process; to which, for the following reasons, among others, the answer is affirmative.

Certainty in drafting

Ad hoc clauses are frequently either inadequate or overly complex. By incorporating established rules into their contract, the parties have the comfort of a comprehensive and proven set of terms and conditions upon which they can rely, regardless of the seat of the arbitration; thereby minimising the scope for uncertainty and the opportunity for delaying or wrecking the process.

Taking care of the fundamentals

The incorporation of a set of established rules will reliably take care of the fundamentals, including the mechanism and time frame for the appointment of the tribunal; determining challenges to arbitrators; default provisions for the seat and language of the arbitration; interim and conservatory measures; and control of the costs of the arbitration.
The applicable procedural law may well also provide for these matters, but it can be time-consuming and costly to invoke the jurisdiction of state courts at every procedural impasse. Court intervention may also jeopardise the confidentiality of the process.

Professional administration

Institutional rules, as opposed to general provisions like the UNCITRAL rules (currently under comprehensive review), bring with them the additional advantage of a professional administrative service that an ad hoc tribunal, with or without the cooperation of the parties, often cannot adequately provide.

Managing costs and delay

The most vociferous and sustained criticism of commercial arbitration is levelled at cost and delay. However, many of the leading institutions, including the LCIA, actively seek to moderate their costs and the fees charged by the tribunals they appoint. It is, therefore, frequently the case that these costs are better controlled and contained under the supervision of the leading institutions than in ad hoc proceedings.
The LCIA is of the view that a very substantial monetary claim (or counterclaim) does not necessarily mean a technically or legally complex case and that arbitration costs should be based on time actually spent by administrator and arbitrators alike. The LCIA’s charges, and the fees charged by the tribunals it appoints, are not, therefore, based on the sums in issue.
Ad hoc arbitrations do not run themselves and important administrative tasks can only be allocated to a member of the arbitrator’s own staff, to members of the parties’ legal teams, or to the parties themselves at considerable inconvenience and financial cost. The counterpoint to the concern that the institution’s costs are costs which would not otherwise be incurred, therefore, is that the administration will be carried out more efficiently, and more cost-effectively, by a specialist institution.
The major institutions also act as secure and independent fundholders of sums deposited by the parties, disbursing these funds as required and, at all times, accounting to the parties for sums held and disbursed. The LCIA provides this service not only in cases conducted under the LCIA rules, but also in UNCITRAL rules and ad hoc arbitrations.
The parties’ own legal costs, are, however beyond the control of the institution and, if these are to be reduced, the parties and their attorneys must work together to avail themselves of the leaner and more expeditious procedures that are inherent in good arbitration practice.
Closely related to the costs issue, then, is the issue of delay. While it is not the role of an institution to interfere with the conduct of the proceedings as agreed between the parties, directed by the tribunal or prescribed by the rules, institutions do have an important role in monitoring the process, lending support to parties, counsel and arbitrators, and keeping the process moving at as lively a pace as due process will allow. And if the parties wish to adopt ‘fast track’ procedures, these are readily available from the LCIA and from a number of other institutions.
The cure for the costs and delay complaint is, therefore, largely in the hands of the parties and their counsel, who will certainly have the support of the institution in efforts to bring about that cure.

Balance of relationships

There are at least two sides to every dispute. In many cases, however, there is not a balance of knowledge, experience, expertise and sophistication in the arbitral process, either on the part of the parties or of their attorneys.
Established rules can help to redress such imbalance and thus act to safeguard due process and, thereby, the reputation of the arbitral process and the integrity and enforceability of awards.

Knowledge of arbitrators

It is a truism that arbitration is only as good as the arbitrator, but no less fundamental a principle for that.
Institutions have their fingers on the pulse of developments and individual progress; they will have detailed knowledge of, and ready access to, the most eminent and most appropriately qualified arbitrators.
Parties may, therefore, find that that the institution is better placed than them to propose not only an arbitrator of the requisite skills, but also one whose diary is clear enough to allow him or her to devote the time needed to the matter.
Institutions also have tried-and-tested procedures for dealing with the increasingly contentious issue of conflicts; a subject that merits particular attention.

Independence, impartiality and challenges

Parties to international arbitrations are entitled to expect the award to be just, well-reasoned and enforceable. To that end, they are entitled to expect their arbitrator to disclose possible conflicts of interest at the outset; to avoid putting himself or herself in the position where conflicts will arise during the course of the proceedings; to conduct the arbitration fairly and be mindful of due process; to maintain the confidentiality of the arbitration; and to reach his or her decision in an impartial manner.
They are also entitled to expect some consistency in the standard applied by arbitrators when considering the circumstances that may automatically disqualify them from appointment; those that may not automatically disqualify, but should be brought to the parties’ attention; and those that do not give rise to the need for disclosure at all.
The IBA guidelines on conflicts are now widely known and used in the arbitral community and are undoubtedly a useful point of focus for arbitrators, parties and institutions. The authors of the guidelines propose that “it is in the interest of everyone in the international arbitration community that international arbitration proceedings not be hindered by growing conflicts of interest issues”, which must be right. They go on to say: “it is the main ethical guiding principle of every arbitrator that actual bias from the arbitrator’s own point of view must lead to that arbitrator declining his or her appointment”, which must also be right.
The IBA is also at pains to stress its expectation that the guidelines will be applied with common sense and without pedantic and formalistic interpretation. Nonetheless, there is, in my view, an inherent risk that lists of circumstances that might, or might not, give rise to conflicts, of the sort that make up the guidelines, may serve to provide a box-ticking test for independence and impartiality in place of the previous, more flexible and reflective, process.
Ultimately, the standard is only as good as the arbitrator and, although one may be able to go a long way towards listing matters manifestly impacting upon the independence of an arbitrator, one cannot legislate for impartiality. Independence may be objectively judged and a lack of independence may certainly give rise to justifiable doubts as to an arbitrator’s impartiality. But impartiality remains fundamentally a state of mind and an arbitrator may be impartial, while failing a test of independence, or partial while remaining objectively independent.
The adverse consequences of challenges, whether successful or not, are delays and costs. Even where applicable law contemplates that proceedings will continue while a challenge is pending (for example section 24(3) of the English Act), a tribunal facing a challenge may be inhibited from proceeding, particularly where the challenge comes shortly before or even during oral hearings.
The administering institutions, therefore, have a vital role in the selection and appointment of arbitrators and in determining challenges. They have established procedures to minimise the risk of bias and to deal swiftly and effectively with bias, if and when it arises, and it is one of the key advantages of administered arbitration that these matters can be resolved without recourse to state courts.

Challenge decisions

The LCIA court does not consider a blunt ‘yes’ or ‘no’ sufficient response to a challenge, however extensive its deliberations may have been, when principles of independence and impartiality, fundamental to the conduct, integrity and reputation of arbitration and, indeed, to the validity of the award, are in play.
Although, by article 29.1 of the LCIA rules, challenge decisions are administrative in nature, with no requirement that reasons be given, the court has long adopted the practice of giving reasons. The court is greatly assisted in this by its practice, prescribed by its constitution, of referring challenges to a division of three or five members of the court rather than to the full membership of the court.
The introduction of the IBA guidelines has undoubtedly brought greater clarity and consistency to the issue of conflicts, and the guidelines are gaining currency, both with arbitrators and with parties.
However, many of the leading institutions are non-committal towards the guidelines and none, as far as I am aware, (including the LCIA) applies them directly when determining challenges.
In part because of this ambivalence towards the guidelines, the LCIA court has been motivated to demonstrate that many of the LCIA challenge decisions go considerably beyond particular circumstances considered by the guidelines by publishing abstracts of its challenge decisions.
Some argue that challenge decisions are so fact-specific that they have little or no precedential value, but that argument goes more to how the facts of the decision should be used than to their publication in the first instance. Nor is it intended to establish a body of precedent; rather to provide an additional, and arguably rich, source of understanding of the diversity of conflicts issues for parties, practitioners and arbitrators alike.
It has also been said that more guidance of this kind will encourage more challenges, but the contrary view is that less guidance gives greater scope to those who would bring vexatious challenges.
It may be that a reasoned challenge decision handed down by a division of the LCIA court will, in due course, come to be tested in the state courts. But that, it seems to me, is a positive development that will demonstrate the seriousness and thoroughness with which the LCIA addresses this important issue.

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International commercial arbitration is alive and, generally, in good health. But all of those for whom arbitration is a vital part of their business, whether lawyers, parties or institutions, must remain active in seeking to ensure that arbitration remains relevant and fit for purpose.

* The views expressed in this article are those of its author and are not expressed on behalf of the LCIA. For more information about the LCIA, please visit www.lcia.org.