Arbitration market share under threat

Arbitration is the least heard of dispute resolution method, although it is the preferred method when many large scale projects go wrong, either technically or commercially. Confidentiality goes hand in hand with arbitrations of course, so little is heard of their outcomes.

Recent controversial words from no less than the Lord Chief Justice, reported on in Construction Law, have dragged this most secretive of dispute resolution methods into the spotlight. Lord Thomas highlighted one key downside to the confidentiality afforded parties when they arbitrate rather than go to court, which is that case law is not advanced, but his comments have split opinion, as we have also reported.

Part of the background to Lord Thomas’ comments is possible reform of the 1996 Arbitration Act which is now at public consultation and has sparked several ‘think tank’ type reports. Important issues about transparency are being raised.

Behind all of this is the future of London as a world leading centre for international arbitrations as well as domestic disputes. London’s success in attracting arbitrations has been striking.

Reasons for London’s success are many. There is worldwide confidence in the independence and quality of the UK judiciary and its legal infrastructure. Investment in the commercial courts and willingness to use new technology also helps.

London’s courts are popular for international litigation generally. Surveys have shown that English law is the most popular choice for commercial contracts, with about twice as many contracts choosing arbitration under English law as any other. Surveys show that some 90% of commercial disputes using arbitration in London involve an overseas party. Most of the highest value and most complex arbitrations, including those related to construction and engineering projects, seem to be attracted to London.

One reason for arbitration’s success was that it was seized on by parties who felt that traditional court routes were expensive and slow. That criticism is now being increasingly levied at arbitration itself, and this is a possible weak point for London as overseas centres are reportedly significantly cheaper. Arbitration has grown along with the growth in international trade, but there is increasing competition from overseas. Singapore and Hong Kong are pushing for growth of their International Arbitration Centres.  The British Virgin Islands launched a new International Arbitration Centre in November that aims to capture a slice of the market in the Caribbean and beyond.  All of these centres seem able to undercut London on cost.

The International Court of Arbitration (ICC) has just announced new arbitration rules (see News) that will go some way to relieving some of the problems for some arbitrations. Smaller value disputes will use an expedited procedure that will be on offer from next year which will allow significantly reduced fees. Larger disputes can use the expedited procedure if the parties decide to. Amendments to streamline all arbitrations are also being brought in.

London’s position as the leading international centre for arbitrations seems fairly secure and as the market looks like growing London will probably see more arbitrations in future. Many of the disputes arising however are in Russia and the East, areas which might prefer to use other centres. Market share could easily slip from London’s grasp, which makes cost reducing, streamlined procedures like the ICC even more important.

Nick Barrett
Editor