Domo Arbitrato, Mr Roboto: Where and Under what Rules Will we be Arbitrating, Commercial Arbitration Claims in 2028

By Dorothy Murray (London) and James McKenzie (Hong Kong) King & Wood Mallesons

In 2028, 45% of international commercial arbitrations will be seated in Asia, 15% will be in Africa and 5% will be delocalised (“seat less”) with only 35% in traditional Western centres.

Blockchain technology will not just have created new disputes but will have required and driven new methods of dispute resolution designed for a delocalised world and for millennial and postmillennial participants who by 2028 make up most of the business community and who have grown up dealing with all aspects of their lives remotely and with technology.

In terms of traditional seats, by 2028, we will have completed the first Asian quarter-century. Asian capital will have dominated, and will continue to dominate, global investment flows with the result being that more investments and therefore more disputes will involve Asian parties, likely to favour geographically closer and more familiar seats and arbitral institutions.

As to Africa, African parties are regular participants in international arbitrations today but, by 2028, the focus will have shifted. More African disputes will involve Asian, typically Chinese, parties driven in part by increased investment from the Belt and Road Initiative (“BRI”). This will lead to an inevitable uptick in the prominence of construction and infrastructure arbitrations in African as well as Asian seats such as Hong Kong and Singapore, which are often chosen as a “neutral” compromise seat. In the meantime, local African institutions will have gained some longawaited traction and will be more popular choices themselves for two key reasons: first, they will have a track record to draw on and second, at least some key African seats will have achieved greater political and economic stability and therefore be more attractive venues for international parties.

The arbitral rules parties will choose from in 2028 will, in one sense, be increasingly homogenous, adopting all commonly recognised aspects of best practice. Rules will offer a menu of options to increase efficiency and reduce costs, with developments from the technological (such as online depositories, virtual hearing rooms and the like) to the procedural (such as expedited procedures and emergency arbitration mechanisms) becoming the norm. On the other hand, arbitral institutions will seek to differentiate themselves in a marketplace crowded not just with other institutions but with international commercial courts issuing widely enforceable judgments under the Hague Convention[2], and new forms and forums of dispute resolution. Rules and centres will compete to be the quickest to adopt innovative technologies, offer the most cost efficient result and to promote the latest expertise and specialisms in their arbitral panels.

Why do we predict this? We summarise below some of the current trends we see in arbitral centres and rules and explore the drivers for these.

Sitting pretty: new, newer and nowhere seats

The rise of Asian centres and why this trend is here to stay

The authors break no new ground here by saying that Asian seats and arbitral centres are on the ascendancy. As Asia’s economies have grown and caught up (and in many cases, surpassed) those in the West, so too has the desire of their countries’ governments to secure a share of the international arbitration market. Since it began reporting in 2007, the Singapore International Arbitration Centre’s (“SIAC”) yearly new cases have increased fivefold from 86 cases in 2007 to 452 in 2017.[3] In 2017, the Hong Kong International Arbitration Centre (“HKIAC”) reported it had a total of 532 new cases (a 15.7% increase from 2016) and a 100% increase in the total value of the amounts in dispute (from HKD19.4 billion in 2016 to HKD39.3 billion).[4]

The two leading European arbitral centres (and the most preferred centres globally[5]), the London Centre for International Arbitration (“LCIA”) and the International Court of the International Chamber of Commerce (“ICC”) had 285 and 810 new cases respectively last year. The top two Asian centres therefore almost equalled the top two European centres in total new cases last year and (perhaps most remarkably) have managed to achieve this rise over a period of a mere few decades.[6] This rise in Asian centres is driven not just by these two leading international centres but other centres including both the stalwart (such as the China International Economic and Trade Arbitration Commission (“CIETAC”)[7] and the Japanese Commercial Arbitration Association) as well as the emerging (such as the recently rebranded Asian International Arbitration Centre in Kuala Lumpur, formerly the KLRCA). With the inexorable movement eastward of the world’s economic centre of gravity and the increased global economic connectivity of the region through projects such as the BRI, we predict the trend to continue. Asian seats and institutions will only continue their rise.

The rise (finally) of Africa

Travelling optimistically, Africa is poised on the edge of economic changes that it will be able to seize over the next decade. There is an increasing call for the Africanisation of arbitration. The African Regional Centres for Arbitration were expressly set up to provide an alternative to traditional western centres, and since 2008, a number of new centres have opened their doors, including the Arbitration Foundation of South Africa, which adds to those already in existence in Cairo, Lagos, Kigali and Mauritius.[8] Whilst Cairo has long been a popular and respected venue, as other African centres mature, modernising their rules and demonstrating a more solid track record, they will become more attractive choices.

Chinese investors will make up an even greater proportion of counterparts to African investment and infrastructure projects in 2028 than they do today and will culturally understand the desire of African counter-parts to choose local centres (and in our experience may be willing to trade their common seat choices of Singapore or Hong Kong for other contractual benefits) and have no historical attachment to western centres.

Further, we predict that at least some African countries will have made noteworthy progress in offering more secure environments for international parties, with better infrastructure, less local corruption and more arbitration friendly (or at least commercial arbitration friendly) laws. They will therefore be more common choices as an arbitral seat for contracting parties. We see the ability of blockchain technologies to assist this necessary economic development being felt most powerfully in the African continent.

While most commonly discussed use-cases for blockchain or distributed ledger technology are cryptocurrencies, these are not the ones that will have the widest impact. The adoption of blockchain by the oil and gas and natural resources sectors will dramatically reduce the potential for leakage, fraud and corruption, by allowing improving tracking and transparency in the chain of custody, verification of origin, verification of transactions and simplifying cross border payments. Origin tracking will also drive ethical, environmental and socially responsible extracted and produced commodities.[9] These developments will benefit the African continent more than any other, with its wealth of natural resources but sad history of exploitation and embezzlement. Wealthier, more secure jurisdictions, with better infrastructure and less corruption will (we predict) drive modernisations in, and attract users to, African international arbitration, similar to developments seen in Asia over the last few decades.

No seat is the new seat

In terms of cryptocurrencies, parties wishing to invest and transact outside a fiat currency are typically unwilling to resolve their disputes within any national system of law (even though those courts may only be exercising a supervisory jurisdiction). In terms of smart contracts, much of their attraction and utility is their cost effectiveness, in terms of entry and automatic execution. The uncompromising mantra “the code is the law” may be somewhat discredited after the Ethereum fork[10], but the incident highlighted the need for effective yet flexible dispute resolution methods to be agreed in advance.

Despite the rise of international commercial courts and court judgments for disputes regarding more traditional subject matter, we predict that the greater neutrality of arbitration and its flexibility will prove more attractive to smart contract coders and users. While contracts will begin by selecting an arbitral seat in the traditional way, by 2028 we will also see completely delocalised decisions. Parties will see no need for any court to have supervisory jurisdiction or to have to enforce through the courts: concerns about enforcement of a delocalised decision made by an autonomous delocalised arbitral panel will be minimised by their auto-execution according to the code.

Playing by (and with) the rules

Arbitral institutions constantly face two related but conflicting pressures: to adopt all generally recognised best practices and to be different.

The debate about efficiency and costs has been ongoing for much more than a decade and will still be a hot topic in 2028. By 2028, however, arbitral institutions will be facing ever increasing pressures in these areas, from each other, from completely new DR forums (see above as to blockchain) and also from the international commercial courts or ICCs (see the article “The Rise of the Courts” in the 10th edition of Crossing Borders) and increased adoption of the Hague Convention, which does for court judgments what the New York Convention does for arbitral awards, ensuring simple international recognition and enforcement.

These ICCs are being set up as a response to Brexit (in Paris and the Netherlands, to offer English language common law dispute resolution outside of England and in Europe) and as a response to the BRI (with China setting up two new international commercial courts in Xi’an and Shenzhen, and with other countries along the old Silk Road seeking to offer alternatives themselves, such as Kazakhstan’s Astana International Financial Court). The new ICCs join the existing Singapore International Commercial Court, established in 2015. As for the Hague Convention, China signed in September 2017, joining the EU, Singapore, Mexico, the US and Ukraine and we have already seen the Chinese and US courts recognising each others’ judgments even outside the Convention framework, under the principle of mutual recognition[11]. By 2028, we see the courts, and therefore the international commercial courts, being a credible challenge to international arbitration, especially given the calls for transparency not just in investor-state disputes but also in the commercial sphere.[12]

Most widely used sets of international arbitration rules (or the arbitration law of their home juris diction) already contain many common features, namely: expedited procedures, emergency arbitrations, interim relief, joinder, consolidation, third party funding, transparency, ethical rules for counsel. The above table shows how such trends have spread.

Rules will continue to reflect and adopt best practice, in line with each other and the ICCs. In terms of trends between now and 2028, we anticipate that to attract more Asian parties, more rules will expressly include med-arb protocols[13], allow for broader joinder and consolidation procedures and expressly deal with multilingual procedures. By 2028, disputes arising along the Belt and Road will be widespread and arbitration rules that accommodate for Chinese preferences and typical practices, will be popular choices.

Med-Arb, joinder and consolidation

Whilst med-arb is already an extremely popular and accepted practice in Mainland China, we predict this trend will follow Chinese investors along the BRI. SIAC and SIMC, for example, already have an established arb-med-arb protocol. CIETAC’s recent new arbitration rules for international investment disputes were expressly designed to fill the gap between Chinese and Western practices and were presented as combining the best features of modern international arbitral practice with those elements of Chinese arbitration law and practice seen as indispensable. These include med-arb procedures such as directed mediation and low fees.[14]

The HKIAC Rules Committee is currently also considering the express inclusion of similar ADR provisions along with expanded provisions for joinder and single arbitration under multiple contracts. This is to be welcomed as BRI projects will be complex beasts frequently involving separate employer, contractor, subcontractor, guarantor and lender contracting mechanisms. The ability to more easily consolidate existing construction and infrastructure disputes or enjoin parties to them will be crucial to effective and efficient resolution of disputes and potentially reducing a common and undesirable problem in this sector: inconsistencies in the outcomes in upstream and downstream disputes.

The SIAC Proposal on Cross-Institutional Consolidation will be widely recognised as addressing a real concern of parties about the expenses and risks in parallel proceedings at different institutions. We predict, however, that consolidation agreements and terms will still be under discussion by several working groups in 2028 (the devil being in the detail and arbitration practitioners loving committees). Joinder and consolidation within one institution’s purview or by party agreement will however become increasingly common.

More flexibility in adducing evidence and summary dismissal for the brave few

We also see the need for greater flexibility in how factual, witness and expert evidence can be adduced and eventually presented at a hearing. This is a key bug bear for Chinese users (as well as their lawyers) where translating primary documentation and witness and expert written evidence remains a substantial additional cost to the arbitral process.

By 2028, some braver institutions will have adopted express summary dismissal provisions, but we see many institutions treading carefully here, conscious of the risk of challenges to awards and at enforcement on the basis that a party has not had the reasonable opportunity to present its case, and the risk of the process being used for unmeritorious applications as a further delaying tactic. We expect a spectrum of options ranging from the SIAC or SCC model of summary dismissal to softer touch provisions giving greater discretion to tribunals in terms of timetabling, and document only decisions.

Specialist (robot?) arbitration panels

To differentiate themselves from each other, and the international commercial courts, institutions will rely on their ability to adapt quickly to change and offer specialist arbitral expertise which the courts cannot. For example, the HKIAC already offers a specialist panel of financial services specialist arbitrators. We predict panels of arbitrators able to code.

In 2028, arbitral institutions and centres will also compete to offer the latest technology, whether in terms of venue and services support (witness Maxwell Chambers’ “Smart Maxwell” initiative with robo-as- sistants), or virtual reality (VR) and augmented reality (AR) for presentation of facts and exhibits (bringing remote witnesses, site visits, schematics and 3D presentation of complex data sets to the Tribunal). Faulty industrial components will be examined in virtual 3D in the hearing room, failed projects will be built and rebuilt in different counterfactuals by each side and damages models will be presented by AR. Institutions will also amend their rules to allow greater publication of anonymised data from past arbitration and awards, and parties and institutions will use AI to analyse this data.

New technologies and the “millennial” viewpoint will create an even greater need for streamlined quick resolution. New sets of rules for such disputes will provide for paper only arbitrations, with short timelines (expedited procedures will get even shorter) and for smaller value disputes to be resolved by algorithm with limited ability to appeal to a human arbitrator.

Robots will not just be used to provide legal advice (see the legal services provided through AI robots in the north-western Chinese province of Qinghai) or to determine straightforward traffic violations (the pilot in the eastern Chinese province of Jiangsu), but will also determine commercial cases. AI will have developed to allow reasoned decisions. Concerns by the current generation of arbitration users will not be felt by many of the users in 2028, used to smart contracts, AI and self-driving cars. The attraction of the quick judgment will outweigh any perceived downsides. As put in the inaugural May 2018 Law Society lecture on the ‘Future of Law’, by the Chancellor of the English High Court Sir Geoffrey Vos: “The millennial generation, which expect to be able to obtain everything they want in an instant on their mobile devices, will not make an exception for justice.”

Further, as a greater proportion of disputes arise from economies with less to no history of a rule of law or of an independent judiciary and decision makers, more faith may be placed in “ROBOTribunal” than human decision makers.

Remember: you heard it here first.

See you in 2028.

References

[1] Credit to Valentine Kerboull (London), Cassandra Ditzel (London) and Ray Chan (Hong Kong) for assisting the authors with their research.

[2] The Hague Choice-of-Court Convention, formally the Convention of 30 June 2005 on Choice of Court Agreements is an international treaty reached within the Hague Conference on Private International Law. It was concluded in 2005 and entered into force on 1 October 2015. The aim of the Convention is to promote international trade and investment by encouraging judicial cooperation in the field of jurisdiction and recognition and enforcement of judgments. (The content of the Convention: https://www.hcch.net/en/instruments/conventions/ full-text/?cid=98 )

[3] SIAC Annual Report 2017: http://www.siac.org.sg/images/ stories/articles/annual_report/SIAC_Annual_Report_ 2017.pdf.

[4] http://www.hkiac.org/about-us/statistics.

[5] Please see our other article discussing the Queen Mary Survey: www.kwm.com/en/au/knowledge/insights/thequeen- mary-survey-our-crystal-ball-into-the-future- 20181119

[6] This is further evidenced in the Queen Mary University of London survey, in which Singapore and Hong Kong are the 2nd and 3rd most preferred seats in Asia and the 3rd and 4th most preferred seats globally.

[7] Established in 1956 and with a caseload of 2183 cases in 2017, of which 485 were “foreign-related”.

[8] Although with the termination of the LCIA-MIAC joint venture in July 2018, the MIAC will now compete as an international centre on a standalone basis.

[9] Witness Everledger’s recording of conflict-free diamonds on the blockchain and certifications against child labour and modern slavery.

[10] In short: a distributed autonomous blockchain venture capital fund, the DAO, was the subject to an arbitrage attack. It was intended to invest Ether (the Ethereum cryptocurrency) into projects on the Ethereum blockchain by majority vote of its investors. In mid-2016, it was not hacked, but rather its code was exploited in a way that many considered unethical such that one user gained control of Ether worth around USD 50m. The Ethereum community decided to hard-fork the Ethereum blockchain to unwind the offending transactions, which led to a schism: the original un-forked blockchain continues, with two active Ethereum blockchains each with its own cryptocurrency.

[11] https://www.chinalawinsight.com/2017/09/articles/ global-network/china-signsthe-hague-choice-of-court-con vention/.

[12] See https://www.kwm.com/en/jp/knowledge/insights/ how-far-shouldtransparency-in-international-commercial arbitration- go-20180412.

[13] As explained by the SIAC-SIMC: “Arb-Med-Arb is a process where a dispute is first referred to arbitration before mediation is attempted. If parties are able to settle their dispute through mediation, their mediated settlement may be recorded as a consent award. The consent award is generally accepted as an arbitral award, and, subject to any local legislation and/or requirements, is generally enforceable in approximately 150 countries under the New York Convention. If parties are unable to settle their dispute through mediation, they may continue with the arbitration proceedings.”

[14] For more on CIETAC, see https://www.kwm.com/en/knowledge/insights/newcietacinvestment- arbitration-rules-english-chinese-treatydisputes- 20171115.

Dorothy Murray

Partner - London, (King & Wood Mallesons)

T +44 20 7550 1521 - M +44 77 6457 7625

Crossing Borders is KWM’s periodic review of developments in international arbitration across the world. Included in a special 10th edition, from which this article is taken, KWM explores what arbitrations will be like going into 2028 - where, how and by whom disputes will be decided.

Many thanks to Dorothy and James for permission to reproduce this article which was correct as at October 2018.

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