Do international commercial courts compete with international arbitration?

Friday 28 April 2023

Michael Frisby
Stevens & Bolton, Guildford, England

It is sometimes suggested that international arbitration (IA) and international commercial courts (ICCs) are in competition with one another. But is that right? Do they compete? Here are some thoughts on that question, written from an English law practitioner’s perspective as someone undertaking work in both fora.

IA is chosen by parties for a variety of reasons, but surveys show that by far the most common reason is the ease with which the resulting award can be enforced internationally under the New York Convention. It offers enforcement across the 172 member territories, whereas an English judgement is recognised and enforced by treaty in less than 40 per cent of that number. Confidentiality also features as a reason for choosing arbitration over litigation, avoiding potentially damaging information falling into the public arena. It also allows a party to run a case it would not run in court, for example a respondent resisting a damages claim for failure to deliver a product to a buyer under a sale and marketing agreement on the basis that its product would not have been successful in the market, and therefore, that damages would be minimal.

The ability to choose your tribunal, flexibility of procedure and finality of an award also feature heavily as reasons for choosing IA.

The drawbacks of IA are very much a matter of perspective. However, it is fair to say that the ability to join third parties into an IA is much more limited than it would be in court. Mechanisms can be put in place but are dependent on the relevant parties having signed up to suitable arbitration agreements. Another issue is that of disclosure. Put simply, it is often more difficult to get hold of documents in IA than it is in litigation. A lot of tribunals will take a narrower view of entitlement to production under the IBA Rules on the Taking of Evidence in International Arbitration than a judge will in disclosure in litigation.

IA is of course chosen by contracting parties, usually at the point of contract although it can be agreed upon in writing once a dispute has arisen. It is often chosen for cross-border transactions and projects and tends to be the favoured choice of dispute resolution for certain sectors. The London Court of International Arbitration (LCIA), in its annual casework report for 2021, identified banking and finance, energy and natural resources, transport and commodities, construction and infrastructure, professional services and hospitality and leisure as its most common sectors. The four most common types of agreements in dispute were sale of goods (25 per cent, compared to 24 per cent in 2020), services (21 per cent—the same level as 2020), shareholders', loan or other facility agreements (21 per cent, compared to 16 per cent in 2020), and share purchase and joint ventures (14 per cent, compared to 20 per cent in 2020). Maritime disputes are often arbitrated, with a separate institution handling that work, the London Maritime Arbitrators Association (LMAA).

An ICC’s work is much broader. The Business and Property Courts are the group of courts that decide specialist business and other civil international dispute resolution and business cases in England and Wales. They include the Commercial Court, The Technology and Construction Court, the Chancery and King’s Bench Divisions and the Admiralty Court, all of which deal with international work, both in London but also in regional centres in England and Wales. There are then a variety of specialist lists and courts within those divisions. There are dedicated judges experienced in international business disputes giving greater confidence in predictability and outcome, utilising procedures designed for business-related disputes.

The courts aim to be business-friendly and to evolve and adapt to ensure they remain so. For example, court user groups are set up in many courts. The Commercial Court Users Group works well – representatives of the users meet regularly with the judiciary to discuss workloads of the court, issues arising, and feedback on both sides. Another example is the recent overhaul of disclosure. The GC forum, representing general counsel from some of the leading companies in the UK, had expressed concern about the cost of disclosure in litigation, and that led to reforms of the way it is conducted and introduction of disclosure models offering a variety of approaches to disclosure, so that the most appropriate model can be chosen for a particular case.

A strong legal infrastructure that is business-friendly and reliable, with an independent judiciary able to resolve disputes speedily and fairly, is vital for business confidence and encourages investment. The English courts have been very successful in attracting business from around the world. For example, the Commercial Court consistently reports statistics showing that something in the order of 75 per cent of its cases involve foreign registered businesses.

But an important part of the Commercial Court’s work in London is the supervisory role it plays in relation to IA. This arises in a number of ways in relation to arbitrations seated in England. Where the Arbitration Act 1996 permits an application to court, one can be made in an ongoing or nascent arbitration; for example, a pre-action injunction can be sought from the court to the extent that an emergency arbitrator will not suffice. Anti-suit injunctions to stop proceedings being pursued in other jurisdictions can also be sought from the court. There are limited rights to appeal and challenge through the court under the Arbitration Act 1996 S 67 (substantive jurisdiction), S 68 (serious irregularity) and S 69 (point of law). Enforcement of awards falls within the remit of the courts, and this will often prompt a defensive challenge to the award. Something in the order of 25 per cent of all cases issued in the Commercial Court in 2020–202121 (the last year for which statistics are available) were in relation to IA. The courts in general, and the Commercial Court in particular, are supportive of arbitrators and IA generally, as can be seen by the very low success rates of appeals and challenges.

Similarly, the courts have been supportive of alternative dispute resolution (ADR), particularly mediation. With high success rates for commercial mediation reported by the likes of the Centre for Effective Dispute Resolution (CEDR), the courts encourage uptake by enforcing mediation agreements and penalising unreasonable refusals to mediate in costs.

The recent growth in ICCs across the globe is an interesting phenomenon. The rationale for developing a commercial court is to establish a court within the jurisdiction to serve the needs of businesses and investors, providing fast, fair and reliable justice. This gives confidence to businesses and investors that they can safely do business and get redress. We have in recent years seen the establishment of ICCs, for example in Singapore and Rwanda, and Cyprus is in the process of establishing one. They do, however, tend to sit hand in hand with arbitral centres; SIAC in Singapore, KIAC in Rwanda, for example. Such specialised ICCs can offer an experience more akin to arbitration. For example, with the Singapore International Commercial Court (SICC), parties must agree to confer jurisdiction on it, the court can provide international judges from both civil law and common law traditions, parties may be represented by foreign lawyers, and parties may agree to exclude Singapore’s laws of evidence, ask for the proceedings to be confidential, and exclude a right of appeal.

This has led to the Standing International Forum of Commercial Courts, established in 2016. With members comprising the judiciary from courts in 34 countries, it was established to share best practice between courts and work together to keep pace with rapid commercial change. It also aims to support developing countries to enhance their attractiveness to investors by offering effective means for resolving commercial disputes.

It is of course worth remembering that parties choose IA at the time of contracting. If they don’t make that election, then litigation applies by default. Some industries embrace IA, and it is commonplace in those fields. I have given the sectors identified by the LCIA above but I would add, from my own personal experience, that the life sciences sector often adopts IA in its supply and development contracts. Insurance contracts and also IT projects are other areas where I come across IA frequently.

The type of contract may be a standard form contract (such as those promulgated by the International Federation of Consulting Engineers (FIDIC), for example) where IA is specified, or it might be a bespoke contract where the parties decide to put it in, or it might arise by way of incorporation of standard terms and conditions. The reality is, I suspect, that oftentimes when contracting, the dispute resolution mechanism in a contract is not the parties’ focus of attention.

The choice of IA over litigation does not have to be binary, of course. A business might use IA with its suppliers where sourcing product from abroad but have a different regime for its domestic customers, particularly if they are low-value consumer sales where litigation is going to be the obvious choice.

Whilst it is true that an ICC can resolve a particular dispute which can also be resolved by IA, I think ICCs, rather than competing with IA, are a necessary companion and support. They exercise supervisory powers and enforce awards, giving effect to and supporting the wishes of the parties to have their disputes resolved by IA. Where parties don’t choose to use IA, the ICC offers a forum suited to resolve those business disputes.