Regionalisation of arbitration: a new challenge?
16 June 2016
Over the past few decades, we have seen the emergence of a multitude of domestic and regional arbitration centres, set to rival the historical dominance of Europe and the US (and particularly the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA)) as the global hubs for international commercial arbitration.
This trend shows no sign of slowing down, with plans for one such Mumbai-based arbitration centre announced earlier this month, and several more in the pipeline. Set against the backdrop of accelerating globalisation, it is hardly surprising that the historical near-monopoly of certain centres sits ill at ease with arbitration’s growing global audience. Yet to what extent have domestic and regional contenders secured a foothold, and what implications does regionalisation hold for the wider market?
Demanding efficient means of dispute resolution
Amidst an unprecedented integration of global markets, the demand for effective and efficient means of dispute resolution has similarly grown. Yet historically, certain regions have enjoyed low levels of participation in global arbitral discourse, despite the significant levels of arbitral disputes they generate. As stakeholders pursue a greater say in the resolution of their disputes, there are calls to curb the flow of cases outside the region from which they originate, or to which they relate. Effective and reliable domestic or regional arbitration can thus encourage investor confidence, and prevent costly “de-localisation” of disputes.
Dispute resolution is a business, which at its core concerns resources and services. There may be costs advantages and practical advantages to resolving disputes close to the parties concerned, or in instances where the costs of shipping witnesses and documents may far exceed the value of the claim. Domestic and regional arbitration centres can not only provide infrastructure and resources, but bring benefits to the local market through capacity building, training and accreditation. They can provide a platform for practitioners (who might otherwise take their services elsewhere), raise awareness, and promote the use of arbitration among local industry and state actors.
Domestic and regional institutions
Domestic and regional contenders can also offer services tailored to the particularities of the jurisdictions and markets in which they are based. This freedom can bring bargaining power for local players, some of which are loyal followers of specific institutions. This is something that Allen & Overy has seen in its advisory work, as certain states and state-owned entities insist on a specific domestic or regional arbitral institution.
The extent to which domestic and regional institutions have competed successfully against the more established global players has been varied. Whereas certain institutions (such as the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC)) have flourished, this is by no means universal. Of the various, and often promising, institutions in Africa and the Middle East, few have yet attained a similar level of prominence. So what dictates success, or stagnation?
Perhaps one of the critical elements is the perceived arbitration-friendliness of the jurisdiction in which the institution is based. It is widely accepted that effectiveness will require the support of the government and an independent judiciary, as well as an experienced international arbitration community. However, expertise is closely tied to experience. This may be a struggle to obtain, unless and until parties and their counsel start using local institutions. Indeed, some have voiced concerns that a large number of fledgling institutions in any one region could outpace the demand for institutions at their stage of development, and create a standstill from which it will be difficult to attract business and develop expertise.
Regionalisation is indisputably on the rise; the number of new cases handled by SIAC tripled in the last decade, and HKIAC’s arbitral caseload rose by more than a third from 2013-2014. Similar patterns can be seen in the experience of fledgling institutions, such as the Kigali International Arbitration Centre (KIAC), which handled 28 cases in its first three years. However, and as demonstrated by the recently announced closure of LCIA India, there are still exceptions. While a limited set of new institutions has become part of the global arbitral landscape, for the rest, the future is hopeful. However, it is far from certain.
What of the ICC and the LCIA? Their dominance remains. By way of example, these institutions continue to be preferred institutions for African arbitration, overshadowing their largely nascent regional competitors. One region for which this may differ is Asia, where the growing status of certain regional arbitral institutions may put at risk the flow of work that streamed historically to London. Yet even as the caseloads of SIAC and HKIAC reach record highs, the percentage of cases before the LCIA involving Asian parties has remained consistent over the past few years. It is clear that the ICC and LCIA continue to play a dominant role on a global scale, with both entities enjoying record number of referrals in 2015.
Competition is good for everyone, or so goes the maxim, and the movement towards regionalisation seems inevitable. Regionalisation offers a viable and promising alternative to established hubs for arbitration. Yet this does not necessitate displacement of, or competition over, an existing market share; as globalisation and cross-border trade continue to rise, there is abundant opportunity for both. Indeed, affiliation between fledgling institutions and the LCIA or ICC, as in the case of LCIA-MIAC or ICC-Ghana, can benefit both parties concerned; anecdotal evidence suggests that LCIA-MIAC has enjoyed a healthy and growing caseload since its inception in 2011. Care must be taken, however, that the rapid development of new institutions will not overcrowd the market, or impede their own likelihood of success. Ultimately, whether faced with admiration or trepidation, there is no question that domestic and regional arbitration centres will continue to form a growing part of the arbitration landscape in the years to come.
This article first appeared on the Practical Law Arbitration Blog on 3 May 2016.