We sit down with Gary Born, one of the world’s top arbitration experts. Gary Born shares his favourite phase when it comes to working in arbitration, his most interesting reading in last months and he gives us his opinion about the arbitration in Latin America: main challenges, institutions…
Born gives us his opinion on the future of investor-State arbitration and, among others, tells us about the main changes that international arbitration courts have faced in recent years.
1. What are the first steps when facing an arbitration procedure?
There are a great number of important strategic decisions that each party must take into consideration before commencing an international arbitration. The starting point is usually a preliminary case assessment. This will enable a party to assess the potential risks and rewards of commencing an arbitration, as well as formulating a coherent strategy for the conduct of an arbitration. It is essential that this assessment be performed carefully, with a good understanding of all relevant facts, and on the basis of focussed legal and contractual analysis.
party autonomy is a cornerstone of the effectiveness of international arbitration as a mechanism to resolve disputes
Once a party has decided to commence an arbitration, should this be its decision, the scope of the arbitration agreement must be considered. This is of particular importance given that a tribunal may ordinarily only decide disputes that have been referred to it, validly, by the parties. Indeed, party autonomy, including autonomy with regard to the scope of the arbitration agreement, is a cornerstone of the effectiveness of international arbitration as a mechanism to resolve disputes. At this stage, the party commencing the arbitration should consider what disputes may properly be included in its Request for Arbitration (or Notice of Arbitration), as well as whether all such disputes should, in a particular case, be included; there may be reasons not to submit particular disputes, along with other disputes, to a tribunal. Issues of cost, timing, strategy and otherwise may affect these decisions.
Conversely, the respondent must undertake steps parallel to those of the claimant. It must assess the strength and nature of its defenses, as well as possible settlement strategies. It must also consider whether to accept, or challenge, the jurisdiction of an arbitral tribunal, and if it decides to accept the jurisdiction of the tribunal, it must also decide whether to pursue any claims as counterclaims in an existing arbitration or whether to bring a separate arbitration.
Another critical issue to consider at the outset of an arbitration is the selection and removal of arbitrators. The parties autonomy to select arbitrators of their own choosing, who they consider appropriate to their particular dispute, is an essential characteristic of international arbitration. In fact, the freedom, and responsibility, for selecting the tribunal for every case is one of the distinguishing features of the arbitral process. Exercising this freedom wisely is a very significant responsibility of the parties (and their counsel). In my experience, arbitrators whose backgrounds, expertise and abilities are well-suited to the dispute tend to work more efficiently and reliably, while also ensuring the Tribunal includes a balanced mix that provides neutrality and objectivity.
arbitrators whose backgrounds, expertise and abilities are well-suited to the dispute tend to work more efficiently and reliably
The mechanics of the arbitrator nomination process vary, depending on the applicable law, institutional rules and parties’ agreement. But generally speaking, a party will provide written notice to the opposing party of its designation of a specified individual as co-arbitrator. Prior to this instance, it is common practice for parties, or their counsel, to contact potential choices for a co-arbitrator, to ascertain their suitability, availability and interest and, where appropriate, to discuss the selection of a presiding arbitrator. It is important to take into account the IBA Guidelines on Conflicts of Interest in International Arbitration when contacting a potential arbitrator as these guidelines address the appropriate contacts between a party and a potential co-arbitrator.
Frequently, one must also consider financial issues, whether as claimant or respondent in an arbitration. These can include questions of third party funding, for both claimants and respondents, as well as likely costs of the arbitral procedure. Ultimately, decisions regarding settlement will depend in part on these types of questions. It is essential that they be considered carefully before embarking on the arbitral process.
2. What is your favourite phase when it comes to working in arbitration?
Every step during of the proceeding is interesting and has its own intricacies which make it unique and uniquely challenging, varied and dynamic. That said, I particularly enjoy the oral hearing because it is the culmination of the parties’ efforts and an excellent opportunity to present and clarify important legal or factual issues, as well as to respond directly to any questions the Tribunal may have about each parties’ respective case.
particularly enjoy the oral hearing because it is the culmination of the parties efforts and an excellent opportunity to present and clarify important legal or factual issues
I also particularly enjoy the immediacy that oral advocacy provides during this phase. One has the opportunity, fundamental to the arbitral process, to be heard by the tribunal. In my view, however, one of the most important aspects of advocacy is not merely talking (and being heard), but listening. The advocate’s first function is to understand what issues concern the arbitrators, which means listening both to what arbitrators say and sometimes to what they do not say and being able to adjust accordingly, which requires a degree of humility. From an active tribunal’s questions, one can often deduce why those questions are being asked and what it suggests about the arbitrators perspective. One can always red tea leaves incorrectly, but one can also misread an outright encouragement to settle. The oral hearing provides an opportunity to listen to what the tribunal is saying and efficiently provide the Tribunal will the answers it is looking for to resolve the dispute in your client’s favour.
3. What has been the most interesting article that you have read about arbitration in recent months?
The winning essay by Jun Hong Tan in this year’s YSIAC Essay Competition, titled “Can or Should Parties Waive the Right to Set Aside an Award?” (soon to be published by SIAC). It considers the difficult question of whether parties can or should waive their post-award recourse, in light of the developments in recent jurisdictions that allow parties to waive their right to seek annulment of arbitral award and the lack of international consensus on whether such waivers should be allowed.
The essay was cogently written and thought-provoking, particularly in its nuanced consideration of the extent to which party autonomy should be privileged over other policy considerations, including the primary and secondary control system envisaged by the New York Convention and the need to uphold mandatory principles of law. It also put forward well-considered solutions to the issues raised.
4. What do you think may be the main challenges for a positive evolution of international arbitration in Latin America?
I think that one of the most important challenges that the practice of international arbitration faces in Latin America is the need to train its judiciary on the benefits and functioning of arbitration, so that it can more effectively support the arbitral process. There is no doubt that the most successful jurisdictions are those that not only do not obstruct or intervene in the arbitral process, but in fact actively support the arbitral process. Singapore is a clear example of that: over the last ten years, courts in Singapore have been in the forefront of actively supporting the international arbitration process.
the most successful jurisdictions are those that in fact actively support the arbitral process
Latin America’s efforts to promote arbitration are laudable, but, as in other regions, arbitration has been and remains subject to periodic threats, including in the form of judicial hostility. The Latin America community should, like other arbitration communities, work hard to ensure that judicial hostility does not occur, particularly in the lower courts which are less familiarized with international arbitration and the rules applicable to international arbitral disputes. In addition to working with the judiciary on arbitration matters, it is extraordinarily important to make a real effort to widen the ranks, which typically means bringing in younger arbitrators and counsel specialized in the area who do not necessarily have the same track record in terms of professional experience or sitting as arbitrator as other might.
it is extraordinarily important to make a real effort to widen the ranks, means bringing in younger arbitrators and counsel specialized in the area who do not necessarily have the same track record as arbitrator as other might
Latin American law firms should also create incentives for their junior lawyers to travel abroad (e.g., internships in law firms or arbitral institutions, international arbitration moots, etc.) and develop their careers at least for a while internationally. This will allow them to practice arbitration in their home jurisdictions according to the standards of the international arbitration community.
5. Is there room for a Latin American arbitration centre on the international scene?
There are already a few existing Latin American arbitration centres which are trying to expand and increase their international presence, such as the CAM-CCBC in Brazil, and CAM-Santiago in Chile. Other than these centres, I am not persuaded that creating a new Latin American arbitration centre would be necessary (or convenient) for at least two main reasons.
First, because the existing arbitration centres already provide the parties with a clear framework for the conduct of the arbitration that has been tested and is thus trustworthy and reliable. These well-known arbitration centres have sufficient experience which is invaluable when parties choose to resolve their disputes, whereas a new Latin American arbitration centre would not have any experience and it would take several years for it to participate in the international scene.
Second, and in any event, a party can choose a Latin American city as the seat of the arbitration or, if the tribunal is seated elsewhere, conduct the hearings in Latin America, without needing to resort to a Latin American centre to administer the dispute effectively and efficiently.
6. What do you think has been the main evolution of the “map” of international institutional arbitration in recent years?
International institutional arbitration has been, and continues to be, widely adopted as a preferred dispute settlement mechanism across the globe. Over the past few years, there has been a healthy and necessary increase of competition between international arbitral institutions. For this reason, institutional rules are continuously being refined. These efforts to modernize them are also necessary to keep arbitral institutions up with the increased sophistication that international trade and commerce require.
necessary to keep arbitral institutions up with the increased sophistication that international trade and commerce require
One of the main developments of institutional rules concerns expedited procedures. Leading arbitral institutions, including the Singapore International Arbitration Centre (SIAC) and the International Chamber of Commerce (ICC) have adopted expedited procedures for smaller-value disputes (below $5 million or so), providing for the arbitration to be conducted within a specified time period (often six months) before a sole arbitrator (generally). Commercial parties have regarded these innovations as very desirable, in keeping with the historic purposes of the arbitral process.
Another important development in institutional arbitration rules involves multi-party and multi-contract disputes. A 2015 international arbitration survey, conducted by Queen Mary University in London among international leading practitioners, highlighted that one of the worst characteristic of arbitration was the lack of third parties mechanisms to participate in ongoing proceedings. As a response to this, a variety of mechanisms were implemented to consolidate separate disputes between the same or different parties into a single proceeding, or to permit intervention, joinder or vouching in of additional parties into an ongoing proceeding.
Consolidating separate international arbitrations into one single proceeding and permitting joinder or intervention of additional parties into an international arbitration provides some obvious advantages. Indeed, by allowing related issues to be resolved in a single proceeding, consolidation permits more efficient and cost-effective dispute resolution, whilst minimising the risk of inconsistent decisions in related disputes. Accordingly, many arbitral institutions, including SIAC, the ICC, and the London Court of International Arbitration (LCIA) now allow parties to consolidate multi-party or multi- contract disputes into one single proceeding.
Importantly, however, the consolidation provisions of existing institutional rules of leading arbitral institutions do not permit the consolidation of arbitrations that are subject to different sets of institutional arbitration rules (for example, SIAC and ICC arbitrations), even if they satisfy the other criteria for consolidation. Instead, existing institutional rules provide for the consolidation of arbitral proceedings only where the parties various arbitration agreements are compatible, including by incorporating the same institutional arbitration rules. Thus, a SIAC arbitration can be consolidated with another SIAC arbitration, but not with an ICC arbitration; likewise, an ICC arbitration can be consolidated with another ICC arbitration, but an ICC arbitration cannot be consolidated with a SIAC arbitration. For this reason, on 19 December 2017, SIAC announced an extremely novel proposal to permit the cross-institution consolidation of arbitral proceedings subject to different institutional arbitration rules (commonly referred to as the Proposal on Cross-Institution Cooperation for the Consolidation of International Arbitral Proceedings).
The consolidation protocol would set out a new, standalone mechanism for addressing the timing of consolidation applications, the appropriate decision-maker and the applicable criteria to determine when arbitral proceedings are sufficiently related to warrant cross-institution consolidation
The consolidation protocol would set out a new, standalone mechanism for addressing the timing of consolidation applications, the appropriate decision-maker (i.e. the institution(s) or the tribunal) and the applicable criteria to determine when arbitral proceedings are sufficiently related to warrant cross-institution consolidation. Once consolidated, the proceedings would be administered only by one institution applying its own arbitration rules. The institutions can agree on objective criteria to determine which institution should administer the consolidated dispute, such as the number of disputes subject to the different rules or the time of commencement of the first proceeding.
The arbitral institutions rules would be amended to incorporate the consolidation protocol. By adopting the institutional rules in their arbitration agreements, parties would in turn give the protocol the same contractual force as other provisions of the institutional rules. The consolidation protocol would not change the current requirement that the arbitration agreements designate the same seat.
7. What are the main challenges for investor-State arbitration in the coming years?
It is well known that investment disputes often involve sensitive issues of national policy. Host government’s interference with foreign investors rights is often motivated by significant domestic political objectives, including either regulatory policies or local economic interests. The current mechanism for dispute resolution provides filters to discern legal from purely political issues (for example the right of the Secretary-General under the ICSID Convention to strike out claims that are manifestly outside the jurisdiction of the centre).
In addition to this focus on dispute resolution mechanisms, many states have reconsidered the balance of rights as between investors and states in bilateral investment treaties
However, there are many challenges in this field. Some countries like Bolivia, Ecuador and Venezuela, denounced the ICSID Convention, while others terminated bilateral investment treaties (BITs) signed in the 1990s. These push backs have caused a measure of distrust of investor-state arbitration as a dispute settlement mechanism. This more critical approach towards investor-state arbitration is not limited to Latin America. The European Union, for example, has strongly criticized investment arbitration as insufficiently transparent, inconsistent, and inappropriate for the resolution of disputes involving issues of public policy. It has proposed an investment court system in an attempt to address these perceived inadequacies. The willingness of other countries, including Canada, Singapore and Vietnam, to agree to this new dispute resolution mechanism raises the possibility of a broader movement away from traditional investor-state arbitration. In addition to this focus on dispute resolution mechanisms, many of these same states (as well as others like India) have reconsidered the balance of rights as between investors and states in bilateral investment treaties, inserting new language that seeks to emphasize a state’s right to regulate and limits substantive protections like fair and equitable treatment.
Despite all of these challenges, investment arbitration continues to flourish. This is also true in Latin America, where, for instance, Mexico has very recently subscribed to the ICSID Convention, and Mexico, Peru and Chile have entered into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a new trade agreement between them and certain Asian countries. In my view, there is no reason to believe that investment arbitration will not continue to flourish in the future.
8. International arbitration has long been known to be a profession of lawyers that suffers from a bottleneck… do you agree?
I would say it is quite the contrary there is an increasing trend in law firms and arbitral institutions to hire young lawyers from different backgrounds and jurisdictions to increase its diversity. The international arbitration community strives to be diverse because, among others, it adds a unique way to understanding and solving international disputes, which undoubtedly benefits the parties.
As we see the arbitration caseload increase (both in commercial and investment arbitration), we also see more hard working, talented and diverse lawyers working in the field; these lawyers should be welcomed not only by law firms, but also arbitral centres and clients alike.