½Û×ÓÊÓƵ

In our sixth annual survey of international arbitration statistics, James Clanchy, arbitrator in independent practice and member of the ½Û×ÓÊÓƵ Arbitration Consulting Editorial Board, notes that major institutions have seen declines in their caseloads while ad hoc arbitration is rising. He examines the attractions of ad hoc and considers lessons that could be learned by institutions and the wider international arbitration community. 

A decline in transparency

As the international arbitration community absorbs the aftershocks of Mr Justice Knowles’ searing decision setting aside the award in Nigeria v P&ID , it is more important than ever that we should have reliable statistical data with which to defend and explain arbitration to others.

Johnny Veeder QC made a call for such data in his Chartered Institute of Arbitrators (CIArb) Alexander Lecture, ‘What Matters – about Arbitration’, in 2015. He was concerned by growing discontent with investor-state arbitration and by arbitration’s ‘over-ambitious promoters.’  He memorably said, ‘arbitration cannot do everything.’ The demise of arbitration was ‘far from inevitable’ but it had to answer its critics and, for that purpose, comprehensive and user-based statistics were essential.

It is disappointing therefore that the International Chamber of Commerce (ICC), for the second year running, has not published a detailed report on its caseload data. However, it has kindly responded to enquiries from ½Û×ÓÊÓƵ Arbitration, which has allowed us to complete the graphs below. These graphs contain respectively the numbers of new cases registered and numbers of appointments of arbitrators (including institutional confirmations of party appointments) for the five international arbitral institutions which the White & Case Queen Mary International Arbitration Survey 2018 found to be its respondents’ favourites with the addition of one association of arbitrators whose members conduct ad hoc arbitrations under its rules, the London Maritime Arbitrators Association (LMAA).

The ICC’s 710 new cases is its lowest total since 2008. This represents a drop of 17% from 2021’s figure. The Singapore International Arbitration Centre (SIAC) saw a sharper drop of 24% following a 57% fall in 2021. The only institution to have seen an increase over 2021’s total is the Hong Kong International Arbitration Centre (HKIAC) whose 344 new cases nudges SIAC’s 357 and, for the first time, is higher than the LCIA’s (327). The total for all six bodies is 3688, which is not only lower than 2021’s 3798 but lower than the total for the first year in this analysis, 2016, when it was 3793.

However, it is important not to take the five institutions as necessarily representative of institutional arbitration worldwide, let alone of the global arbitration market. They may have been preferred by respondents to the Queen Mary survey in 2018 but that survey does not reach a representative sample of users of international commercial arbitration. The ½Û×ÓÊÓƵ Arbitration Practice Note: Arbitration statistics and surveys (subscription required) includes statistics from 18 different arbitral bodies going back to 2012. The ICC is not the only institution to have been slow to publish case numbers for a bad year. The International Centre for Dispute Resolution (ICDR) attached to the American Arbitration Association (AAA) did not report on its caseload for 2021 but was pleased to announce this year that its 755 new cases in 2022 represented a 12% increase on 2021’s total. For some years, the Dubai International Arbitration Centre’s (DIAC) statistics were published at irregular intervals and with little detail. This year a reinvigorated DIAC announced its highest number since 2012, 340 new cases of which 44% were reported to be international.  

The China International Economic and Trade Association Commission (CIETAC) entered the ranks of the top five arbitral institutions chosen by the respondents to the Queen Mary survey in 2021. CIETAC reported 636 new international cases filed in that year. It saw an increase to 642 in 2022. Meanwhile the Shenzhen Court of International Arbitration (SCIA) has reported 345 international cases in 2021 and 384 in 2022. It has been added this year to the ½Û×ÓÊÓƵ Arbitration Practice Note: Arbitration statistics and surveys (subscription required). There can be no doubt that arbitral institutions in China are continuing to build up their international caseloads while others have been seeing declines in theirs.

All five institutions in our graphs saw falls in the numbers of appointments of arbitrators between 2021 and 2022. Only HKIAC saw a higher number in 2022 (284) than in 2016 (137). As noted in last year’s post, Arbitration statistics 2021: from sole arbitrators to sole arbitrations, institutions have been taking steps to distribute their diminishing numbers of appointments among a larger number of arbitrators. Most of these appointments will go to arbitrators who have other sources of work and income, typically as counsel.

The LCIA has reported that 17% of appointments in LCIA arbitrations in 2022 were of candidates not previously appointed by the LCIA Court, which was the same percentage as in 2021. It saw fewer repeat appointments in 2022 than in 2021. The overall percentage of arbitrators appointed only once in the same calendar year rose from 69% in 2021 to 74% in 2022. Only eight per cent were appointed three times or more.

The ICC has not reported on its data for appointments in 2022 but the ICC Case Information pages on its website, an admirable effort towards transparency introduced in 2016, disclose the names of arbitrators on 88 tribunals which have been appointed and issued Terms of Reference between January and August this year. This compares to 246 such tribunals in the full calendar year 2022, 275 in 2021, and 356 in 2020. These statistics indicate a steady decline in numbers of tribunals appointed in cases commenced in the ICC and/or in cooperation from parties, bearing in mind that the rules permit parties to withhold permission to publish anonymised data about their cases.

Strength of ad hoc arbitration

In contrast to the declines in caseloads experienced by the major international arbitral institutions, the LMAA has seen increases in both new references and appointments. It is the only one of the six bodies in our graphs whose numbers on both criteria are higher in 2022 than they were in 2021 and in 2016.

The original reason for adding the LMAA to the five institutions was to see how it fared alongside them. Commentary around the Queen Mary survey in 2018 had suggested that institutions played a critical role in international arbitration. Chief Justice Sundaresh Menon, in his keynote address to the SIAC congress in May 2018, had even gone so far as to say that they had a ‘duty to shape the future of arbitration’ because of what he called ‘the tremendous influence they wield over the conduct of arbitrations’. Data collated over the five years since that claim was made, and as set out in our graphs, indicate that ad hoc arbitration remains strong and could even suggest that the influence wielded by institutions may be having a detrimental effect on their own caseloads.

More than half (56%) of the appointments of arbitrators in 2022 across the six bodies in our study were in cases under the LMAA Terms and Procedures. Most of these appointments went to the association’s full-time arbitrating members. It is one of the attractions of ad hoc arbitration, certainly under the Arbitration Act 1996 in England and Wales, that arbitrators are appointed as soon as the arbitration is commenced. In arbitrations administered by institutions, on the other hand, the constitution of a tribunal may be delayed by internal procedures for vetting and confirmation and for payment of substantial, and often unexpected, pre-appointment advances on costs. The result is that increasing numbers of references to institutions do not reach the hands of arbitrators, as discussed in Arbitrations without arbitrators: an institutional paradox.

Of course, a major reason for the LMAA’s increased caseload in 2022 will have been the effect of turmoil and fluctuations in the markets in which many of its users are involved. This will likely also be the reason why the LCIA reported that 37% of its new cases in 2022 were in the transport and commodities sectors, with 34% of contracts in dispute being for the sale of goods and 4% being charterparties. The ICC’s sharper drop in its caseload may be partly explained by its move away from disputes arising from international commerce (buying, selling, transporting goods across borders) to projects and corporate disputes, notably in the construction, engineering and energy sectors.

In looking back, in its centenary year, at the ICC’s caseload in the 1920s, the president of its International Court of Arbitration, Claudia Salomon, noted, ‘The types of dispute in the early days of the ICC court reflected the type of international trade at the time – mostly sales of goods, such as silk, cotton, tobacco, or manufactured items.’ All of these things continue to be traded but disputes arising under the relevant contracts tend to go to trade associations or ad hoc arbitration. Disputes in the cotton industry, for example, are still handled by the International Cotton Association, founded in 1841 and headquartered in Liverpool, which Sundaresh Menon CJ, in his 2018 SIAC keynote, called the ‘blueprint for the modern arbitral institution’.

A study of international arbitration awards which reached courts in China for enforcement between 2012 and 2022, undertaken by Zhong Lun Law Firm, found that International Cotton Association awards came in second place, with 30. SIAC was in first place with 36. The LMAA was in third place with 28 awards and the ICC in fourth with 13.  

Parties involved in international commerce know that institutional arbitration is not their only option. Just as some in certain trades will adhere to the arbitration schemes offered by their trade associations, so others will choose ad hoc arbitration. Standard sale and purchase contracts, which used to provide for institutional arbitration, increasingly contain arbitration clauses submitting disputes to ad hoc arbitration in London under the LMAA Terms and/or the LMAA’s Small Claims Procedure (SCP). With its substantial and wide-ranging caseload, it is absurd that the LMAA is omitted from university courses and from the CIArb’s diploma in international commercial arbitration.

Ad hoc arbitration lends itself well to expedited procedures. The LMAA’s SCP has been used in more than 3,800 arbitrations since the LMAA’s records began in 1997. Without an institution to supervise the procedure or to make decisions, the rules contain fixed timetables and fixed costs, providing structure and certainty which attract commercial parties.

The CIArb has likewise seen success for its Business Arbitration Scheme rules for fixed fee expedited ad hoc arbitrations. The CIArb’s Dispute Appointment Service appoints a sole arbitrator and then leaves the conduct of the arbitration to the arbitrator, providing no administrative or supervisory services. Some standard form contracts, which used to provide for institutional arbitration, now contain CIArb BAS clauses. The CIArb has reported that it saw a rise in appointments from 117 in 2021 to 146 in 2022, 67 of which were in international arbitrations, with 65 of those being under the BAS Rules.

Conclusion

The 2022 statistics may, at first sight, paint a gloomy picture for international arbitration. They indicate that the major institutions have work to do to win, and win back, the confidence of commercial parties. However, the LMAA’s numbers and those of regional institutions and other bodies suggest that there is still a growing appetite for arbitration and that parties will continue to be attracted to rules and procedures which meet their needs and expectations. Those who work on new rules and soft law in international arbitration should be ready to challenge assumptions and to take account of these diverse organisations and their users. Transparency and inclusiveness will be critical for the future of international arbitration