Arbitration Year in Review 2020

It would be impossible to consider the events of this year without considering the COVID-19 pandemic, which has so profoundly impacted all of our lives.

The practice of international arbitration has been remarkably resilient during the crisis. All of the major arbitral institutions responded actively to the pandemic by adopting procedures to allow the remote administration of cases and implementing secure online communication and information sharing platforms. Most arbitrators and counsel have happily transitioned to the use of remote hearings, which were already a relatively common occurrence in the international arbitration. Parties are, we would suggest, well within their rights to nominate arbitrators who can be relied upon to make the most effective use of the technology now routinely being used.

There is no reason as a matter of principle why legal submissions cannot be made remotely from a home office. Remote hearings have meant less international travel and it can only be in the long term interests of us all for arbitration to embrace a greener and more sustainable future.

That said, remote hearings are not without complication. It is vital to the integrity of the arbitral process that witnesses of fact and expert witnesses give live evidence without the involvement of counsel. It remains all too easy for a witness giving evidence remotely to exchange messages with counsel or a party to the proceedings without the tribunal or the other party and its representatives being aware of that exchange.

The real fallout from the pandemic will not be known for some time to come. For example, it remains to be seen whether parties will seek to challenge arbitral awards or resist enforcement on the basis that a remote hearing did not allow those parties a proper opportunity to set out their case. The legal press carried a story in November of a party to an LCIA arbitration that sought (unsuccessfully) to challenge all three members of the tribunal over their refusal to postpone a hearing due to the pandemic. Other potential outcomes include a greater number of third party funded cases as parties confronting the economic consequences of the pandemic seek alternative ways to fund their claims. 

Amid all the uncertainty, as we head into another year likely to be dominated by the pandemic, arbitration users and practitioners alike will have no choice but to adapt to an unpredictable and changeable environment.

Two of the major arbitral institutions, the LCIA and the ICC, revised their arbitration rules.

Of perhaps greatest significance, under the revised LCIA Arbitration Rules, the tribunal now has the express power to make an early determination where a claim or defence is "manifestly without merit". Tribunals sitting in London have traditionally been very slow to make any award or order which resembles summary judgment in litigation before a state court, often fearing that an award made on that summary basis is susceptible to challenge and/or will be unenforceable in another jurisdiction. It will be interesting to see whether parties and tribunals take the opportunity presented by this rule change.

The changes to the ICC Arbitration Rules are modest by comparison, which is perhaps unsurprising given that those rules were revised as recently as 2017. Both sets of rules now specifically recognise remote hearings as an alternative to traditional "in person" hearings. Those rule changes are, we would suggest, pragmatic rather than a signal of a new approach to the practice of international arbitration; in the current COVID-19 environment, there is no real alternative to remote hearings. It remains to be seen whether the prevalence of remote hearings is part of a new normal or a temporary staging post before the old normal returns, whenever that may be.

On 5 May 2020, 23 EU member states signed an agreement to terminate all of their intra-EU bilateral investment treaties or "BITs".

A BIT is an agreement establishing the terms and conditions for private investment by "foreign" nationals and companies of one state in another "host" state. A foreign investor whose rights under the relevant BIT have been violated by the host state will usually have recourse to investor-state arbitration under the auspices of ICSID (a subsidiary of the World Bank), rather than suing the host state in its own courts.

There has been an inevitability about the termination of those intra-EU BITs following the 2018 ruling of the Court of Justice of the European Union (the CJEU) in Slovakia v Achmea BV in which the court determined that the arbitration agreement in the Netherlands-Slovakia BIT was incompatible with EU law. The essential (and controversial) logic of the CJEU was that because an arbitral tribunal cannot seek a preliminary ruling from the CJEU on a point of EU law, unlike a state court, that tribunal cannot ensure the full application of EU law.

On 14 May 2020, the European Commission issued a formal infringement notice against the UK and Finland for failing to terminate their intra-EU BITs. Of the remaining three states, two (Austria and Sweden) were understood to be terminating their intra-EU BITs bilaterally and Ireland terminated its only intra-EU BIT in 2011. The UK appears to have taken the view that following its exit from the EU on 1 January 2020, its 11 BITs with EU member states are no longer intra-EU BITs.

It will be interesting to see whether UK entities investing in the EU and EU entities investing in the UK structure their investments in a manner specifically designed to take advantage of those investment treaty protections.

On 1 May 2020, ICSID and UNCITRAL published a draft code of conduct for adjudicators of investor-state disputes. The draft code, which applies to arbitrators and judges on a permanent mechanism appointed to determine investor-state disputes, is part of wider moves to reform investor-state dispute settlement or "ISDS". ICSID is currently in the process of revising its arbitration rules. An UNCITRAL working group has been looking at reform of the ISDS system more generally for three years.

The draft code requires adjudicators to be independent and impartial and to avoid conflicts of interest. It deals with repeat appointments – an issue before the English courts this year as well – and so-called "double hatting", where arbitrators also act as counsel or experts, and requires extensive disclosure. The draft code also deals with confidentiality, pre-appointment interviews and fees.

The consultation period on the draft code closed on 30 November 2020, and so we will not see the final form code of conduct this year. This attempt to bring uniformity to the practice of ISDS is broadly a positive development. Given the regional variations that exist in the profession, an international standard is to be encouraged.

That said, concerns have been raised that a strict ban on double hatting may adversely affect diversity of adjudicators, as newly nominated adjudicators would often be unable to forego other sources of income after their first nomination and until they become established. A time-phased or number-of-total cases approach might provide more flexibility.

Despite the pandemic, the English courts continued to make a number of important arbitration-related decisions. Of the various decisions handed down this year, we have chosen three of particular interest to practitioners.

The jurisdiction of the English court to compel the giving of evidence by non-parties to an arbitration agreement in support of an arbitration has been a source of long-running controversy. On 19 March 2020, the Court of Appeal ruled, in the case of A & B v C, D and E [2020] EWCA Civ 409, that an English court is empowered to order an English resident non-party witness to be deposed in support of arbitral proceedings seated and conducted in New York. This is an exception to the usual rule that only the parties to an arbitration agreement can rely on that arbitration agreement or be sued under it.

It is worth pointing out that the Court of Appeal's decision was limited to section 44(2)(a) of the Arbitration Act 1996 which relates to the taking of evidence of witnesses. It is not, therefore, necessarily the case that the English court's jurisdiction extends by way of example to ordering the preservation of evidence held by a non-party (section 44(2)(b)). That said, it now seems inevitable that an applicant will sooner or later seek to extend further the English court's powers over non-parties. Until that application is made, the controversy continues.

On 9 October 2020, the Supreme Court delivered its decision in Enka Insaat Ve Sanayi A.S. v OOO Insurance Company Chubb [2020] UKSC 38. In that judgment, the Supreme Court (by a 3-2 majority) held that if the parties have not expressly specified a law to govern an arbitration agreement but have specified a law to govern the underlying contract, that underlying governing law clause will generally apply to the arbitration agreement as well. In the absence of an express governing law clause in the underlying contract, the law of the seat of arbitration will govern the arbitration agreement. It was particularly pleasing to see both the majority and the minority cite with approval the views of our own Louis Flannery QC, as expressed in Merkin & Flannery on the Arbitration Act 1996.

This decision is a useful reminder of the importance of including an express choice of law provision in an arbitration clause, especially if the parties have chosen one law to govern their rights and obligations, and a different procedural law to apply to the arbitral proceedings.

27 November 2020 saw the Supreme Court's much anticipated decision in Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48, a case concerning arbitrators' duty of disclosure and apparent bias. The case arose out of the Deepwater Horizon oil spill. Observers of this case will recall that in 2018, the Court of Appeal decided that there had been no apparent bias where an arbitrator failed to disclose to one of the parties his appointment in multiple overlapping proceedings with one common party arising out of the same incident. It was widely anticipated that the Supreme Court would provide new guidance on the test for apparent bias.

In the event, the appeal was dismissed on the basis that, on the facts of this particular case, an objective observer would not have found a real possibility of bias at the date of the hearing to remove the arbitrator, which is the key date on which his conduct and all the circumstances were to be judged. It is hard to escape the conclusion that an opportunity has been missed to clarify the test for apparent bias, a difficult area. As regards the duty of disclosure, the Supreme Court held that an arbitrator or prospective arbitrator must disclose any fact or circumstance which might reasonably give rise to justifiable doubts as to impartiality.

Mishcon de Reya (Louis Flannery QC and Sophia Louw) represented the Chartered Institute of Arbitrators, one of the intervenors permitted to make submissions in the appeal.

As many readers will be aware, section 1782 of Title 28 of the United States Code is a US federal statute that allows a litigant to a legal proceeding outside the US to apply to an American court to obtain evidence for use in non-US proceedings before a "foreign or international tribunal". This is a potentially powerful tool not least because so many of the world's leading finance houses have a presence in the US. However, there is an ongoing controversy whether a US Court should order discovery in support of a foreign-seated arbitration or whether the section 1782 jurisdiction is limited to proceedings before a state court. Three decisions this year highlight the inconsistent approach of the US Courts to this question.

On 30 March 2020, in Servotronics, Inc. v The Boeing Co., the US Court of Appeals for the Fourth Circuit held that an international private commercial arbitration panel is a foreign or international tribunal, and that US district courts may provide discovery assistance under section1782. The Fourth Circuit joined the US Court of Appeals for the Sixth Circuit and deepened a circuit split with the Second and Fifth Circuits.

As if to emphasise the inconsistency, on 8 July 2020 in Re Hanwei Guo, the US Court of Appeals for the Second Circuit held that parties to a private, international commercial arbitration may not seek discovery under section 1782, because an arbitral tribunal is not a foreign or international tribunal for the purposes of the statute. By the same logic, on 22 September 2020, the US Court of Appeals for the Seventh Circuit also held that an international private commercial arbitration panel is not a foreign or international tribunal and that US district courts may not provide discovery assistance under section 1782 for use in a private arbitration (see Servotronics, Inc v Rolls Royce Plc).

Until such time as the US Supreme Court rules definitively on this question, the inconsistent decisions at circuit court level seem set to continue.

It is now five years since various prominent members of the international arbitration community came together to draw up the Equal Representation in Arbitration Pledge (the ERA Pledge).  The ERA Pledge seeks to increase, on an equal opportunity basis, the number of women appointed as arbitrators in order to achieve a fair representation as soon as practically possible, with the ultimate goal of full parity.

The passage of five years is a reasonable period to assess what tangible progress has been made. As at 1 May 2020, the ERA Pledge had attracted 4,175 signatories (including Mishcon de Reya), comprising 3,393 individuals and 782 organisations from 113 different countries. While that is impressive, diversity can only be measured by actions and not words alone.

The International Council for Commercial Arbitration released its Report of the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments and Proceedings on 29 July 2020. In short, there is an upward trend in the appointment of female arbitrators. Based on research carried out by law firms and arbitral institutions, the institutions are doing best with an average of 34% female arbitrator appointments in 2019, then co-arbitrators who appointed a female chair in 21.5% of cases, with party appointments lowest with an average of 13.9%. Plainly, however, there is still much more work to be done.

Changes adopted during the pandemic should provide an ideal springboard to diversify the profession. The move to remote hearings should create a more flexible working environment for practitioners with young families. In addition, remote working should facilitate the retention of women and potentially other minorities for whom physical attendance at meetings may present a challenge.

The launch in late 2019 of African Promise, which asks signatories to commit to improving the profile and representation of African arbitrators, especially in arbitrations connected to Africa, was inspired, at least in part, by the success of the ERA Pledge. This year has also seen the publication of a list of arbitrators of African descent, in another concerted and welcome attempt to diversify the profession.

The notion of members of the international arbitration community "pledging" to tackle real world problems is gaining traction. Practitioners can also now sign the Green Pledge, which promotes best practice in managing arbitrations in a sustainable way. Mishcon de Reya is again leading the charge, with our own Heidi Walsh joining the steering committee.