The rise of arbitration has embedded the process into international business – and led to rising delays and costs. Richard Lloyd asks if arbitration is ready to enter its 'industrial phase'

The rise and rise of international arbitration continues apace. It seems arbitration has become as much a feature of the globalised legal world as the 144A rule in capital markets or the preponderance of English law documents in much of the global banking community.

Its appeal as a means of resolving cross-border disputes has only increased with the growth in emerging economies across Asia, Africa and Latin America, with parties attracted to the enforceability of arbitral awards and, in some cases, put off by the prospect of litigating in local courts.

You only need to look at the arbitration last year between BP and its Russian partner the Alpha Access Renova consortium, which put paid to the oil major's hopes of exploring large parts of the Russian arctic in a $16bn (£9.8bn) joint venture with Russia's Rosneft, to see the crucial role that arbitration now plays in cross-border business.

It has proved adept in winning wide appeal in new markets in Asia, with the development of both Singapore and Hong Kong as popular centres. Arbitrators also point to its growing appeal in the financial services sector and the development of the Panel of Recognised International Market Experts in Finance, or PRIME Finance, a forum for settling disputes in the finance sector and the brainchild of former Allen & Overy (A&O) partner Jeff Golden.

International arbitration is, in short, one of global law's success stories. But it is partly as a result of this success that cracks have appeared. The growth in the number of cases has increased the workloads of the top international arbitrators and increased the time it takes to secure an award. Most arbitration partners agree that an award should be delivered in a matter of months but point out that, in some cases, it can take more than a year. Plus, the very flexibility of the arbitration process, with much of it determined by the parties and the tribunal involved, means that it is open to delay if one of the parties wants to drag its feet.

Thus, just as their colleagues in the corporate and banking worlds have come under greater pressure from clients to bring down costs, so arbitration specialists have faced growing calls to reduce the time and costs of the average case. And, in large part, the community has responded. In the last five years arbitration institutions and law firms have been moving to address the problem.

To some, this process is a natural stage of arbitration's evolution. "Arbitration has gone through its 'artisanal' phase and has now entered its industrial phase," comments Freshfields Bruckhaus Deringer's co-head of international arbitration Constantine Partasides. "It is no longer dominated by a small clique servicing a relatively small client base. It has become mainstream, and the role of the lawyer-participants (counsel and arbitrator alike) has been professionalised."

"I find arbitration indispensable but that doesn't mean we have to accept it as it's presented to us," Michael McIlwrath, associate general counsel for litigation in GE's oil and gas business, says. For many, the clamour for change continues.

Arbitration's growth in its traditional centres has been well documented over the last decade. Last year the International Chamber of Commerce (ICC) International Court of Arbitration heard 796 cases, down from its peak of 817 in 2009 but still significantly up from the 521 cases it heard in 2005. The number of awards made by the ICC has also continued to climb, with 508 last year compared to 325 in 2005. In terms of cases handled, the London Court of International Arbitration (LCIA) lags behind its Paris-based rival, but its growth has been just as impressive, with a total of 224 cases referred to arbitration at the LCIA last year, up from 110 in 2005.

That arbitration's appeal has grown is clear to see in the traditional centres of Paris, London, Stockholm and New York, but its emergence in new centres in Asia is perhaps most significant for its long-term development. Both the LCIA and ICC have established outposts in key emerging markets. The LCIA now has a presence in Dubai (opened in 2008), India (launched in 2009) and, since last year, in the offshore centre of Mauritius. The ICC has also expanded into new markets, establishing a secretariat in Hong Kong in 2008.

However, it is perhaps the emergence of indigenous arbitration centres, particularly in Hong Kong and Singapore for international cases, which underscores Asia's increased importance. "Having an arbitration centre has almost become a badge of honour for an economic centre," says Michael Davison, head of arbitration at Hogan Lovells.

The Hong Kong International Arbitration Centre (HKIAC) has emerged as a popular choice for international disputes emanating from mainland China, while the Singapore International Arbitration Centre (SIAC) dominates Southeast Asia and cases from India. "SIAC has done a first rate job to present itself as a credible institution of first choice in this part of the world," argues Aloke Ray, an arbitration partner in White & Case's Singapore arm. The number of cases handled by SIAC actually fell slightly last year to 188 (down from 198 in 2010), but the centre's caseload has still more than doubled in the last five years.

Although the China International Economic and Trade Arbitration Commission (CIETAC) is now the busiest arbitration centre in the world – last year it accepted 1,435 cases – it is viewed as having less appeal for multinational, high value, complex disputes than its regional rivals. "There have been, of course, arbitration cases involving Asian clients for many years," says Ray, who moved to Singapore from the White & Case's London office just over two years ago. "What has changed is that, with many clients shifting their economic operations to Asia, they increasingly expect to have their lawyers in Asia as well."

Numerous firms have responded to this shift and built up their on-the-ground expertise. Among them, Skadden Arps Slate Meagher & Flom moved Paul Mitchard QC to Hong Kong in 2009, A&O transferred Matthew Gearing in 2008 and Freshfields announced earlier this year that it was moving its co-head of international arbitration Lucy Reed to Hong Kong.

"Asian clients are seeing the obvious advantages of arbitration now that they're participating more and more in the international economy," Freshfields' Partasides says of Reed's move. "As a consequence, Asia is a major arbitration growth area, and we are looking to invest in that growth in the most powerful way we can."

Arbitration's appeal has expanded into new sectors as much as new regions. Its widespread use in energy, construction, maritime and telecoms disputes is well established. Two of last year's headline cases were undoubtedly the clash between AAR and BP and, in the telecoms sector, the dispute between Telenor and Atimo (the telecoms business of the Alfa Group) over their shareholdings in Russia's Vimpelcom, which reached a conclusion early this year.

One area where arbitration has been relatively slow to catch on has been in financial services. Banks have been far more likely to litigate through the courts than include arbitration clauses in their contracts. That, however, appears to be changing, partly as the major financial institutions expand their businesses in emerging markets.

It is also potentially going to grow with the emergence of PRIME Finance. The new centre, based in The Hague, has been designed as a forum for resolving complex financial disputes through either arbitration or mediation and as a training and precedent facility for judges and lawyers from around the world.

The idea for PRIME sprung from a speech that former A&O US capital markets partner Jeff Golden (pictured) gave at a conference in The Hague shortly before the financial crisis began. In his paper he raised the question of why the global financial community didn't have its own specialist forum to settle disputes. "There was a concern that we seemed to be putting all our aspirations for efficiently functioning financial markets in the hands of regulation," Golden, who retired from A&O in 2010, reflects.

From there the idea gathered momentum, drawing support from among the wider legal community and the financial press. The Dutch Government threw its weight behind the initiative – The Hague was seen as a more neutral venue than either New York and London, and well placed as the existing home of a number of global legal institutions such as the International Criminal Court – and PRIME Finance was born, officially opening in January this year. As well as Golden, PRIME has attracted a broad range of dispute resolution and financial markets experts including former Supreme Court Justice Lord Collins, former Lord Chief Justice Lord Woolf and Freshfields arbitration specialist Jan Paulsson, to help train judges in financial matters and to potentially act as arbitrators.

"I think we have caught the imagination of a very special group of people and without them we wouldn't have been able to fill this gap," Golden insists. Although it is too early to judge PRIME's success, Golden says the first case has already been filed and insists that after showcasing the centre to the financial community, the demand is there.

"It's early days, but the underlying philosophy of bringing together specialists with expertise in the sector is good," remarks A&O arbitration partner Richard Smith. "There could be demand for it from financial services clients."

While the arbitration world has been quick to capitalise on the growth of new markets, it has also faced increased calls to bring the length and, therefore, costs of cases under control. The sense that arbitration has lost sight of part of its original appeal, that it helped resolve disputes in a timely and cost-efficient manner, has become a popular belief among clients and the more self-aware arbitration specialists. "A complaint among users is growing that the 'promise' of arbitration is being lost in a process that's drowning in a swamp of judicialisation," Partasides says.

The in-house community has also become more vociferous in pointing out when improvements can be made. The Corporate Counsel International Arbitration Group (CCIAG), for instance, was established in 2006 to represent the interests of the in-house community and provide input into any reforms of the arbitration process.

"There have been criticisms of arbitration as long as it has existed," Charles Adams, a partner in Akin Gump Strauss Hauer & Feld's Geneva office, points out. "It's only relatively recently that they've become insistent, and one of the reasons is that the criticisms are coming from the end-user community."

"The general view (among in-housers) is that arbitration is essential and needs to be maintained but that there is a lot of scope for improvements," says one senior member of the CCIAG who asked to remain anonymous. "Being the least worst form of dispute resolution is not a good place to be."

The ICC has been among the most proactive of the major institutions in tackling such concerns. In 2007 it published a report entitled Techniques for Controlling Time and Costs in Arbitration and, in its most recently revised set of rules, which came into effect in January this year, put in place steps to improve efficiencies. The new rules for the first time included a specific requirement that parties and tribunals make every effort to conduct cases in an 'expeditious and cost-effective manner'.

The International Bar Association has also played a part, publishing its Rules on the Taking of Evidence in International Arbitration. Originally released in 1999 and then revised in 2010, the rules are an attempt to encourage limits in disclosure in arbitration cases.

Other attempts to improve the process include protocols on best practice published separately by the College of Commercial Arbitrators (CCA) in the US and Debevoise & Plimpton. Significantly, the CCA's paper from 2010 received the ringing endorsement of DuPont general counsel Tom Sager who sent a copy of the protocols to his counterparts at the Fortune 1,000, encouraging them to heed the recommendations.

Although all of these steps are broadly welcomed, there is also a recognition that there is only so far that new rules and protocols can go. Ultimately, one of the appeals of international arbitration is the room it gives to parties to determine their own process and therefore, at times, it can be open to abuse. "I would use a cooking analogy – a recipe is only as good as the ingredients you use," remarks Marie Berard, a partner at Clifford Chance in London. "Delays in cases really come down to the conduct of the parties involved, the lawyers and the tribunals."

"The institutions have heard the message from users that they want more streamlined options and they have all responded with various guidelines and protocols to address these concerns," says Lorraine Brennan, the managing director of Alternative Dispute Resolution provider JAMS International. "Frankly, the onus is on all constituents to improve the process."

In some cases the sternest criticism is reserved for the arbitrators themselves. In a 2010 international arbitration survey published by White & Case and the School of International Arbitration at Queen Mary, University of London, respondents called for more proactive arbitrators and arbitral institutions – 59% of respondents claimed that the arbitrators and institutions were best placed to expedite proceedings.

It is a point echoed by Thomas Stipanowich, the editor-in-chief of the CCA protocols and a professor at Pepperdine University School of Law in the US. "Arbitrators need to be a lot more proactive," he maintains. "They need to be more aggressive in taking control from day one." But, as one senior member of the CCIAG points out, their willingness to take a more proactive position may be undermined by the relationship between an arbitrator and outside counsel. "It's the elephant in the room," he says. "Many companies look to their law firms for guidance on which arbitrator to appoint and there's always a concern that, because arbitrators owe their position to outside counsel, they feel some sort of obligation to them," he points out.

However, it is not just case of arbitrators simply becoming more proactive; to some, the primary problem is one of scheduling. As arbitration has become more popular, so the demand for the very best arbitrators has grown. One senior arbitration specialist estimates that there are around 100 arbitrators worldwide that regularly handle very complex international arbitration, of which they typically choose from approximately 20 and, for the most complex cases, from as few as a dozen.

"The biggest delays are around arbitrator availability, both in terms of scheduling hearings and waiting for the award," comments Karyl Nairn (pictured), an arbitration partner at Skadden in London. "You want the best and most experienced arbitrators on your cases but they are busy. If you appoint them you could be extending the whole process by many months, so it's a trade-off that causes us concern in almost every large case.

Equally, an inexperienced or unresponsive arbitrator can cause delays, especially where the tribunal is trying to reach consensus when drafting the award." Nairn maintains that the pool of the best arbitrators will most likely deepen when a generation of specialists who are now in their 50s retire from private practice.

Although many of the improvements to arbitration have been made relatively recently and therefore it is too early to measure their full effect, anecdotally specialists claim that it has changed for the better. "The focus on time and efficiency has increased," maintains David Rivkin, a Debevoise partner who splits his time between New York and London. "Corporate counsel have spoken out and institutions have listened. The new ICC rules, for example, provide for much greater control of cases by arbitrators."

"There have been improvements," agrees Jonathan Blackman, a partner at Cleary Gottlieb Steen & Hamilton's London arm. "Arbitration is a creature of contract, so the parties have control over the process and, if they want, can agree on expedited procedures." It is also a creature of a globalising world. To some extent, many of the criticisms of arbitration reflect the fact that cases have become more complex and more international involving higher values.

"It's very easy for clients and lawyers to say in the abstract that they want to make arbitration more efficient," Partasides says. "But when it comes to your own case and it's a bet-the-company situation, does a client want to take all the procedural points open to it in mounting its defence, or does it want to prioritise efficiency?"

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