This article is based on an address made by the author to the ICC Commission on Arbitration at its meeting in Paris on 22 April 2009. It presents the views of an in-house counsel on the state of international arbitration today and its ability to respond to the needs of business corporations. The opinions expressed in the article are entirely personal to the author.

I understand it is slightly unusual for someone who is not a member of the Commission on Arbitration to be invited to speak at one of its semi-annual meetings, so I thank you for the opportunity you have given me today and trust that the next forty-five minutes will be time well spent.

I am particularly pleased to be here because all of you have multiple roles. All of you must be members of the ICC Commission on Arbitration, but you also have real jobs as leading academics, distinguished arbitrators and dispute resolution experts, or as lawyers representing parties in arbitrations, either as external counsel or as in-house lawyers. Because of this, you also have multiple opportunities to influence and change the way international arbitration works. This is important because we all have a role to play in the maintenance and protection of international arbitration and its development.

My talk today is constrained in several respects, in part by the time available, in part by detailed research which is still in progress, but mainly as a result of an understanding on my part as to the level of tolerance any audience has to a long presentation. So I am not going to give you a detailed analysis of specific issues created by each and every paragraph of the ICC Rules of Arbitration. What I propose to do in the time I have available is to focus on some specific observations and, more particularly, stimulate thought and discussion among you.

I shall start with the background to my talk, note the importance of international arbitration from a corporate user's perspective, and pay tribute to the significant contribution ICC has made over the years. Then I will discuss current users' concerns as I see them, some of their causes, some potential solutions and some specific proposals, before concluding with a discussion about your role in this.

Background

So why am I here? Over twenty years in ExxonMobil have given me a fairly clear understanding of one particular corporation's view of the world, and ExxonMobil is no stranger to litigation and international arbitration. In part, my comments draw on that experience and the arbitrations in which the company has been involved, but I want you to understand that most of my time with the company has been spent in developing and [Page42:] implementing major transactions. My experience of arbitration has been in the context of seeking to resolve disputes that have arisen out of those transactions.

My involvement with arbitration came later in my career, when the importance of international arbitration as one of the tools for resolving disputes began to grow. But like anything in life, the ability to use a tool effectively depends on one's understanding of how it works. Taking advice and studying current practice was essential to enable me to advise my business colleagues on the potential legal risks inherent in a transaction, particularly in relation to the formal mechanisms through which disputes can be resolved. You can readily understand how this line of practical enquiry developed from trying to understand how it works, to asking why it works this way and then what can be done to improve it. Of course, this led to further investigations and discussions with corporate lawyers with similar experience in other companies.

From there, it was a natural step to the Corporate Counsels' International Arbitration Group (CCIAG), because one of the points that became apparent to me early on was the rather curious absence of comment from corporate users on the current practice of international arbitration. After discussions with other like-minded lawyers, the CCIAG was created in 2006 to remedy that situation, by drawing together the views and insight of in-house counsel with active experience of international arbitration through the companies they represent. The CCIAG's membership consists exclusively of in-house counsel. We do not have external lawyers, arbitrators or arbitration institutions involved, although we have been fortunate to have input from them. Jason Fry was kind enough to speak at our annual meeting last January, for example. The CCIAG is still in its early days, but momentum is building. Members are working to identify the critical concerns they share and to develop specific recommendations on how those concerns can be addressed.

Even though the CCIAG is still in development, it has been looking for opportunities to participate in debates within the profession. In 2007, it was successful in obtaining observer status at the UNCITRAL Working Group II discussions and, even though the pace of progress is not particularly rapid, we have actively participated in every session since then.

I should also disclose that I am a member of the Court of the LCIA and a member of its European User's Council. However, I should be clear that I am not representing ExxonMobil or any of these other bodies today.

Importance of international arbitration

You will all have your own views on the importance of international arbitration, perhaps because you have made it a career, perhaps because of the intellectual stimulation it offers, perhaps for the financial rewards that can be obtained. In my case, my interests are more practical, and perhaps more mundane; and it comes back to the underlying purpose and function of international arbitration.

ICC, I believe, has always stressed that arbitration is a key element in the promotion of international trade and commerce. Any business operating transnationally faces risk and uncertainty in the conduct of its affairs. A balance has to be struck for any commercial transaction to proceed. In finding that balance, the parties try to identify and limit risk and uncertainty as far as possible; through careful analysis, preparation, estimation, costing, negotiation and, of course, drafting. Risks that remain at the end of the process generally lead to higher prices, as commercial parties expect additional compensation for conducting business in uncertain circumstances. [Page43:]

The interpretation and enforcement of the contractual arrangements that govern the transaction is one of the key elements in that risk analysis; and part of the framework that defines the parties' relationship. The parties need to be confident that the deal they have struck will be honoured or, if it is not, that appropriate mechanisms are in place to provide for enforcement or redress.

Everyone has his or her own views on the reliability and sophistication of the legal regime in which they operate, and on the independence, impartiality and ability of the judiciary in local courts. Where a contract involves parties from different backgrounds, these views may differ. In the case of a transnational contract, if the courts in the country of one party are given jurisdiction over disputes, the other party will always be 'playing away from home' and will feel less confident that the decision will be impartial. It may also feel uncomfortable with the rules of procedure that apply in that jurisdiction and the level of relevant experience that the judiciary may have. So, the neutrality, impartiality and flexibility offered by international arbitration are important in helping to reduce those concerns.

Other attributes of international arbitration that are critical are its binding nature, the recognition an award receives in most countries around the world and its widespread enforceability (although there may be exceptions), and finally its confidentiality, speed and inexpensive nature (and here again there may be many more exceptions).

ICC's contribution

Before addressing specific concerns, let me take a few moments to acknowledge the contribution the ICC International Court of Arbitration has made. Notwithstanding my involvement with the LCIA, I doubt if there will be many complaints back in London if I state that ICC is seen by many as the leading arbitration institution in the world-based on its caseload as well as the international recognition it has received. The multinational nature of its structure enables it to be diverse and inclusive in nature, drawing on experience and knowledge from its members all over the world.

ICC's attention to its arbitration rules and the effort it puts into developing and maintaining these, as well as its active oversight of the appointment of arbitrators and review of arbitration awards, are all essential to its continuing success. You can imagine how pleased I was to receive ICC's Annual Report for 2008 in the UK and read the heading in the arbitration section: 'Revision of ICC Rules-Working to promote efficient arbitral procedures'.

Also, the work done by the Commission on Arbitration in marshalling the various task forces it has established to study and report on key areas such as time and cost, discovery, enforcement, as well as the new initiative to review the existing arbitration rules, these are all distinguishing features of ICC.

At a recent discussion, I was reassured to hear that 'the vast majority of ICC cases run just fine and that there are no dramatic issues over time or cost; only the mega cases get expensive and protracted, and these cases are the exceptions'. That is, of course, good to hear. But the view from within the CCIAG suggests that the exceptional cases make up more of the landscape than you might think. Of course, if you have a group consisting of companies concerned about how international arbitration is working, that should not be a surprise, but the collective views of these users still need to be considered and addressed. [Page44:]

Current concerns

Belief in arbitration

In my view, current concerns exist at different levels. First, and perhaps more important, are the cracks in the foundations. These are issues that have the potential to change fundamentally the nature of international arbitration so that it ceases to serve the purpose that has brought it such success. Some of the challenges facing the regime today are symptomatic of a struggle that has been going on for many years over the role and effectiveness of international arbitration.

States' attitudes towards international arbitration are changing. After the explosive growth in Bilateral Investment Treaties providing for resolution of disputes through arbitration, some States are having second thoughts and have been trying to limit the potential impact of such agreements.

Courts are essential to the effective operation of international arbitration, and yet the relationship between arbitration and the courts continues to be challenging, creating uncertainty both as to the validity of arbitration clauses as well as the enforcement of interim or final awards.

Another source of challenge comes from special interest groups that are hostile to certain elements of international arbitration. NGOs looking for transparency in the dispute settlement mechanism assert that arbitration requests should be public, hearings public, submissions and decisions should be published and amicus briefs should be accepted. This questioning of confidentiality is in part driven by concerns about human rights: Professor John Ruggie's report to the Secretary General of the UN raised concerns that BITs 'permit those investors to take host States to binding international arbitration, including for alleged damages resulting from implementation of legislation to improve domestic social and environmental standards . . .'. 1 The UNCITRAL Working Group II has debated issues of transparency in relation to investor-State arbitrations during its sessions and elected to defer the issue until the current rules revision process has been completed.

Another example can be found in the US where the Trial Lawyers Association website2 gives 'The Facts' in relation to mandatory binding arbitration, stating that 'corporations are setting the rules to stack the deck against everyday Americans', 'forced arbitration favors corporations', and 'forced arbitration weakens civil justice safeguards and threatens public health and safety'. To turn their attack on arbitration from words into law, US trial lawyers and their political allies are pushing a Federal Arbitration Fairness Act, which would amend the existing Federal Arbitration Act. While the main targets of the trial lawyers' attack are consumer and employment disputes, the wording of the proposed legislation does not distinguish between domestic and international arbitration and, if enacted, would likely have broader, unintended consequences.

And finally, there is the issue of enforcement. International arbitration makes no sense if, at the end of the day, the award cannot be enforced. There are several awards pending in major investor-State disputes that must be enforced effectively if the credibility of [Page45:] international arbitration is not to be undermined. Companies are watching this with great concern because of the potential impact on their existing and future transnational business.

Business concerns

Rising above the level of the foundations, it is worth emphasizing the concerns of the business community over the practice of international arbitration. Enforcement, mentioned above, should again be included here. You may have read some of the articles that have appeared recently in various arbitration publications: 'The View from an International Arbitration Customer: In Dire Need of Early Resolution'3 by Michael Mcilwrath and Roland Schroeder of General Electric, or 'Time for Woolf Reforms in International Construction Arbitration'4 by Paul Hobeck, Volker Mahnken and Max Koebke of Siemens. Similar articles are being written by those embedded in the arbitration community; David Rivkin's article 'Towards a New Paradigm in International Arbitration: The Town Elder Model Revisited'5 is a good example. And I must also mention the chapter written by Christopher Newmark on 'Controlling Time and Costs in Arbitration' in the second edition of The Leading Arbitrators' Guide to International Arbitration, 6 which I read on the plane on the way here, as it has some excellent suggestions as to how to promote greater efficiency in international arbitration.

As I mentioned earlier, the CCIAG is in the process of gathering and analysing the combined experience of its members in order to have a clear set of concerns and remedies to express externally later in the year. As this is still in progress, I do not want to prejudge the outcome of that process, but let me give some high level comments:

<em>Delay:</em> If I say 'disputes of any real significance currently take anything from two to four years to prosecute and a further one to two years before the final award is rendered', would that shock anyone? If it doesn't, I can tell you that when I say this to my business colleagues they are astounded. Changes are needed to enable disputes of any significance to be resolved in a much shorter time frame. In the current financial environment there are going to be many more disputes requiring urgent resolution, with users looking for swift, decisive action. Whether the disputes are complex or straightforward, current practice runs the risk of alienating many users because of the delay that seems to be inherent in the process.

Delay has other implications. As with any other business transaction, the longer it takes to resolve a dispute the more effort and resources will inevitably be spent on it. The article mentioned above by Mcilwrath and Schroeder stresses the need to find ways to resolve disputes early, and describes the frustrations that have been experienced in various disputes. There are some interesting comments on the arbitration community's attempts to accelerate dispute resolution: 'the presently available means of obtaining early resolution of issues-whether through greater party control or the availability of partial awards-are illusory and in any event have not achieved the desired results'. 7 Referring to one of General Electric's own experiences where lack of clarity early in the process caused the arbitral tribunal to become overburdened with documentation and paralyzed by the issues, they note that 'the parties . . . ultimately settled, not because the [Page46:] arbitration had helped them resolve their issues, but because they concluded that the process was incapable of providing any meaningful resolution . . .'. 8

<em>Costs:</em> These seem to be running at the sort of level historically seen for major financing-perhaps one to two million dollars a year for external counsel, with the prospect of recovering only a part of that even when successful in the final award. The distribution of cost between external counsel, the arbitration institution and the arbitration panel is perhaps the best indication of where significant reductions could be made. But all elements need to make their contribution to bring this under control.

<em>Discovery:</em> Both depositions and extensive document production are becoming more common. E-discovery is knocking at the door and, judging from recent publications like the ICDR Guidelines for Arbitrators Concerning Exchanges of Information (May 2008), 9 the Chartered Institute of Arbitrators' Protocol for E-Disclosure in Arbitration (October 2008), 10 and the CPR Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration (January 2009), 11 it looks as if e-discovery is going to be welcomed by the arbitration community. I also see from ICC UK's Annual Report that 'work is under way to produce recommendations for the production of e-documents in international arbitration'. I think it is fair to say we are on a slippery slope towards a further explosion in the scope of discovery, with grave implications for additional delay and cost.

<em>Confidentiality:</em> It is important to preserve the confidentiality, not only of the commercially sensitive terms of a transaction, the pleadings and the evidence brought before the tribunal, but also of the existence of a dispute and the steps being taken to resolve it. Where commercial arbitrations are involved, the arguments, evidence and award should be held confidential by all involved.

<em>Finding arbitrators:</em> As the number of cases grows, it is becoming harder to find arbitrators with the relevant experience and ability to handle complex matters.

Finally, two other US practices that also seem to be finding their way into international arbitration, to the great concern of corporate users, are punitive damages and class actions.

Let me reiterate: businesses need fairness and efficiency in the enforcement of their contractual rights. At present, it is not possible to answer the simple questions any business will ask when a dispute governed by an arbitration clause arises: how long will it take, how much will it cost and what will the likely outcome be?

If none of this seems new and has been heard before, we must ask why the same concerns are still being expressed, how have we failed to find effective solutions to these concerns, and what can be done to change that now?

Possible causes

So who is to blame? And what are the causes of these concerns? [Page47:]

In the spirit of openness, I should start at home. I would say that the parties themselves, as well as their in-house counsel, must carry a portion of the blame. Failure to exercise effective control over the conduct of a dispute inevitably leads to delay and additional costs. Parties should accept responsibility for the management and direction of external counsel by reviewing carefully the scope of work and enquiry they recommend and checking the level of discovery that is pursued. There are actions we can take that would significantly enhance the process, and through education and sharing of best practices through groups like the CCIAG, we hope we can improve.

External counsel are generally compensated by reference to the amount of work they do, so the more hours it takes to draft a submission or prepare for a hearing, or the more pages of drafting the pleadings take, the more money they make. While it is always possible to argue that no stone should be left unturned when preparing for a major case, there must be limits to the level of additional weight this attaches to the arguments made. The pressures external counsel can exert on the parties and on the arbitrators are not to be underestimated. This is where in-house counsel must take an active role and manage additional work when the costs outweigh the potential gain.

<em>Arbitrators</em> are busy people, especially at present. The temptation of taking on additional cases, particularly when it is not clear when (or whether) these will settle or progress, must be great. At the same time, the challenges involved in scheduling, where the diaries of three busy arbitrators are concerned, should not be underestimated. Would it not be better to take on half as many cases and manage them all more effectively?

There is also the risk of arbitrators following a standardized approach to every dispute. They sometimes appear to be providing off-the-shelf directions at the first procedural hearing, rather than tailoring their management of the case to the specific circumstances and facts of that case.

A standardized approach can also lead to a lack of focus and preparation. In some cases, arbitrators are not fully aware of the key arguments or the evidence in the early stages of the dispute, when their responses and directions could be crucial to the scope of subsequent work, and, more importantly, to the dispute progressing or settling.

<em>Arbitration institutions:</em> The arbitration process is stewarded by the institutions, particularly ICC which has chosen to take a much more active role than most. Any failure to steward the process or the arbitrators effectively will inevitably impact the conduct of an arbitration.

Lastly, the actions of certain <em>States</em>, either to reinterpret their existing obligations or, through their courts, to limit the application of arbitration or the scope of enforcement of interim or final awards, are also partly responsible for the current concerns.

It is worth noting that the consequences of their actions may go much further than changing the nature and effectiveness of this form of dispute resolution. In his book, Denial of Justice in International Law, 12 Jan Paulsson makes the point that if States deny the validity of their existing agreements, they also deny their ability to enter into future agreements. He goes on to ask: 'For what will happen if they destroy the authority of international law? What then does it matter if they are right about the policy?' If we recall the underlying rationale for international arbitration and remind ourselves that it is intended to facilitate international trade and commerce by supporting the sanctity of contracts, the focus for all parties involved in the process should be aligned. [Page48:]

What is needed is a process through which the parties can have reasonable certainty over the likely time and cost involved in prosecuting a dispute and, as far as possible, the likely outcome. Without such certainty, a party is far more likely to default when commercial circumstances or expediency dictate, taking a calculated risk that its contract counterparty will be unwilling to incur the cost and time involved in challenging it, or perhaps believing the chances of its being held liable and required to pay full compensation and costs are limited. An environment in which the defects in the dispute resolution process may be undermining the sanctity of contracts is clearly unhelpful.

A strong and respected system of international arbitration should actively discourage parties from breaching their contracts because they know that the arbitration tribunal will be efficient and effective in dealing with the breach and that the consequences of their actions will lead to the payment of damages and costs that fully compensate their contractual counterparty.

Potential solutions

At a recent panel discussion in which I was involved, the comment was made that 'the solutions are relatively obvious, but getting to them seems to be difficult'. Some of the potential solutions are a simple flip side of the concerns and are self-explanatory, but let me focus on a few points.

<em>Counsel: </em>Both in-house and external counsel should be aligned around managing the dispute in the best interests of the party, not looking for opportunities to prolong the dispute or to add 20 layers of extra complexity or several months of detailed discovery to search for the mythical 'smoking gun'.

Once appointed, it is the <em>arbitrators</em> who need to manage the case effectively. This can be achieved by their demonstrating (and being encouraged to demonstrate) more courage in the management of the case, by taking the issues on board early and working the file to see what process will enable them to assess the arguments of both sides, weigh the evidence and reach a fair and impartial decision. This requires robust case management, strong administrative skills, willingness to run an efficient proceeding and active engagement with the process, plus firmness in the handling of the parties and, more particularly, the more extreme requests of their outside counsel.

<em>Institutions</em> can do more to manage the process, whether through clarification of the rules, encouragement of acting arbitrators, greater diversification amongst their pools of arbitrators, or the prompt issuance of awards. They can also do more to improve the procedures and maintain focus on the users' needs, and again I applaud ICC's endeavours in this regard.

Also, <em>States</em> need to give more thought to the longer term benefits of an established and reliable system that implements the Rule of Law.

Specific proposals

One of the great features of international arbitration is the <em>flexibility</em> available to a tribunal when shaping the structure and conduct of the proceedings. In my view, this flexibility is not being used as often as it should to tailor the proceedings to the circumstances of the particular dispute. That may suit the panel, the external counsel and the institutions, but it does not suit the users whose needs are thereby supposed to be served. ICC's own publication on Techniques for Controlling Time and Costs in Arbitration has many excellent suggestions, but why has it not been made a part of [Page49:] the Rules of Arbitration, or at least issued in the form of best practice guidance that arbitrators can propose to adopt unless the parties agree otherwise?

A helpful change could be to look for ways of <em>identifying issues early</em> and to address them with partial awards. Clarity from the arbitral tribunal early in the process can make a significant difference to the subsequent conduct of the case, as well as limiting the scope of the dispute between the parties. Disputes multiply in complexity the longer they continue-perhaps because it suits one party to cloud the issues-but any continuation adds to the work and analysis required. An early partial award on the main issue in dispute would go a long way towards bridging the commercial differences between the parties and permit a settlement to be explored. Particularly in business-to-business arbitrations, the arbitrators should be authorized and encouraged to identify legal and factual issues early, in order to narrow and focus matters, and, where possible, to follow a process to dispose of them early on.

Where circumstances permit, such as when a respondent makes an inadequate defence or fails to appear, arbitrators should be more ready to adopt court mechanisms to deal with the claim swiftly. <em>Summary dismissal</em> of claims or defences are widely used in court but rarely heard of in international arbitration.

Another tool that should be considered is <em>awards on costs</em>. These take much more account of the conduct of the parties and their attorneys and, if used properly, would focus the parties' minds on the time and cost they are incurring at each stage. Applications that are designed to stall progress, or contain unmeritorious or frivolous points, should be easy for arbitrators to identify and the time and cost incurred by the arbitrators and the parties in processing these should be for the account of the party making such an application.

<em>Confidentiality:</em> I think it is time for ICC to clarify its position on this, so that the parties can be comfortable in the knowledge that evidence, arguments and awards in business-to-business arbitrations will be held confidential by all involved.

As regards <em>discovery</em>, users' views should be heeded. At present, the overwhelming majority of CCIAG members are concerned about the growth in this area and would prefer discovery, and in particular e-discovery, to be very limited in scope.

Lastly, it is important to promote the <em>enforcement of awards</em> as much as possible. The recently published report of the Commission on Arbitration on national rules of procedure for recognition and enforcement of New York Convention awards will help greatly towards this end. 13

Your role

International arbitration has become an industry in its own right and there has been an interesting series of articles about who 'owns' it. You would not be surprised when I say that, as the users pay for an agreed form of private dispute resolution and their payments largely fund the industry, it is reasonable for them to expect a service that meets their needs. The parties and their in-house counsel will do what they can, but the answers to the concerns that are being expressed need to come from various sources, and that is where you come in. Due to the diversity of its membership and its multinational nature, [Page50:] ICC is perfectly placed to consider the current shortcomings and lead the way to their resolution.

While I thank you for having given me the opportunity to express my own views today, I would encourage you to consult with your members-especially those who represent the users of international arbitration-and draw on the collective experience and expertise of all concerned to deepen your understanding of the process and find constructive solutions to the issues that have been identified.

As I said at the beginning, you all have multiple roles and varying levels of involvement in international arbitration. That also gives you multiple opportunities to bring your own influence to bear. It would serve both the users and all of those involved in this industry if the reputation of international arbitration could be raised so that it becomes truly fit for its intended purpose.

1
Promotion and Protection of All Human Rights, Civil, Political, Economic, Social and Cultural Rights, including the Right to Development. Protect, Respect and Remedy: a Framework for Business and Human Rights. Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises. Human Rights Council, A/HRC/8/5, at 5 <http://198.170.85.29/Ruggie-report-7-Apr-2008.pdf>.

2
<http://www.justice.org/cps/rde/xchg/justice/hs.xsl/3043.htm>

3
(2008) 74:1 Arbitration: The International Journal of Arbitration, Mediation and Dispute Management 3.

4
(2008) 11:2 International Arbitration Law Review 84.

5
(2008) 24:3 Arbitration International 375.

6
L.W. Newman & R.D. Hill, eds., The Leading Arbitrators' Guide to International Arbitration, 2d ed. (Juris, 2008) 81.

7
Supra note 3 at 4.

8
Supra note 3 at 7.

9
Available at <http://www.adr.org/icdr>.

10
Available at <http://www.ciarb.org/information-and-resources/practice-guidelines-and-protocols/list-of-guidelines-and-protocols/>.

11
Available at <http://www.cpradr.org/ClausesRules/CPRProtocolonDisclosure/ tabid/393/Default.aspx>.

12
J. Paulsson, Denial of Justice in International Law (Cambridge University Press, 2005) at 264.

13
Guide to National Rules of Procedure for Recognition and Enforcement of New York Convention Awards, ICC ICArb. Bull., 2008 Special Supplement (ICC, 2009), available from <www.iccbooks.com> and in the online ICC Dispute Resolution Library at <www.iccdrl.com>.