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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
I should perhaps start this article by indicating that my views are based primarily on my experience as an arbitrator and on my various functions in arbitration institutions at present and in the past.
Both in commercial and investment arbitration, the principle choice is between institutional and ad hoc arbitration. In fact, both of these choices are frequently found in practice.
Commercial contracts, in their arbitration clauses, mostly express a choice for just one of these two options. In practice, a large majority appears to prefer institutional arbitration. In contrast, investment contracts between states and foreign investors, as well as Bilateral Investment Treaties (BITs), often provide for a choice of several kinds of arbitration: institutional arbitration (under the rules of various arbitral institutions) or ad hoc arbitration (usually with a reference to the UNCITRAL Arbitration Rules).
The simple choice for ad hoc arbitration, which is sometimes found in domestic contracts, seems to be very rare in international contracts and state treaties. There are obvious reasons for this. Domestic arbitration clauses can rely on the domestic arbitration law of a particular state as a framework for the arbitral process, and the parties will mostly be ready to go along with this. On the other hand, there is no such generally accepted and applicable framework for international arbitrations. The New York Convention only deals with the recognition and enforcement of awards, and parties from different national backgrounds will most often try to avoid the unwarranted interference of the national courts at the seat of arbitration.
Therefore, if for some reason the parties cannot agree on an arbitral institution, the compromise is often to select the UNCITRAL Rules, since they provide for ad hoc arbitration but also offer a framework for the procedure. In particular, they provide a default procedure, in case a party does not appoint an arbitrator or an arbitrator is challenged, by authorizing an appointing authority selected by the parties or otherwise the Permanent Court of Arbitration (PCA) in The Hague to take decisions in this regard if the parties do not cooperate or cannot agree.
This shows that, unless the parties are ready to accept the default provisions of the domestic law at the seat of arbitration, which will normally authorize the domestic courts, they have to select institutional arbitration or at least the UNCITRAL Rules, including the latter's appointing authority.
But which institution should the parties select? Here, I will not enter into a subjective discussion about which arbitral institution is "the best", one reason being that there is no general answer.
which
First of all, it is possible to distinguish between institutions that are well-suited for international arbitration procedures and others that are not. Even if one ignores the many institutions that have been founded with ambitious claims but are never chosen in practice, distinctions can be made among the well-known arbitral institutions. Over many years in the field, I have gathered experience as an arbitrator in most of these institutions and, without mentioning names, there are certainly some that did not seem to be well-suited for or efficient in conducting international arbitral procedures. To some extent, this negative experience was due to the staff of those institutions not being sufficiently trained or at least not sufficiently familiar with the specifics of international arbitration, as well as to organizational deficiencies such as limited lists of arbitrators or specific rules and formalities not suited for the practical demands of international arbitral procedures.
On the other hand, international institutions such as ICC, the LCIA, the PCA and ICSID, as well as national institutions involved in international arbitration, such as the German Institution of Arbitration (DIS), the Stockholm Chamber of Commerce (SCC), the Swiss Chambers' Arbitration Institution and the Vienna International Arbitral Centre (VIAC), have in my experience over many years displayed efficiency in the cases referred to them.
Among these recommended arbitral institutions, the choice must depend on the objective criteria that are most relevant to the parties. In this context, it should be noted, first and foremost, that the rules of these institutions are rather similar, since they have all been modernized and adapted to reflect the development of international arbitral practice.
However, there remain some important differences, particularly regarding the degree of involvement of the institution in its own arbitral procedure.
The greatest regulatory involvement is probably found in the ICC Rules, including their latest version adopted in 2012. They provide for the involvement of the ICC Court at the beginning of the procedure (in relation to the terms of reference) and at the end of the procedure (in the scrutiny of the draft award). However, the ICC Secretariat, though informed of the progress of the procedure, will usually not get involved in the management of the case or the communications between the parties and the tribunal.
In contrast, in ICSID cases, the secretariat forms the continuous channel of communication between the parties and the tribunal. Moreover, the ICSID Convention provides for an annulment procedure after an award is issued.
Since its more recent development into a leading arbitral institution, operating mostly under the UNCITRAL Rules that grant wide discretion to the arbitral tribunal, the PCA is often chosen to assist the tribunal in the administration of particularly large and complex cases. Similarly, the LCIA and the national arbitral institutions that are also regularly chosen for international disputes probably provide the widest discretion to the parties and the tribunal in terms of case management and their ability to shape each procedure to the particularities of the case.
Of course, the different methods and scales for the remuneration of the arbitrators may also be considered relevant and may also have an impact depending on the particularities of the case. Here, the major distinction is between remuneration relying on the amount in dispute and remuneration based on an hourly rate. Views on this can be a matter of subjective judgment and personal background. However, it may also make a significant practical difference depending on the case, the amount in dispute and the volume of work and time required from the arbitrators.
In the context of continuing complaints about arbitration becoming too expensive, it is worth noting-as statistics show and as confirmed at the 2011 IFCAI Conference in Berlin-that in general more than 90% of arbitration costs are incurred by the parties themselves for counsel, witnesses and experts, their battles over documents and so forth. The influence of the arbitral institutions over these costs is rather limited. Any changes regarding the very small percentage going to the administrative charge of the institution and the fees of the arbitrators will therefore have a relatively small impact on the general level of arbitration costs. Moreover, even if the institution or the arbitrators could exercise some influence to reduce the parties' general arbitration costs, any effort to introduce a slimmer procedure would soon run up against the limit of the parties' understandable desire and their and their counsel's due process right to fully present their case as they consider necessary.
In view of all these criteria and options, one obviously cannot say that one of the institutions available for the efficient administration of cases is better than any other. It is up to the parties to decide which of the above-mentioned distinctions are most relevant to them with regard to a particular contract, arbitration clause or case.
In this section, I will briefly consider some key factors that, based on my many years of experience with arbitral institutions, appear to be most conducive to a successful and efficient interaction between the institution, the parties and the tribunal.
Only after experiencing on several occasions what kind of difficulties can arise if the tribunal is faced with incompetent staff did I realize how much the swift and efficient management of a procedure can be jeopardized in such situations. Obviously, the greater the involvement of the institution in the conduct of the procedure, the more this applies. However, much can also go wrong at the start or end of the procedure, for example in the management and control of arbitration costs and timely deposits. In this context, particular problems include the staff not being sufficiently qualified or at least not sufficiently familiar with the particular demands of international as opposed to domestic arbitration.
Quite often, staff who are not sufficiently familiar with the particularities of international arbitration will stick to particular routines and formalities that they have seen before and will not understand or be willing to use the discretion allowed by the rules of the institution in order to shape the procedure. One of the great advantages of arbitration over litigation is lost, namely the ability to adapt the individual procedure to deal with the specific demands of the case in the most efficient way possible.
While the rules of each arbitral institution obviously provide a framework for the role of the institution, the parties and the arbitrators in the conduct of the procedure, in practice it would sometimes be easier and cause fewer complications and delays if an informal prior exchange could take place regarding the interpretation of certain provisions in the rules and/or their practical application in similar earlier cases. Once again, however, such an informal interaction can only be successful if there are experienced participants on both sides of the exchange. In addition, mandatory transparency would have to be maintained so as not to give one party an advantage over the other.
While respecting the rules of every arbitral institution, I would suggest that both the institution and the arbitrators should make an effort to obtain prior comments from the parties before major procedural decisions are taken and issued. An example of this from the institutional side is that the ICC Court regularly informs the parties in advance that it intends to raise the deposit for arbitration costs before the decision is issued. From a tribunal's perspective, it will often be wise to send a draft of an initial procedural ruling on the further procedure or a procedural order deciding the details of an upcoming hearing to the parties (and perhaps also to the institution) asking for comments, in order to make sure that no essential element or particularity of the case is overlooked.
Finally, I wish to make a rather subjective recommendation, namely that all those involved in the interaction between the institution, the parties and the tribunal should suppress their egos as much as possible. I have often seen in disputes that communication and potential agreements were hindered, delayed or even prevented because some participants considered it a personal offence that their views were not accepted. Sometimes, arbitrators with great reputations and experience, or who hold very high positions in their field of work outside of arbitration, regard it as a lack of "respect" if other participants in the exchange take a different view from their own. Sometimes, barristers or other high-level counsel for a party seem unable to accept that the procedure proceeds in a manner to which they are not accustomed. Sometimes, representatives of arbitral institutions seem to be offended and unable to accept that a particular procedural decision does not follow "what has always been done".
My suggestion to all those involved in this type of interaction, regardless of one's level of experience, is to listen, keep an open mind and be ready for compromise if it is conducive to the smooth conduct of the procedure within the applicable rules.
In conclusion, my response to the question in the title of this article is as follows.
First, institutions do indeed add value to the arbitral process.
Second, for most disputes in international arbitration, the involvement of an institution or at least an appointing authority under the UNCITRAL Rules is highly recommended in order to avoid unwarranted interference by national courts.
Third, the choice of institution depends on the relative importance the parties attach to the various and varying qualities of the arbitral institutions with regard to the case at hand.
Finally, in the interaction between the institution, the parties, and the arbitrators, certain essential factors should be taken into account in order to achieve the most efficient procedure possible.