International Arbitration 2022

Global Overview – International Arbitration 2022

In 2022, the international arbitration landscape is dominated by two global crises: the COVID-19 pandemic and the war in Ukraine. In addition to these two crises, inflation is at a multi-decade high in several economies, including the United States, Eurozone and the United Kingdom. High inflation combined with low growth in many leading economies has put many businesses under severe pressure. This is leading to a proliferation of disputes across a wide range of sectors as businesses seek to recoup some of their pandemic losses through arbitration. Against this backdrop, it is unsurprising that most leading arbitral institutions reported a record – or close-to-record – caseload over the past year.

The Impact of COVID-19

It has now been over two years since the World Health Organization declared the COVID-19 virus outbreak a pandemic. A widespread vaccination drive has pushed many economies into a “post-pandemic” world. It seems clear that COVID-19 has generated a series of social, economic and cultural effects that will have a lasting impact on daily life. It has also transformed the arbitration landscape.

On a procedural front, some measures of remote working, filings, hearings and conferences are likely to remain for good. Each of these are measures that the arbitration community almost seamlessly transitioned to within the early months of the pandemic. Indeed, it is a testament to versatility that practitioners and arbitrators alike were able to rapidly evolve from expressing concerns over the efficacy of remote proceedings, to fully embracing it, now suggesting a more permanent shift towards remote proceedings in a post-pandemic world.

In the shorter term, the pandemic has given rise to, and will continue to give rise to, new disputes as a result of the massive business disruption across a wide range of sectors. The emergency measures that governments across the globe put in place in response to the pandemic are also likely to generate a number of investor-state disputes. For instance, a French consortium owning an airport concession has started an ICSID claim against Chile to recover losses suffered as a consequence of measures taken in response to the COVID-19 pandemic.

Russian Invasion of Ukraine

As the world began to emerge from the pandemic, the Russian invasion of Ukraine on 24 February 2022 triggered another large-scale humanitarian crisis. The ongoing war in Ukraine has caused a massive upheaval to people’s lives and to businesses across the globe. The economic and financial sanctions imposed against Russia combined with the worldwide supply chain crisis will transform the way the global economy operates.

Russia is among the top five producers of oil, natural gas, steel, nickel and aluminium, as well as being the largest exporter of wheat in the world. The sanctions against Russia, therefore, have pushed global commodity prices up and intensified the threat of long-lasting inflation. 

The immediate effect of Russia’s invasion of Ukraine on the arbitration landscape is a decline in the number of Russia-related arbitrations. The LCIA has already reported a sharp decrease in Russian-related cases. It is, however, still too early to predict the longer-term impact of the war in Ukraine. It seems likely that the wider global disruption, supply-chain crisis and market volatility caused by the increase in commodities prices will lead to a proliferation of disputes across a wide range of sectors. The banking and finance, energy and resources, and transport and commodities sectors are the most likely to be affected.

Revisions to Arbitral Rules

In the realm of commercial arbitration, several institutions concluded the revision of their arbitration rules in 2022. New rules that came into force in 2022 include the DIAC Arbitration Rules 2022, which included changes to articles dealing with multiple contracts and consolidation of claims, joinders, third-party funding and costs. The new rules also introduce expedited procedure rules and make provision for the appointment of an emergency arbitrator. In this way, the new rules modernise the DIAC arbitral procedure and go beyond the DIAC to other major arbitration centres such as the ICC and LCIA.

P.R.I.M.E. Finance, a specialised Hague-based arbitral institution for banking and financial disputes, announced the end of a public consultation on its P.R.I.M.E. Finance Arbitration Rules in 2021. The final version of those rules came into force on 1 January 2022. The rules include changes to the default number of arbitrators, a simplified procedure for the appointment of a tribunal as well as an early determination process and detailed provisions on joinders and consolidation. The new rules also expressly introduce the possibility of holding virtual hearings and procedural meetings and make it clear that physical presence is not necessarily required.

In the realm of investor-state arbitration, the 2022 ICSID Rules and Regulations came into force on 1 July 2022. The changes introduced by the rules include new expedited arbitration rules, which are intended to dramatically reduce case times. The 2022 ICSID Rules also contain a new provision on third-party funding that obligates parties to disclose the name and address of any non-party funding their participation in the proceeding, and confirms the power of a tribunal to order security for costs. The 2022 ICSID Rules also contain several provisions that are intended to increase the level of transparency of proceedings. This includes a provision that both parties are deemed to consent to the publication of a decision, unless an objection is raised. 

Caseload of Arbitral Institutions

Arbitration continues to remain a preferred method of dispute resolution for many international businesses in this period of great uncertainty. A number of arbitral institutions recorded high numbers of new case filings. SIAC recorded 469 new case filings, with a total sum in dispute of USD6.54 billion. Other institutions also recorded sizeable numbers with 387 new cases for the LCIA, 483 for HKIAC, and 853 for the ICC. Each of these institutions also continues to dominate the 2021 Queen Mary University of London and White & Case International Arbitration Survey, a recurring feature of the arbitration landscape that the industry has now grown used to seeing as a periodic barometer of its progress. In this year’s roundup, the most preferred arbitral institution was the ICC, followed by the SIAC, HKIAC and LCIA. For the first time, the coveted spot of the most preferred arbitral seat was jointly awarded to London and Singapore, with Hong Kong and Paris following suit. The survey reflects the growing prominence of arbitral seats in Asia.

The Development of Arbitral Jurisprudence

National apex courts delivered several judgments that had a meaningful impact on the development of arbitral jurisprudence. Perhaps the most prominent of these that captivated the attention of the arbitration community were rendered by the US Supreme Court.

ZF Automotive US, Inc v Luxshare, Ltd (United States)

In June 2022, the US Supreme Court restricted the scope of discovery available in international arbitration. The Supreme Court unanimously ruled that US discovery cannot be ordered under 28 USC Section 1782 in aid of international commercial arbitration and investor-state arbitration. This is a seminal decision for the global arbitration

community. Prior to this decision, there was a circuit split over whether such discovery was allowed, which foreign parties frequently exploited to seek discovery in support of arbitral proceedings. The decision confirms that foreign parties and arbitral tribunals cannot rely any longer on 28 USC Section 1782 to seek discovery in support of foreign arbitrations, thereby restricting the information available in global arbitration disputes. 

Morgan v Sundance (United States)

The US Supreme Court in Morgan v Sundance addressed the important question of the standard for determining whether a party has waived its right to arbitrate a dispute by first engaging in litigation. Overruling decisions in nine circuits, the Supreme Court unanimously held that there is no requirement for an adverse party to show that it suffered prejudice as a result of the litigation proceedings for a waiver of a right to arbitrate to arise. The decision is important, and may have wider ramifications, because the Supreme Court reasoned that arbitration-specific procedural rules – such as a prejudice requirement – are incompatible with the Federal Arbitration Act (FAA), even when those rules purport to support the pro-arbitration policies underlying the FAA.

Kabab-Ji SAL v Kout Food Group (England and Wales)

In Kabab-Ji the UK Supreme Court refused to enforce an ICC arbitral award issued against a non-signatory party. The central issue for the Supreme Court to determine was the law applicable to the arbitration agreement. This vexed question of how to determine the law applicable to an arbitration agreement was previously addressed – in significant detail – in the Supreme Court’s October 2020 decision in Enka v Chubb. The Supreme Court confirmed that the principles identified in Enka also apply in the context of the enforcement of an award rendered under the New York Convention. The decision is of seminal importance. It confirms that under English law where the law applicable to the arbitration agreement is not specified: (i) a choice of governing law for the contract will generally apply to an arbitration agreement in the contract; and (ii) the choice of a different country as the seat of the arbitration does not on its own negate that inference.

Remote Hearings and the Right to Physical Hearings

The ICCA, in collaboration with practitioners Giacomo Rojas Elgueta, James Hosking, and Yasmine Lahlou, launched the research project titled “Does a Right to a Physical Hearing Exist in International Arbitration?” on 4 September 2020. The project consists of 77 national reports of countries that are party to the New York Convention. The conclusion was unanimous: there is no explicit right to a physical hearing in any of the surveyed jurisdictions. It may, however, be possible to infer such a right under Ecuadorian law on the basis of principles of civil procedure law and constitutional guarantees. In other jurisdictions, like Benin, Norway and Tunisia, the possibility of such an inferred right remains uncertain.

"Green Arbitration" Initiatives

Given the well-documented carbon footprint that international arbitration carries, the past year has seen a remarkable and positive increase in support for “green arbitration” initiatives. This movement has no doubt been propelled by the realisation due to the COVID-19 pandemic that arbitration can (in most cases) be successfully managed virtually, whether by remote hearings, filings or conferences. While the 2021 Queen Mary Survey suggests that the environment is not a crucial reason for parties opting for remote hearings, it will be interesting to see whether that rationale gains more ground as conversations around environmental preservation continue to gather steam.