The School of International Arbitration and the Singapore International Arbitration Centre (SIAC) are jointly hosting a seminar on “Contemporary Challenges in International Arbitration”, on Thursday, 27 Sep 2012, 4 pm at the Centre for Commercial Law Studies, Queen Mary, University of London.

Former Attorney-General of Singapore and the Honourable Judge of Appeal Justice Sundaresh Menon and Chief Justice Designate (“Justice Sundaresh Menon“) will be further exploring some of the issues he had raised in his Keynote Address at the 2012 ICCA Conference held in Singapore earlier this year.

At the 2012 ICCA Conference, Justice Sudaresh Menon’s observed that whilst arbitration was previously “vaunted for being faster, cheaper, less formal and more efficient than the more cumbersome court process“, It has now somehow evolved into “a highly sophisticated, procedurally complex and exhaustive process dominated by its own domain experts“. By virtue of the finality of the arbitration process, arbitration has become “a one-strike proposition“.

This has led to a number of negative results in the context of international commercial arbitration.

Runaway Costs

First, the problem of runaway costs. Justice Sundaresh Menon cautioned against out the escalation of costs as parties “inevitably chase the best arbitrators and the best lawyers to give themselves the best chance of winning the case“. He noted that in large and complex arbitrations, legal fees and disbursements can go up to between S$20 to 40 million.

Part of this can be attributed to the caution of arbitrators who are mindful of the need to hear parties (natural justice) and the finality of their awards. As a result, tribunals do “endure protected submissions and responses to submissions on every conceivable point” which adds to the length and costs of proceedings.

The increase in costs can also be attributed to the fact that arbitration resolves high value international disputes and in the process “has also become an increasingly complex and formal process burdened by formidable costs“.

Moral Hazard

Second is the issue of moral hazard. Justice Sundaresh Menon raised the “somewhat uncharitable” characterisation of arbitration as “a profit-making venture” with arbitrators as “business people” seeking “to promote one’s attractiveness as a prospective appointee“. In this respect, he highlighted the “particularly troubling statistic” that practically all dissenting opinions in arbitration have been written by the losing party’s nominated arbitrator.

Similarly, he noted the cases where a nominated arbitrator had blatantly leaked confidential arbitral deliberations to his nominating party and where nominated arbitrators explained “controversial inexplicable rulings” on the basis of “undue pressure that had been exerted by the nominating party“.

Critically, he pointed out that the differences in arbitration and litigation meant that “typical conditions that assure impartiality in the judicial sphere are lacking in arbitration” and in particular that arbitrators are drawn from the same pool of legal professionals whereas judges are segregated from that pool. Forum shopping in the form of parties actively seeking out arbitrators who might be pre-disposed to decide in their favour was also an issue. In his opinion, disclosure requirements of conflict of interests run into the problem of such disclosures being against the self-interest of an arbitrator in being appointed.

Justice Sundaresh Menon’s suggestion was to make a transition from an unregulated industry into a self-regulated one, with a unified code of conduct to guide arbitrators and counsel and to ensure that practitioners are up to acceptable standards.

Next, in order to enhance arbitral accountability, confidentiality of arbitration proceedings cannot be used as a shield against misconduct of counsel or arbitrator in the proceedings. The further suggestion made was to create an open-access database of information about arbitrators and their decisions under the auspices of a respected international body. This would create “a repository of useful and independently audited information on an arbitrator’s past cases, reasoned decisions…the instances where the arbitrator ruled or dissented in favour of his appointing party, as well as complaints and feedback from parties“.

Further details of the seminar can be found here. Our colleagues will be attending and we hope to see our readers there.