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Commercial Question

Emerging ADR

updated on 26 June 2012

Question

Why are some countries developing new dispute resolution forums for commercial litigation?

Answer

There has been a notable recent increase in international disputes. Although arbitration continues to be the most widely used procedure to settle disagreements between international litigants outside the court system, certain regions (eg, Asia and South America) have developed other alternative dispute resolution (ADR) methods such as 'arb-med' and dispute boards to respond to particular problems and to offer alternatives to those traditionally found in Europe and North America. These alternatives to court proceedings carry efficiency and costs benefits, especially in parts of the world where there may be concern that the local court infrastructure is not well equipped to resolve high-value, complex commercial disputes expediently and impartially.

In South America, Venezuela and Brazil have emerged as the leading centres for commercial arbitration for the region. The particular needs of the Brazilian commercial market have also resulted in dispute boards growing in prominence. The use of dispute boards is expected to extend outside Brazil's borders due to the costs savings they offer.

In Asia, recent developments in the rules governing dispute resolution in China and Hong Kong recognise the increasingly international nature of commercial disputes in the region, and reflect their increasing sophistication as dispute resolution centres. India too has begun to offer alternatives for those seeking more expeditious solutions than were possible under existing arbitral systems.

Venezuela

A recent decision of the Venezuelan courts has broadened the country's appeal as an international dispute resolution centre. On 3 November 2010 the Constitutional Chamber of the Supreme Tribunal of Justice upheld a decision of the Political Administrative Chamber rejecting an appeal in the case of Astivenca v Oceanlink. Astivenca had sought to avoid the effect of an arbitration agreement between the parties on the grounds that Oceanlink had submitted to the jurisdiction of the Venezuelan courts in a hearing for interim measures for the protection for Astivenca. Astivenca alleged that Oceanlink had failed to challenge the jurisdiction of the Venezuelan courts at this hearing.

The Constitutional Chamber made it clear that the role of local courts in commercial arbitration is to assist arbitration proceedings, not interfere. It upheld the validity of the arbitration agreement between the parties and rejected Astivenca's attempt to avoid arbitration by using the local courts. This decision has been taken as a positive sign of Venezuela's commitment to upholding the parties' choice of arbitration to resolve their disputes.

Arbitration centres in Caracas have seen a marked increase in business and local lawyers report rapidly growing interest in arbitration. With the backing of the local courts and the accumulation of experience by lawyers and arbitrators, arbitration is gaining real momentum in Venezuela.

Brazil

Statistics from the International Chamber of Commerce (ICC) indicate that Brazil is ranked the first in Latin America and fourth in the world in the number of parties submitting their disputes to ICC arbitration. Since the enactment of the Brazilian Arbitration Act in 1996 which improved legal certainty and enforceability of arbitral awards, Brazil's dominance as the main centre for international arbitration in Latin America has continued to grow. On top of that, the significant expansion of the construction industry in Brazil has resulted in the use of dispute boards taking off.

The 2014 World Cup and 2016 Olympic Games are both being held in Brazil and many of the disputes involving projects related to those events have been referred to dispute resolution boards to allow problems to be resolved while maintaining the performance of the project, rather than causing delay or even termination of the building works as a result of litigation. The use of these boards has brought about significant savings for the construction industry in Brazil and helped companies to tender at competitive prices. However, dispute boards in Brazil have not been unique to the construction sector: they have also led to positive results in other areas such as supply contracts, public-private partnerships and shareholders' agreements.

China

The most notable development in China is the 2012 amendment of the China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules, which came into effect on 1 May 2012. The stated intentions behind the amendments were to take account of recent revisions to other international arbitration rules and, more specifically, to attract more non-Chinese users by respecting arbitration agreements and by enhancing procedural flexibility.

Changes include the following:

  • CIETAC may now designate the language for the arbitration in the absence of party agreement (previously this was automatically Mandarin) which will allow the most suitable language to be selected and will widen the scope for non-Chinese arbitrators to sit on CIETAC arbitrations.
  • Where the parties have not agreed or cannot agree the seat of the arbitration, CIETAC can now choose the seat most suitable to the dispute (including outside China).
  • CIETAC tribunals are now empowered to order any interim measures they deem necessary in accordance with the law of the seat.
  • CIETAC may now consolidate CIETAC arbitrations, but only if all parties consent. There is, however, still no provision for the joining of parties.

Although arb-med is rarely used in common law jurisdictions, it successfully resolves 20-30% of CIETAC arbitrations every year. The new CIETAC rules therefore preserve arb-med while seeking to address concerns relating to the procedure: they clarify that parties may choose to mediate without involving the arbitral tribunal and may seek assistance from CIETAC for mediation (although it is not clear what form such assistance might take).

Hong Kong

Hong Kong's new Arbitration Ordinance 2011 abolished the previous dual regime under which there was greater scope for intervention from local courts in "domestic", as opposed to "international" arbitrations. Some aspects have been preserved, however, in allowing parties (mostly from the construction industry) to opt in to parts of the previous regime in relation to domestic arbitrations that permitted intervention from the courts in specified circumstances. In abolishing the distinction between domestic and international arbitrations, it is clear that Hong Kong is giving primacy to arbitration by providing a unified regime based on the UNCITRAL Model Law.

In response to concerns regarding the arb-med process, the 2011 ordinance also clarified that an arbitrator may serve as a mediator in the same dispute provided that all parties consent in writing.

Alongside the 2011 ordinance, the 2012 Mediation Bill is designed to cement and promote Hong Kong's position as a leading centre for international dispute resolution.

India

A large proportion of commercial disputes in India are already settled by arbitration as it is the most efficient means of dealing with claims due to the long backlog in the courts. Although not currently widely used as a centre for international arbitration, it is envisaged that more arbitrations will shift from European seats to emerging centres like India in the coming years, particularly for parties based locally.

With this in mind, in 2009 the London Court of International Arbitration (LCIA) launched its first independent subsidiary outside of London, establishing LCIA India. The LCIA India Rules are similar to LCIA rules, but incorporate particular nuances common to regional arbitration practice and provisions aimed at expediting arbitration proceedings as far as possible. They are helping to develop arbitration as a progressive form of dispute resolution in India.

Conclusion

Economic success and the growth in international trade in China, India, South America and other parts of the world will continue to be mirrored by the growth and increased sophistication in international dispute resolution centres, rules and techniques with particular methods, such as dispute boards in Brazil, being moulded to suit local commercial requirements. Attitudes towards international dispute resolution have also shifted and the landscape has changed significantly in recent years. In 10 years' time it is likely to be unrecognisable compared to the traditional systems to which lawyers and their clients had become accustomed.

Neil Jamieson (partner), Stephen Moi (associate) and Jason Cherot (associate) are in the professional and commercial disputes team at Clyde & Co.