Rise of International Arbitration – wither the Common Law?

Arjun Dwesar

The author expresses his thanks to Chew Hui-Yan for her invaluable advice during the drafting of this article. All errors and omissions are the author’s.

“It is universally recognised that judicial development of the common law is inevitable,” so declared Lord Goff.1 However, with the rise of international arbitration and other forms of alternative dispute resolution (ADR), there is a fear that Lord Goff’s pronouncement might no longer prove to be true as complex commercial disputes bypass the courts altogether. This article introduces the concept of international arbitration and why it is increasingly the dispute resolution method of choice. It subsequently proceeds to show the impact this may have on the growth of the common law. Finally, it concludes by briefly accessing what can be done to ensure the continued development of the law. Due to editorial constraints, this short article is meant to trigger further discussion on a topic that might directly affect the teaching, learning and practice of the law in the long run.

A Snapshot of International Arbitration

International Arbitration sits within a range of alternative dispute resolution (ADR) options which commercial parties can pursue to settle their disputes. Other ADR methods include, inter alia, negotiation, mediation, conciliation, adjudication and expert determination.2 The number of parties using arbitration as a means of dispute resolution has grown exponentially over the years. For example, the Singapore International Arbitration Centre (SIAC) heard 90 new cases in 2007. A decade later in 2017, this number had ballooned to 343.3

Commercially, there are several reasons that make international arbitration more appealing than litigation through national courts. Firstly, arbitration proceedings are neutral in the sense that parties must mutually agree to the seat of arbitration and identity of arbitrator(s). Secondly, because of a system of international treaties, arbitral awards are easier to enforce across borders than judicial judgements, where complex rules of private international law often apply. Finally, a big attraction of international arbitration is that proceedings and awards are largely confidential, allowing parties to avoid public controversy while safeguarding sensitive commercial information.4

In England, Wales and Northern Ireland, the Arbitration Act 1996 sets out the rules and framework for international arbitration applicable within the 3 jurisdictions.

Arbitration’s Impact on the Common Law

A hallmark of the English legal system is the practice of binding judicial precedent, or stare decisis (also referred to as the ‘common law’). This system is in use in many jurisdictions of former colonies of the British Empire as well. The common law system of judicial precedent started to fully develop and stamp its authority within the English legal system following the introduction of printed law reports in the 19th century. Prior to this, recordkeeping of judicial decision making was inconsistent and disorderly.5 Its ability to evolve and adapt in line with legal and commercial developments has been touted by Lord Lloyd in Invercargill City Council v Hamlin as one of the common law’s core strengths.6

How has arbitration impacted the development of the common law? Section 69 of the Arbitration Act 1996 replaced several categories in common law which allowed for more references to the courts for appeals on points of law.7 The driving force behind the reform was best articulated by Lord Denning MR in The Nema (No.2).8 Lord Denning argued that the courts should largely exercise deference to arbitrators because parties have mutually agreed to settle their dispute through an arbitrator, and should thus not face excessive interference from the courts.9 Beyond this, the Master of the Rolls had in mind practical considerations – an arbitrator was best placed to carefully weigh the commercial considerations in the particular circumstances of the dispute before her.10 However, if an ever increasing amount of parties abandon the courts and instead settle their disputes under the cloak of privacy that international arbitration affords, there is a growing fear this may well result in a reduction of complex cases for the courts to consider, thus affecting the development of the common law in the long run.

The impact arbitration and other ADR mechanisms might have on the common law has alarmed not just academics, but also senior members of the judicature. Former Lord Chief Justice of England and Wales Lord Thomas has expressed alarm that the rise of arbitration “reduces the potential for the courts to develop and explain the law…transforming the common law into… an ossuary”.11 Singapore’s Chief Justice Sundaresh Menon articulated similar concerns in a recent speech opening the 2019 Singapore Legal Year.12 Indeed, in the interests of expediency parties often agree to direct their arbitrator(s) to dispense with giving reasons altogether when deciding their dispute.13 Under section 69(1) of the Arbitration Act, doing this automatically excludes the right to appeal to the courts on points of law. It is thus no surprise that the number of section 69 references to the English courts to clarify points of law have dropped from 300 in 1979 to an average of 50 a year in the first decade of this century.14 That figure is especially stark given the exponential increase in arbitration proceedings over the same period.

Evolution of the Courts

Will the common law’s development one day be stalled by the predominance of international arbitration and other ADR, and must it be stopped? Perhaps such a claim is hyperbolic. Some have argued that in the realm of dispute settlement, party autonomy is key. Parties must be free to choose their own dispute resolution mechanism, even if the development of the common law will not be the primary concern for commercial parties.15 Furthermore, intervention in the arbitration market in England, it is argued, will only serve to undermine London’s status as a hub of international arbitration.

McLachlin CJ writing extrajudicially has reasoned that one of the reasons parties often have little choice but to pursue arbitration and other ADR mechanisms is due to the rising complexity of cases. Some disputes, for example in the construction industry, might require technical knowledge, expert evidence which some courts, with their cumbersome procedures, are just incapable of handling expeditiously.16 To that end, Lord Thomas has suggested the creation of specialist courts for various sectors of the economy that have the latitude to adapt their own procedure and rules to the relevant industry. In these courts, judges are expected to develop deep, specialist expertise in their particular industry while constantly keeping up to date within industry to hone commercial acumen and nous.17 However, one might argue that England already has several specialist courts, for example, Technology and Construction Court which constantly deals with disputes in a particular commercial sector.

The more innovative suggestion is for the broadening of the Financial Market Test Case Scheme (FMTCS), which is currently serving the law of financial markets, to other sectors and industries. When a commercial actor in the financial markets faces some uncertainty in the course of their business due to an ambiguity in the law, she can approach the court for declaratory judgement to assist with clarifying the legal ambiguity. The court then proceeds to hear the various arguments from stakeholders, before eventually reaching a conclusion on the point of law.18 Of course, such an arrangement would change the nature of court proceedings, as parties do not litigate. However, the expansion of the FMTCS can only be beneficial in serving a key tenet in the rule of law – that of legal certainty. In the process, the courts will inevitably also be refining and perfecting the common law, adapting it to developments in the wider world, while remaining relevant as the practice of dispute resolution evolves.

Conclusion

In summary, this article has attempted to offer a glimpse into how and why international arbitration and other ADR mechanisms are reshaping the growth of the common law.  An attempt has also been made to evaluate how court practice can evolve to keep up and remain relevant, while ensuring that a principle imperative to the functioning of the England legal system, judge-made law, continues to flourish.

References

1. Kleinwort Benson v Lincoln City Council [1999] 2 AC 349, at 377

2. S Blake and others, A Practical Approach to Alternative Dispute Resolution (5th edn, Oxford University Press 2018), p. 27-36

3. SIAC Statistics: http://www.siac.org.sg/2014-11-03-13-33-43/facts-figures/statistics

4. N Blackaby and others, Redfern and Hunter on International Arbitration (6th edn, Oxford University Press 2015), p. 28-30

5. A Gillespie and others, The English Legal System (6th edn, Oxford University Press 2017), p. 68

6. Invercargill City Council v Hamlin [1996] AC 624, at p. 640

7. Lord Thomas, Lord Chief Justice of England at Wales, ‘Developing commercial law through the courts’ (The BAILLI Lecture 2016), para. 19

8. Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) (No.2) [1980] QB 547

9. ibid, 564-5

10. ibid, 565

11. Lord Thomas BAILLI lecture, para 22

12. Sundaresh Menon CJ, Chief Justice of Singapore, ‘Response by Chief Justice Sundaresh Menon’ (Opening of Legal Year 2019), para. 36

13. D Wolfson and S Charlwood, Challenges to Arbitration Awards. in Lew and others (eds), Arbitration in England (Wolters Kluwer 2013), p. 544

14. Lord Thomas BAILLI Lecture, para. 21

15. Zachary Segal, ‘Arbitration and the common law’ (Law Society Gazette, 6 June 2016) <https://www.lawgazette.co.uk/practice-points/arbitration-and-the-common-law/5055601.article>

16. McLachlin CJ, ‘Judging the “Vanishing Trial” in the Construction Industry’, 2 Faulkner L. Review 311 (2011), p. 318-9

17. Lord Thomas BAILLI Lecture, para. 26

18. ibid, para 27