Hong Kong Arbitration Week Recap: Is Arbitration sustainable?
(4th Annual Harbour Lecture, Asia Pacific with Sophie Lamb QC, 21 October 2019)
Reporters: Felicia Cheng, Dominique Yong (Clifford Chance)
Amended from an earlier version published on the Kluwer Arbitration Blog
The fourth annual Harbour Lecture took place on 21 October 2019, with hundreds of attendees packed into the Eaton Club, Hong Kong to hear a thought provoking lecture delivered by Sophie Lamb QC, global co-chair of the international arbitration practice at Latham & Watkins.
The theme of this year's lecture was whether arbitration is sustainable. The premise was the necessary and unavoidable disruption (a 'great transition' of sorts) that will affect not only the arbitration industry, but life and business more broadly. Ms Lamb used the UN's Sustainable Development Goals (SDGs) as a loose framework to take the audience through a wide array of topics and ideas, from crowd-funded robot arbitrators to climate change, rapid urbanisation, and a growing 'silver economy'.
Climate change and business
It is no surprise that environmental, social and governmental (ESG) issues have made it to the top of the corporate agenda. The World Economic Forum has identified extreme weather and climate change policy failures as among the gravest threats to the global economy.
Undoubtedly, the effects of the climate crisis and strain on resources, including loss of biodiversity, will impact business and relationships. This may include shifts in the 'users' of international arbitration such as energy companies; necessary updates in the law to deal with arguably increasing foreseeability of 'extreme' events; and the need for financing from private sources, noting already the innovation of 'green bonds' as a collective response.
In relation to the role of company directors, there have been calls (including from Lord Sales, Justice of the UK Supreme Court) for company law to require directors to have regard to climate change effects and adopt climate risk management as part of their fiduciary duties. This may involve greater reliance on soft laws and best practice, the importance of which has become generally-accepted over recent decades. On the latter, a balance must be struck between letting companies pursue commercial objectives and also allocating responsibility for the consequences if companies fail to account for ESG factors in their decision making.
On an encouraging note, action has been taken even without the imposition of such duties. Based on a survey of 200 board members from businesses around the world by The Economist Intelligence Unit on behalf of Clifford Chance, it was found that 49% of respondents expressed significant concern about environmental risks (up from 16% in 2014) and that this concern has translated into action. 53% of respondents reported having taken action in response to investor or employee-inspired climate change activism; 54% to address physical interruption from climate risks and 42% to address regulatory requirements.
On investment law, changes to the ESG context may necessitate shifts in the concepts of 'investors' and 'investments'. The investment arbitration sector faces numerous challenges including the need to counter the public perceptions that 'justice is being privatised', that investment arbitration is to blame for regulatory chill, and a general sentiment of anti-globalisation and opposition to trade deals. In addition, the status of intra-EU investment law remains in a state of flux with the consequences of the Achmea decision still transpiring.
Diversity and equality
Diversity and equality are specifically identified as SDGs, and have been in the spotlight in the arbitration sector for some time, especially given the historical lack of both in the industry demographics. It is undeniable that gender equality and diversity are vital for the health, sustainability and legitimacy of arbitration, particularly in light of the increasing diversity in users of arbitration.
On gender equality, whilst LCIA figures show that women represented 43% of all arbitrators selected by the LCIA Court in 2018, this can be compared with a figure of 23% of appointments overall, suggesting that parties and counsel may lag behind the LCIA in pursuing equality. ICC figures in 2018 are lower, with 27.6% of appointments made by the ICC Court and 18.4% overall being of women. There is clearly still some way to go to achieve equality.
On diversity of race and ethnicity, one of arbitration's greatest moments of popular fame in recent years comes from Jay-Z, an unlikely figurehead of public criticism of arbitration. Mr Carter had complained of a lack of diversity on the 'large complex cases' roster of the American Arbitration Association – in particular, the lack of African-American male candidates who were free of conflicts (the preliminary arbitrator selection list available to Mr Carter included two African-American male arbitrators, one of whom was conflicted, and one African-American female arbitrator). Ms Lamb commented that the ability of a rap artist to spin the public narrative on arbitration was an early warning sign, and that failures to pursue diversity in arbitration will make it a sitting target for criticism by activists.
Another challenge to diversity and equality lies in the difficulty of procuring one's first appointment as arbitrator. In particular, the market tendency to carry out extensive due diligence on prospective arbitrators and the emphasis on past experience means that the pool of candidates will be limited instead of expanded. This is exacerbated by the IBA Guidelines on Conflicts of Interest in International Arbitration, which Ms Lamb considered do not reflect the realities of modern law firms and require urgent attention to address, for example, ways that firms can manage potential conflicts by implementing information barriers and protocols.
These structural barriers could be ameliorated by, for example, allowing junior arbitrators to shadow experienced arbitrators on a disclosed basis in order to gain practical experience and increase prospects of future appointments; a concept that was enthusiastically received by the audience.
Technology in the arbitration sector has had a slow start, with most arbitration hearings still relying on voluminous hard copy bundles. Although technology has been used to assist with research, document review, discovery, bundles and translation, it is typically limited to fairly pedestrian tasks.
There is a clear opportunity to adopt much more sophisticated uses of technology, and this has already been done in certain sub-sectors. Business such as eBay already use artificial intelligence for dispute resolution, which involves using an algorithm to generate a suggested settlement figure and allows the business to process an extremely high volume of disputes. This type of technology use is particularly suitable for low value and/or routine disputes. Various US government entities also have online dispute resolution platforms for tax and traffic matters.
Other potential uses of technology could include using Blockchain to authenticate evidence, algorithms to process high volumes of data, and to calculate pricing or quantum in gas and construction disputes. Technology may also assist in mitigating the environmental impacts of modern international arbitration, which involves copious amounts of travel, for example by opting for virtual hearing rooms.
In addition to the broad categories of disruption and progress mentioned above, there exist other challenges to the future of arbitration such as the emergence of regional international commercial courts (particularly in financial centres), as well as the rise of mediation including the Singapore Convention on Mediation and increasing tendency of parties to opt for a commercially pragmatic rather than legal solution.
As climate change related disputes increase, particularly energy, construction and land use disputes, this will affect various aspects of the arbitration industry. Arbitration is uniquely placed to adapt to these effects, including allowing the choice and application of specified governing laws including climate change instruments, and the choice and appointment of arbitrators and experts with climate change and scientific expertise.
The arbitration industry must persist and do more to achieve gender equality and diversity. This should be viewed as vital to the health and sustainability of the industry. Practical measures such as allowing juniors to shadow arbitrators and updating the IBA Guidelines on Conflicts of Interest in International Arbitration would be moves in the right direction.
Use of technology must be embraced and not feared. That said, opportunities to embrace technological advancement must be accompanied by measures to manage associated and new risks. Data protection and cybersecurity risk management programmes should be implemented such as contractual protection, staff training, and policies for detection and analysis, breach management and containment, and PR and dispute resolution strategy.
The event prompted interesting and thought-provoking discussion about the development of international arbitration in two very dynamic regions and was attended by a group of approximately 50 interested practitioners.