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Arbitration developments in London

Despite competition around the world, London is still one of the top destinations for arbitration choice, according to Joe Tirado, Winston & Strawn's co-head of international arbitration.

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In 2011, Kenneth Clarke, former Lord Chancellor and Secretary of State for Justice stated: “The City of London is a legal centre - not just a financial one”. The London legal market is heavily and increasingly used for the resolution of disputes from around the world.  TheCityUK in its report on Dispute Resolution in London and the UK (December 2012) estimated that in 2011 approximately 4,330 arbitrations, mediations and adjudications which were international in nature were commenced in London or before London-based institutions.

Reliable judiciary

London has developed as a legal centre for a number of reasons.  The English judiciary is often considered to be thorough and reliable.  The English language is the world’s business lingua franca.  English law is popular across the globe as it is often seen to have a pragmatic and commercially sound approach to the interplay of contractual obligations.  A global survey of in-house counsel from multinational companies (the Queen Mary 2010 International Arbitration Survey: Choices in International Arbitration (2010)) found that English law was the most frequently chosen governing law of contracts, being used in 40% of contracts (the next most chosen law was New York, at 17%). 

In respect of arbitration, the London Court of International Arbitration (LCIA), currently revising its arbitration rules, has reported a significant increase in arbitrations under its rules, from 2011 to 2012, from 237 cases to 277 cases.  The popularity of London as an arbitral seat is also on the rise.  London is seen as an attractive arbitral seat because the English courts provide robust support to arbitral proceedings under the Arbitration Act 1996.  Already in 2010, the Queen Mary Survey found that London was the most preferred seat of arbitration, with 30% of respondents preferring London (the second most preferred seat was Geneva, at 9%).  Interestingly, the popularity of English law has also an impact on the choice of arbitral seat.  Although parties can agree on a seat of arbitration anywhere in the world, a significant number of agreements provide for London as the seat when the underlying contract is governed by English law.  In fact, the Queen Mary Survey found that the second most important influencer in a party’s choice of seat was the law governing the substance of the dispute.

As a legal centre, London has given rise to a thriving legal industry.  In the context of international disputes, London-based lawyers are engaged when parties commence litigation before the English courts, select London as an arbitral seat, or simply fall into dispute regarding a contract governed by English law.  London lawyers may also become engaged in arbitrations and other disputes which have little or no connection to England or English law – for example in investment arbitrations. Due to this growth, an increasing number of arbitration practices have their hub in London, offering a great resource of specialist knowledge, which parties involved in disputes linked to the CIS, India and Latin America, amongst others, capitalise.

Overseas disputes and London

London continues to be a popular choice for CIS- and India-related disputes and is playing a growing role in respect of Latin America-related disputes.

CIS

Russian parties in search of a neutral forum and commercially certain law are well-known litigants before the English courts and in London-seated or English law-based arbitrations.  In addition to Russian parties, parties from the broader CIS region frequently refer their disputes to the English courts, select English law as a governing law to contracts and/or select London as a seat of arbitration.  LCIA statistics show that of the total LCIA caseload, in 2011 approximately 30 per cent  involved CIS parties.

India

India and the UK have a long-standing close economic relationship. In addition to British investment in India, India is the third largest investor in the UK and a large number of Indian businesses and entrepreneurs operate in the UK.  Indian parties frequently refer their disputes to London-seated arbitration and/or select English law as a governing law of their contracts. 

The LCIA opened a branch in India in order to reflect this close relationship and its impact on the arbitration market.  Of the parties referring arbitrations to be administered by the LCIA, the percentage of Indian parties increased significantly from 1.5 per cent  in 2011 to 4.25 per cent  in 2012.  

While an increasing number of Indian parties are also selecting Singapore as a seat of arbitration, and referring arbitrations to be administered by the Singapore International Arbitration Centre (SIAC), anecdotal evidence suggests that thus far the highest value disputes involving Indian parties continue to be arbitrated in London.

Latin America

Historically, a number of international disputes involving Latin American parties have had an English connection. Many trans-border commercial agreements concluded by Latin American parties are governed by English law. 

Due to the growing economic importance of Asia and corresponding increased Asian investment in Latin America, the relevance of London for Latin American parties is also increasing. Many investments from Asia into Latin America are channelled through London. Within this context, London is seen as both a neutral and convenient seat for the resolution of potential disputes.

Type of dispute

Shipping and insurance disputes are long time sectors that continue to be arbitrated in London. Other sectors include:

Construction disputes

London continues to be a centre for construction-related disputes, with specialist practitioners working on a range of such disputes in the form of international arbitration, English court litigation (most often in the specialised Technology and Construction Court) and other forms of dispute resolution such as dispute boards. LCIA statistics indicate that of the total LCIA arbitration caseload, 8 per cent  in 2012 related to construction, projects and infrastructure. 

With regard to dispute boards, the London-based Chartered Institute of Arbitrators (CIArb) recently entered the market of international institutions offering rules on dispute boards, producing draft rules which were open to consultation until April 2014.  

Joint ventures disputes

Joint ventures of some form will often lie at the heart of many international projects and transactions, often embodied in the form of joint venture agreements, shareholders agreements or other ancillary contractual documentation.  Quite often, English law is frequently the governing law of such agreements, and disputes under such agreements referred to the English courts or London-seated arbitrations. Indeed, LCIA statistics indicate that joint venture or shareholders agreements form the background to approximately 10 per cent  of LCIA arbitrations (more specifically, 13 per cent  in 2011 and 9% in 2012).

In the context of shareholder and joint venture disputes, one allegation which can frequently lie behind a dispute which has gone to formal proceedings (whether litigation or arbitration) is an allegation of fraud or some other form of misrepresentation or bad faith by a joint venture partner or fellow shareholder. To this extent, the English court’s well-developed powers to grant injunctive relief (ranging from freezing of assets to mandatory disclosure of documentation) are another consistently attractive mechanism to parties, whether in English court litigation or London-seated arbitration.

Energy - Renewable energy disputes

Traditional energy disputes in the oil & gas sector are also regularly arbitrated in London. Increasingly, renewable energy related disputes are being handled in London. Due to recent reforms in the renewable energy sector in a number of European countries, there has been a surge in investment treaty disputes in continental Europe. Most of these disputes, which have involved claims against Spain, the Czech Republic and Italy, have been commenced under the Energy Charter Treaty (ECT). The ECT is a multilateral investment treaty that, amongst other things, protects an investor’s legitimate expectations. While the UK has not been involved in these proceedings, a number of lawyers based in London are representing investors and respondent states. This is a testament to the increasing importance of London as an arbitration hub and to the strength of its arbitration practitioners.

Joe Tirado is Global Co-Chair of international arbitration at Winston & Strawn. Also contributing to the article are lawyers  Alejandro Garcia, Dan Meagher and Arpan Gupta. 

Posted by:

Joe
Tirado

26 June 2014

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