Identifying the Blind Spots: Self Reflection in the Field of International Arbitration

Sophie Nappert, selected lecturer at the 2018 Proskauer International Arbitration Lecture, discusses the tumultuous perception of international arbitration and calls for the industry to look inward

By Sara Higgins

During the 2018 Proskauer International Arbitration Lecture, renowned international arbitrator Sophie Nappert took some of the industry’s leading lawyers to task. Her address, cheekily titled “Disruption Is the New Black”, examined what she identified as “blind spots” in the field of international arbitration (IA). Branding disruptive innovation as the poster child for progress, Nappert opined that it will inevitably impact the legal field, during these times of tectonic change and revolution, in a way that forays the very heart of international arbitration – a self-governed justice system that derives its jurisdiction from party consent.

Nappert opened with the current IA landscape. She painted a rather gloomy picture, revealing the sobering fact that in-house counsel consider external lawyers to be the primary obstacle to achieving collaborative, adjudicative and non-adjudicative dispute resolution.

Nappert also pointed to growing skepticism of the arbitral process around the world. “When the Chief Justice of the UK Supreme Court, in one of the most arbitration-friendly jurisdictions on the planet, bemoans the negative influence of arbitration on the development of English law; when the EU, a behemoth not known for its nimble footing, performs a 180-degree turn in less than a year from its initial, resolutely pro-ISDS stance towards pushing forward a court proposal complete with appellate jurisdiction on fact and law”, it might be time for some self-reflection. Nappert asked us to consider, “whether, heady on its nearly unbounded autonomy, on the vast deference granted to it by state courts and legislation and assisted by the unparalleled ease of enforcement of its decisions afforded by the New York Convention (NYC), the current model of IA has overreached itself at the expense of quality of procedure and output.”

In pondering her own question, Nappert praised the unprecedented expansion of IA into areas once considered non-arbitrable but cautioned that “It has made us oblivious to some substantial blind spots, focused as we are on driving the IA chariot forward towards the next development.” She identified three such blind spots, though undoubtedly there are others: diversity, corruption and artificial intelligence.

Diverse panels increase institutional legitimacy

“Current voices in scholarship posit that the above disruptive phenomena present an important opportunity to address shortcomings, and notably as regards the diversity in composition of panels, as a vector towards a better and more legitimate decision-making in investment and commercial arbitration,” Nappert said.

She shared a number of statistics demonstrating diversity in the field – or rather lack thereof. “At ICSID, 19% of the 195 appointments made in 2017 to ICSID tribunals or ad hoc committees were women. This can be compared with 2016, where 13% of appointees were female. Of the 37 appointments of women in 2017, there were 18 different individuals who were nationals of a dozen different states, thus reflecting some regional diversity.” “The SCC reports 254 appointments for 2017, of which 18% were female. When the appointment was made directly by the SCC, 37% of the appointees were female. When made by the parties – 8%; when made by co-arbitrators – 0%. For regional diversity, 231 of the 254 appointments were from Europe, followed by Australasia and North America with 5 each, I from South America, 3 from Asia and 2 from Africa.”

The 2018 Queen Mary/White & Case International Arbitration Survey showed that respondents were generally ambivalent as to whether there is a causal connection between a diverse panel of arbitrators and the quality of that panel’s decision-making. Nappert argued that this might be the wrong query to make altogether. In her opinion, “At a time where the legitimacy of IA is in crisis, in the eyes of others a more diverse tribunal is a more representative, and thus more legitimate, tribunal; and from the prism of enhanced legitimacy the desirability for diversity in tribunal composition is undebatable.”  She stressed that the quest for more diversity ought not to be made at the expense of quality and competence.

How can IA promote diversity?

Accepting that diversity among panelists is the goal, Nappert believes this issue should be championed at the institutional level. “Institutions have a powerful statement to make by enshrining diversity in their rules as a factor for consideration in the nomination and appointment of arbitrators, alongside and to the same extent as other credentials,” she stated. Chastising the “lip-service” treatment currently afforded diversity, Nappert called for institutional rules to anchor this value in the field. She suggested that institutional rules should consider enshrining diversity as a factor in considering appointment, to the same extent as nationality is currently accepted as such a factor.

Allegations of corruption

Nappert next considered IA’s approach to allegations of corruption in the field, calling for greater self-reflection in the wake of Belokon v Kyrgyzstan, where the Paris Court of Appeal famously annulled an Award as infringing public policy, after reconsidering the case on its merits and finding  sufficient evidence of money laundering. She warned, “That a state court in a country famous for its respect for, and deference to, arbitration tribunals should consider it necessary to reopen the merits of a matter should be a cause for concern, and immediate action on our part, lest we are failing to put our house in order in the eyes of others.” She added that between the ICCA, the IBA, and the ILA, there is no lack of fora to host an open discussion about corruption in the field. Nappert seemed to imply that in failing to have such a discussion with the goal of establishing best practices, IA is missing an opportunity to improve public perception and strengthen its legitimacy.

The rise of artificial intelligence

The final blind spot that Nappert addressed in her lecture was artificial intelligence. Arbitral outcomes can be computed using a series of algorithms that, to whatever degree of certainty, offer parties a predictable outcome that might be seen as mitigating some of the risks of dispute resolution. “Scientists and suppliers of algorithms,” observed Nappert, “are currently warning litigation and arbitration users that human decision-making as we exercise it on a daily basis is no better than a lottery. In addition to being costly, time-consuming, and resource-depleting, it is unpredictable and inevitably subject to bias.”

Though not claiming to be a computer scientist, Nappert spoke on the importance that IA query “how algorithms come to their decisions; where the boundary lies between the machine’s capacity for predictive and prescriptive analysis and the human decision-making mind; [and] the public policy implications of robot-assisted justice and how these awards are reviewed by state courts, notably under Article V of the New York Convention.”

She postured that the introduction of AI into IA could create a dispute settlement system tendering predictability and speed for users, and even the ability to suggest commercial solutions to their disputes to prevent reoccurrence — a tool she ventures would speak powerfully to users.

Preserving the “human element”

If this is the inevitable future of dispute resolution, how can IA fight to stay not only relevant, but valuable? To no one’s surprise, IA’s strongest asset is its fundamental value – the notion that parties have a stake in selecting the decision-makers who will ultimately decide their fate. Though an algorithm could eliminate human unpredictability, the ability to select the decision makers in one’s own dispute is what makes arbitration appealing at a basic – and yes, emotional – level.

Nappert discussed briefly the role of human emotion in arbitration and seemed to defend it as an inherent, underlying thread of dispute resolution. She called for “arbitral institutions proactively to dialogue with AI scientists and providers to ascertain in an ethical manner, how lawyers are made to understand the way algorithms work, how exactly machine speak translates into the human language, and how we can carry on selling the human values underpinning decision making, so that we have an economically competitive and intelligible answer to give to scientists, suppliers of algorithms, and users.”

IA must put its house in order

Nappert ceded that these blind spots – diversity, allegations of corruption and artificial intelligence – are not the only ones IA possesses. But, while they need to be addressed as soon as possible, reacting to these blind spots is no longer enough, in Nappert’s opinion. “In the face of rapidly-paced and seismic disruption, we need to be proactive lest we become the Kodak and Blockbusters of dispute resolution,” she cautioned.

The IA community is largely governed by its own practitioners serving on boards and steering committees, including in arbitral institutions. This close relationship should be taken advantage of to show the rest of the legal community, and the world at large, that IA can keep its own house in order. Nappert concluded, “If we show that this closeness can deliver the benefit of building consensus on best practice and policing our own terrain in a forward-looking manner, we will make strides towards the continued legitimacy and relevance of IA in the face of disruption.”

 

Sophie Nappert is a dual-qualified lawyer in Canada and the UK. She is an arbitrator in independent practice based in London, specializing in international disputes. Sophie is ranked in Global Arbitration Review’s Top 30 List of Female Arbitrators Worldwide and is commended as a “leading light” in the field by Who’s Who Legal. She won the 2016 Global Arbitration Review Award for Best Speech for her address at the EFILA Annual Lecture, International Investment Arbitration: Escaping from Freedom? The Dilemma of an Improved ISDS. http://www.3vb.com/our-people/arbitrators-associate-members/sophie-nappert

Sara Higgins is a legal intern at CPR and a third-year law student at Northeastern University School of Law. Sara recently completed the New York State Bar Association Commercial Arbitration Training for Arbitrators and Counsel and previously worked for the United States Attorney’s Office in Boston, Massachusetts.

Managing Risk in International Arbitration: Third Party Funding Developments in Asia

By Meriam Al-Rashid (pictured left) and Diora Ziyaeva (pictured right), Dentons

blog duoAs practitioners and clients alike are well aware, international arbitration is not without its risks. Third party funding is one effective risk management tool that can curb the potential losses and soaring costs associated with international arbitration by assisting under-resourced parties. To stimulate arbitration in Asia and maintain a competitive edge, Hong Kong and Singapore recently passed legislation providing express frameworks for third party funding in international arbitration proceedings, joining the global trend supporting this alternate source of funding.[1] As the Hong Kong and Singapore laws highlight, however, third party funding is not without its own risks. So, while third party funding can provide a useful tool to engage in arbitration, clients should be aware of the pitfalls they may encounter.

Singapore

On March 1, 2017, Singapore enacted The Civil Law (Amendment) Act of 2017 (the “Act”) and Civil Law (Third Party Funding) Regulations of 2017 (the “Regulations”). Under the Act and accompanying Regulations, third party funding agreements with qualifying third party funders are no longer illegal and unenforceable under Singapore law, so long as funding is provided for an international arbitration and/or related court or mediation proceedings. The Regulations stipulate that eligible third party funders must (1) carry on the “principal business” of funding dispute resolution proceedings in Singapore or somewhere else, and (2) have a paid up share capital of at least SGD 5 million.

The new legislation in Singapore has already had an effect. In April 2017, funder IMF Bentham opened its first Asian office in Singapore, in part persuaded by this new legislation.[2] In July 2017, Burford Capital announced that it was funding a claimant in a Singapore-seated arbitration.[3]

Hong Kong

On June 14, 2017, Hong Kong passed the Arbitration and mediation Legislation (Third Party Funding) Bill of 2016 (the “2016 Bill”). Under the 2016 Bill, the doctrines of maintenance and champerty expressly do not apply to third party funding in arbitration proceedings and mediation, including proceedings before emergency arbitrators and ancillary courts.[4]  Notably, the term “third party funder” under the Hong Kong legislation has a broader meaning than it does in the Singapore law in that it is not solely limited to professional funders. Thus, anyone, even those persons or entities that do not generally have an interest in the arbitration proceedings, can potentially serve as a third party funder. For example, law firms and/or lawyers in Hong Kong could provide third party funding, so long as they are not involved in the same arbitration.

The bill does not apply to litigation in Hong Kong courts, except for those proceedings which specifically relate to arbitration – such as enforcement and challenges to an award.  

Risks of Third Party Funding

While third party funding provides alternative and much-needed sources of funding for under-resourced parties, it is not without its risks. Third party funding can require a significant cost upfront as the party’s legal team conducts its due diligence on funders, and negotiates and sets up confidentiality and funding agreements. Arrangements with third party funders can result in undisclosed conflicts of interest and can also run afoul of rules of privilege and confidentiality, which vary across jurisdictions.[5] Third party funding also raises concerns regarding the improper influence that funders may have over proceedings. Since a funder has a direct financial stake in the outcome of the dispute, it may seek to pressure a party to agree to a course of conduct, such as settlement, even when not in that party’s best interest.

By regulating third party funding, both the Singapore and Hong Kong legislations offer some protections for parties seeking such funding. For example, the Singapore Act stipulates that, where a third party funder fails to comply with the requirements laid out in the Act and Regulations, it will not only be unable to enforce its rights under the agreement entered into with the claimant but it will still be required to fulfill its obligations to the claimant. In addition to the provisions under the Act and Regulations, Singapore’s Legal Profession Rules of 2015 were also amended, making it mandatory for legal practitioners to disclose the existence of any third party funding agreement to the court or tribunal and all other parties to the proceedings in order to ensure that there is no conflict of interest.

Hong Kong’s 2016 Bill calls for an advisory body to be created to oversee funders operating in the region. This advisory body will be responsible for undertaking biannual reviews of funding activity as well as creating a code of practice that will establish standards and good practices of third party funders regarding funding agreements and minimum capital requirements, and proper internal procedures to address conflicts of interest and complaints. While failure to comply with the code will not result in any judicial sanction or other liability, the code can be used as evidence and may be taken into account in a case of non-compliance.

Conclusion

Third party funding provides a much-needed source of funding and creates access to justice for many claimants who would otherwise have no means to engage in protracted dispute resolution proceedings. However, third party funding is, itself, fraught with risk. The Singapore and Hong Kong laws, then, provide a means to regulate this previously unchecked system. Whether the laws will adequately regulate third party funding without stifling it remains to be seen. Nevertheless, potential claimants should take advantage of these new legal developments, making sure to conduct the appropriate risk analysis in their assessment of whether to move forward with third party funding.

____________________________________________

ENDNOTES

[1] Singapore and Hong Kong join the United Kingdom, Australia and other countries that already allow third party funding.
[2] See Douglas Thomson, Singapore’s Seismic Shift on Funding, Global Arbitration Review (June 7, 2017).
[3] See Burford finances first Singaporean arbitration matter, James MacKinnon joins Burford, Burford Capital (Press Release) (June 29, 2017).
[4] The English doctrines of maintenance and champerty were intended to prevent “…gambling in litigation, or of injuring or oppressing others by abetting and encouraging unrighteous suits, so as to be contrary to public policy…” See Sapna Jhangiani and Rupert Coldwell, Third Party Funding for International Arbitration in Singapore and Hong Kong – A Race to the Top?, Kluwer Arbitration Blog (November 30, 2016) (citing to The Hong Kong Consultation Paper, referring to Ram Coomar Coondoo v. Chunder Canto Mookerjee [1876] 2 App. Cas. 186, at 210).
[5] In the United States, for example, third party funding agreements have been held to “create confusion concerning the party who actually owns and controls the lawsuit, and create risks that the attorney-client privilege will be waived unintentionally.” See Fausone v. US Claims, Inc., 915 So. 2d 626, 630 (Fla. Dist. Ct. App. 2005).

Meriam Al-Rashid is a partner and Diora Ziyaeva is a senior associate at Dentons’ New York Litigation and International Arbitration practice groups. The views expressed in this article are exclusively those of the authors and shall not be attributed to Dentons US LLP or its clients.

Shall We Have an Adult Conversation About Legitimacy?

[A summary of the keynote address of Jan Paulsson on 2 March 2017 at the Annual Meeting of the CPR Institute at the Biltmore Hotel, Coral Gables, which has also been archived on CPR’s Facebook page.]

By Jan Paulsson

It is difficult to know when history is being made. Important developments tend to be incremental, and perceived only in hindsight. Yet I am willing to wager that we are in the middle of a decade this decade in which the international arbitral process seriously comes to grips with the existential need to secure acknowledgment of its legitimacy. This is not being done, and cannot be done, by individual arbitrators. The exemplary work of 50 is done in silence; the misconduct of one may become a first-page scandal. The heavy lifting must be done by arbitral institutions.

The three evils they must combat are: transparency deficits, entrenchment, and capture. Not all of the hundreds of arbitral institutions who purport to handle international disputes will do their part, because some of them were created and remain dominated by special interests, and like things the way they have them. They have other priorities than ensuring a fair and neutral process. These are not the successful institutions, but it is vital – lest all be tarred with the same brush – that they are recognized by tangible criteria for what they are. The test is not what institutions proclaim, but what they do; does their conduct prove a commitment to fairness and neutrality?

Thirty years ago Professor Hans Smit proposed in the Columbia Journal of Transnational Law (Vol. 25, p 30) that there should be a single global arbitral institution charged with the supervision of the arbitral process. If this could not be achieved by a voluntary process of federation, he suggested that the same goal could be reached by the establishment by the International Chamber of Commerce of a network of conveniently located branches around the world.  Existing institutions would be invited to “merge” into those branches, failing which the ICC would proceed alone. This may not have been a good idea at any time, given the dangers of bureaucratization and monopolistic complacency, not to mention prohibitive cost. And today it is surely an impossibility, given the emergence of a number of deservedly successful and robust institutions in a number of regions of the world. Still, Smit’s idea was founded on the crucial insight that international arbitration will suffer from the misconduct of what one might call its weakest links, and that it is necessary to be very clear about what the criteria of legitimacy are so that waywardness can be exposed by objective measurement.

This is not rocket science. The premise of international arbitration is that all commercial disputes, even those with stakes of billions of dollars, will be decided by three arbitrators, or even a sole arbitrator, and that the outcome is final. Let’s be frank; this is asking for a lot. Losing parties are often extremely unhappy, and quick to think that something has gone seriously wrong. When the institution has not been properly “designed for legitimacy”, the ultimate sad irony may be that each side thinks that its opponent has some occult advantage, and that each side therefore seeks achieve some compensatory secret trump card – even though their reciprocal suspicions had no foundation. This can be something like a death spiral.

Today I have the good fortune of having been asked to address the annual meeting of an organization which is known for having been created not by the service providers, but by consumers of dispute resolution services. How fitting it is therefore that in 2002 CPR took the unique initiative of developing a template for universal best practices suggested as suitable if not essential for any institution anywhere. This was called the CPR/Georgetown Commission’s 2002 Principles for ADR Provider Organizations. Much ground has been covered since then at the individual reforming initiatives of the leading institutions, but it was certainly a step in the right direction.

It seems that I have achieved modest notoriety for expressing doubts about the wisdom of the widespread practice of unilateral appointments of arbitrators. Given how insistently those who disagree with my ideas on this subject distort what I say, I could perhaps be forgiven if I concluded that the propositions I articulate must be very powerful. From where I’m standing today, I cannot tell if this audience is dominated by experienced lawyers or younger ones. Younger audiences are of course idealistic and invariably agree with me.  Older audiences are cynical and set in their ways, and always protest. So obviously I prefer the latter. It’s much more fun.

My opponents say that I want to do away with the fundamental right of parties to name their arbitrators. This is unfair; I do not that at all. In the first place, I believe in the freedom of consenting and informed adults. If arbitrants agree that each of them can name its best friend or favorite lawyer as arbitrator, that’s fine with me as long as everything is out in the open. I’m not sure the result deserves the name “arbitration”, but hey – what’s in a name? Second and more importantly, my animadversions against unilateral appointments have not led me to want to tear down the temple or destroy icons, but just to a modest proposal. Here it is: the default rule should be that if the parties have agreed to a three-member tribunal all three members should be agreed by both sides, or else by an appointing institution. It’s only a default rule, but I suggest it should not be varied by agreement until the dispute has arisen. That day the claimant can measure whether the dispute is going to be civilized or brutal. If the former – and perhaps that will be the case most of the time – it takes only a phone call to agree that each side can name one of the arbitrators in the usual way. If the latter, the claimant may well have reason to rejoice, faced with a bitter clash with a party who wants to break off relations forever and is likely to deploy scorched earth tactics, that the default rule is the one I suggest.

I have written at length about the disadvantages of the practice of unilateral appointments and will not go through them here. (See The Idea of Arbitration, Oxford University Press, Sections 5.4 and 9.4.) All experienced practitioners in the international field know what it is like when unilateral nominees misbehave, or when losing parties suspect undue influence. It’s an on-going concern, and I am not mollified by the “if it ain’t broke thesis.” Things may be tolerable most of the time, but most of the time is not good enough.

This was brought home to me when I read the heart-felt account published a couple of weeks ago of the experience of a lawyer participating in his first ICSID arbitration. I do not know him, but I am certainly aware that he is a prominent fixture of several decades’ standing in the Miami legal community. Indeed his office is only a mile away from the beautiful hotel where we are meeting now.  I will call him Mr X.  His account is interesting precisely because this is a sophisticated and articulate lawyer who discovers a process with which he is not familiar and feels compelled to express serious concerns. We do well to take the concerns of such thoughtful individuals to heart. I do know the two other arbitrators involved in the case, with whom I have participated in more arbitrations I can count. From what one can read in the award and the dissenting opinion, my only sources of information about this case, all three arbitrators behaved perfectly honorably and none should be embarrassed if I named them, but I will not do so since but I would find it a distraction to personalize a matter which I am using only as an illustration of what I believe to be a frequently recurrent and seriously troubling unease, maybe even a malaise.

Here’s the story in a nutshell. The case involved Costa Rica, which is all I have to say to enable anyone here with a laptop to learn as much as I know about the case.  From the parties’ point of view, the case was over in March 2014, when the parties filed post-hearing briefs.  After that date, the process seems (to the uninitiated reader) to have entered a black box, as the next recorded event is a challenge by the claimant, like a bolt out of the blue, to all three members of the arbitral tribunal. This dramatic event occurred in June 2015. You heard me: a year and three months later which the parties were presumably waiting passively, if with mounting impatience, for the award to come out. Something was obviously not right. We do know that the claimant’s complaint was based on the fact that the Tribunal’s legal secretary, a lawyer on the ICSID staff who as part of their function are present during deliberations and typically assist in such useful ways as retrieving documents from a voluminous file which the arbitrators are unlikely to transport in its entirety to the place of arbitration from their various home offices, had left ICSID’s employ to join the law firm representing the respondent. In other words, the claimant was complaining about a form (I might perhaps venture to say a mild form) of capture.

The challenge was dismissed nine months later in accordance with the relevant rules and practice. I say nothing about that.  The arbitrators, thus confirmed in their function, went about their duty to render a final award, which they did a few weeks ago, in January.  It turned out to be one of those cases where a number of issues  were decided 2-to-1, with each of the co-arbitrators finding himself either part of the majority or in dissent, and the presiding arbitrator always part of the majority. Mr X wrote the dissent which captured my attention. The first thing to say about it is that it is entirely respectful of the other arbitrators, with whom Mr X writes that he was “honored” to serve. He explained in lucid terms some significant differences of substance with respect to which he was disappointed to find himself in disagreement. Such things happen; reasonable people differ. But then we get to the troubling passages.

Mr X notes that “the period that followed the hearing was delayed by the embarrassing and unnecessary issues caused by the change in employment of the Panel secretary and other issues related to the impartiality of the panel.” What these “other issues” involved is not specified, and the challenge decision itself has not been published as far as I know. I have seen press articles referring to information to the effect that these issues had to do with the prior relations between the presiding arbitrator and the other co-arbitrator; such complaints are frequently raised by losing parties, sometimes on quite flimsy grounds, but let’s not pay heed to gossip or speculation or anonymous sources. Mr X then goes on to write that “I choose not to add any further comment on the issue of the secretary’s employment, but do wish to address the issue of the constitution of the panel and the issues of conflicts and impartiality.”

What Mr X then has to say is notably that “the arrangement whereby two of the panel members are selected by the parties to the agreement creates an uncomfortable aura of conflict which permeates, in my view, the proceedings” and that, although “I have worked hard to neutralize his factor as I am sure my esteemed [co-arbitrator] colleague has done”, the only panelist who did not have “an inherent conflict” was the chairman. Mr X concluded that the “appointment by a party of a judge to rule on the party’s claim creates an unnecessary barrier to pure objectivity” and recommended that ICSID consider prohibiting the practice of unilateral appointments.

This is not the occasion to discuss the feasibility or even desirability of such a prohibition, particularly in the case of ICSID since its rules are constrained by the text of the international treaty by which it was created. My point is rather to insist that this measured but heart-felt comment is one that all institutes and arbitrants should take to heart, recognize as not being an isolated phenomenon, and take as a compelling reason to consider ways in which this kind of unease can be alleviated.

I think I have heard and examined at length in writing all conceivable arguments against my suggestion that we move away from the practice of unilateral appointments as a default rule, and I challenge any one of you to a debate because I am confident that I will prevail. Prevail, that is, except if you make the one argument which is Kryptonite and will defeat me every time. Here is how you win the argument: you look me in the eye and say “I don’t trust the institution, and so as long as I can name one of the arbitrators I feel that I will reduce the risk of a runaway tribunal doing something crazy – but unappealable.”

That argument is indeed made, like it or not. Decent arbitral institution cannot fail to realize that it is a disappointing and sobering message, indeed something of an indictment. They must absorb this reality, and do try to do two things about it. The Big Thing is to earn such trust that this kind of worry about a runaway tribunal evaporates. The Little Thing is far easier, and may in practical terms be just about as good. It is to focus on the involvement of the parties in the selection of arbitrators, and to attend to the numerous adaptations and refinements that may take the edge off the disadvantages of what one might call unreconstructed unilateralism.

The CPR Institute took a noteworthy step in this direction with the well-known Rule 5.4 of its Rules for Administrated Arbitration of International Disputes, for which it deservedly won a prize as the best innovation of 2016 [from Global Arbitration Review]. It introduces what CPR calls a “screened selection process,” which allows parties to choose among proposed arbitrators but in a manner designed to keep the ultimately appointed panel members from knowing individual parties’ preferences. We need to see how this works in practice, and how similar initiatives function elsewhere. There will always, believe me, be attempts to game the system. If I may put it as a paradox, the only thing that must be constant is the readiness to change as we learn. The poacher never rests; neither can the gamekeeper…

But this is not enough. Institutions should not only be inventive themselves, but encourage parties to be inventive as well. Most often this concerns the parties’ lawyers. Why are we lawyers, so unbelievably inventive in argument, stuck in the mud when it comes to patterns of process? Can’t we all agree that in ideal circumstances an arbitral tribunal should operate as a team, and not as three sole arbitrators cobbling together something of dubious coherence that achieves an unappealable result but does not deserve to be called “consensus?” If we agree want cohesive tribunals capable of producing greater quality than their individual members, aren’t presiding arbitrators the captain of those teams? Why not give them an important role in the constitution of the team – perhaps identifying a number of individuals they find compatible, or complementary, and asking the parties to rank them. (This, by the way, seems to be a more likely route to diversity than to expect it from unilateral appointments by parties whose entire focus in making appointments is to win the case. The presiding arbitrator might say “I’m comfortable with the industrial context, but would like a member of the tribunal to be conversant with public international law; then we’ll be all set so the third member can be someone less experienced whom I believe will make a solid contribution and who merits the experience and exposure.”) Or how about each side giving the presiding arbitrator a list from which to chose each co-arbitrator on the basis of compatibility? Or even, when full confidence reigns, go all the way and allow the presiding arbitrator simply to come up with the two others, constrained by nothing except perhaps observations by the parties as to what kind of qualities or experience the case calls for?

Parties have also been known to achieve quite surprising things – if only they will pick up the phone and try. I have observed an interesting dynamic when two lawyers with a minimum of mutual respect agree (between themselves) to give each a right of veto with respect to the unilateral nominees, maybe once or twice. A cynic might say that the result will be that each will immediately propose wholly unacceptable names and then move on – but I say that such is not the unavoidable result, and no harm trying.  Or how about saying “If I appoint A, whom will you appoint? Are you saying B? Oh, no, then I’d appoint C.  What’s that, you like A? Well then, think of someone other than B”.

The possibilities are limited only by our imagination, and it is urgent that we unleash our capacity for innovation. As we have heard this morning from Noah Hanft as he enters his third year of leadership of the CPR, he and his staff are determined to give fresh impetus to the vigorous improvement of the dispute resolution process in all of its forms, and it behooves all of us to take a sympathetic interest in their efforts, which can only benefit all who believe that legitimacy in the resolution of disputes should not be negotiable.

Jan Paulsson is a founding partner of Three Crowns LLP, a specialist international arbitration firm. He holds the Michael Klein Distinguished Scholar Chair as professor of law at the University of Miami. 

 

 

Brexit and ADR, Untangling the Complexities

The United Kingdom’s recent referendum vote to leave the European Union (EU) is just a few weeks old, and dealmakers are rightfully concerned about its ramifications. The falling pound, the most immediate consequence, is just one of many factors that could affect pending deals with British companies. Many parties entered into contracts with UK-based companies with certain assumptions based upon the country’s membership in the EU. Now, with the UK’s situation uncertain, the lawyers are lining up to figure out next steps.

On July 18, CPR’s arbitration committee convened a panel on the topic of Brexit’s impact on cross-border arbitration and litigation involving the UK, hopefully clearing up some of the mystery. The panel was moderated by Jean-Claude Najar (France) of Lazareff Le Bars, and featured Tim Hardy (UK) of CMS Cameron McKenna LLP, Vanessa Alarcon Duvanel (Switzerland) of White & Case LLP, and Clifford J. Hendel (Spain) of Araoz & Rueda Abogados, S.L.P.

As explained by Mr. Hardy, Brexit’s main immediate impact on cross border litigation in the EU is the uncertainty as to what will happen post-exit to the existing unified regime for dispute resolution applying to all Member States. Since 1973, the UK has been required to adopt unifying arrangements to avoid duplicate litigation in different States through a series of rules intended to determine that the court of only one State can have jurisdiction and that the decision of that court should be respected by all other courts of Member States. Initially, the incorporation of these reciprocal arrangements into the legal framework of Member States was undertaken through a  series of treaties – each requiring each State to approve, ratify and implement each Treaty.  As this was extremely cumbersome and slow, subsequently, EU Regulations were implemented directly applying the rules into the law of each member state.

To exit the EU the UK will have to repeal the European Communities Act which will automatically repeal all Regulations but it will not repeal all treaties. Accordingly, a complex situation could develop where arguably some treaties will survive and may be applicable and relevant to determining parties’ positions if disputes arise. “One would hope,” said Mr. Hardy, “that the legislature will do what it can to avoid this mess. But at the moment, we don’t know what steps will be taken to address and tidy it up.”

As for the practice of international arbitration in the UK or London, Mr. Hendel explained, there is no reason to think that Brexit will have any legal effect because the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which is the lifeblood of international arbitration, is immune from what will happen with Brexit. The situation is different, however, in the world of judicial dispute resolution. Mr. Hendel referenced the falling away of important EU regulations concerning the automatic recognition and enforcement of judgments throughout the EU, jurisdiction and choice of courts, as well as choice of law, in two years’ time or so, unless the UK takes action before then through negotiation with the EU or unilateral action to keep these legal mechanisms in place. These regulations currently provide an important degree of harmonized certainty on how to deal with everyday issues that arise in EU cross-border disputes, and Brexit will inevitably undermine this certainty. Mr. Hendel noted that the UK might have an incentive to preserve this framework one way or another in order to preserve its perceived supremacy in the financial and legal industries.

Ms. Duvanel examined how Switzerland has managed in the years since it voted in 1992 not to join the European Economic Area (EEA) to overcome isolationism vis-à-vis the EU. Although it took several decades, Switzerland managed to negotiate and ratify bilateral agreements with the EU to harmonize its legislation with that of the EU. For example, the Lugano Convention addresses the issues relating to jurisdiction and recognition and enforcement of judicial decisions between Switzerland and the EU. In the end, she explained that Switzerland has its own set of legislation, but that much of it is inspired by the EU, “fully harmonized but always a bit later.” The harmonization of the two legislative systems has been long and difficult for Switzerland, and it is likely to be difficult for the UK as well. She stressed, however, that all of that had no effect on international arbitration in Switzerland. Switzerland remains very attractive. Swiss arbitrators are among the most nominated in the world in international arbitration cases. Switzerland is the second most chosen seat for international arbitration and Swiss law is one of the most chosen applicable law due to the stability of the Swiss legal system.

From an in-house perspective, explained Mr. Najar (who held various senior legal positions in GE for close to 24 years), companies must analyze the potential consequences of Brexit on their contracts governed by English law, particularly long-term contracts, and determine how to best mitigate the uncertainty related to the impact of Brexit. There is a wide array of potential issues to consider, such as currency fluctuation, access to the EU market, organization setups, employees’ rights, corporate governance, and specific regulations. Dispute resolution clauses will also need to be reviewed closely. Najar pointed out that some companies had already started to opt out of the UK, in favor of jurisdictions such as France and Switzerland, several years ago out of other concerns, such as costs or being closer to a civil law environment. Najar stressed that English law enjoys a longstanding and solid reputation as the governing law in many contracts. However, it incorporates many elements of EU law, and Brexit will therefore create some uncertainty as these elements are being pulled out of English law. Since businesses do not like uncertainty, Brexit might deter companies from choosing the UK as a seat or English law as the applicable law.

For anyone involved in business in the UK, CPR’s European Advisory Board (EAB) is an excellent resource for efficient dispute prevention and resolution. The EAB, a highly experienced and distinguished group of sophisticated practitioners and users from Europe’s leading law firms and corporations, has recently released a European Mediation and ADR Guide. Developed under the leadership of CPR’s EAB, the Guide provides a valuable overview of the most widely used alternative dispute resolution processes (particularly mediation) and when they might be suitable, with practical suggestions on how to make use of them.

While Brexit may seem like an ugly divorce, the fallout for companies doesn’t have to be messy.

CPR’s World ADR Tour Continues

Those who enjoyed “ADR Around the World,” summarizing the current state of ADR in Colombia, MexicoTaiwan, and Turkey can continue exploring international arbitration and mediation through “Worldly Perspectives,” a series from Alternatives which ran from 2009 to 2014.

“Worldly Perspectives,” by Giuseppe De Palo and Mary Trevor, provided individual assessments of ADR in countries worldwide, such as Finland. The March 2012 issue of Alternatives noted the longstanding Finnish tradition of mediation use in labor disputes, but that the process is still emerging for commercial disputes. In 2011, the Finnish Parliament implemented the European Directive on certain aspects of mediation in civil and commercial matters (Directive 2008/52/EC), which is covered in “Update: Nations Are Sharing their Progress on Installing the Cross-Border Mediation Directive” from the December 2011 issue of Alternatives, but mediation retains uniquely Finnish aspects, such as the public nature of court documents in Finland, which can include mediation documents.

The April 2010 “Worldly Perspectives” noted the impact of economic trends on arbitration’s popularity in Jordan, while the Maltese Malta Mediation Center was discussed in Alternatives March 2013. Other countries covered throughout the series have included Morocco, Lithuania, Spain, the Netherlands, Belgium and Hungary, among others.

A number of columns in 2013 were focused on a controversial mandatory mediation requirement in Italy, which was implemented, declared unconstitutional, and then reinstated between 2010 and 2013. The October 2013 issue of Alternatives recapped the latest development, which concluded that the process was far from over.

The full text of these articles and further columns of “Worldly Perspectives” are available to CPR members through our website. In terms of future travels, the next update on the state of mediation in Italy, including the status of the mandatory mediation requirement, is forthcoming and will be featured here on CPR Speaks.

ADR Around the World: Turkey

This article is the fourth in a four-part CPR summer series that examines ADR in a number of rapidly changing locales around the world. If you missed it, you can find the first post, about Colombia, here, the second about Mexico here, and the third about Taiwan, here.

Turkey: Political Conflict Makes ADR an Essential Tool

By Boaz Cohon and Ngutjiua Hijarunguru, CPR Student Interns

On June 3rd, 2015 the World Justice Project released an updated version of their Rule of Law Index.  In this iteration, the Rule of Law Index dropped Turkey from 59th to 80th out of the 102 countries surveyed.  This fall no doubt was impacted by recent developments involving interference by Turkey’s executive branch in the judiciary.

The Turkish economy has, to a lesser extent, also struggled.  Notwithstanding that Turkey attracted over $12.5 billion dollars of Foreign Direct investment (FDI) in 2014, its gross domestic product (GDP) growth rate was just 2.9% for that year, down from 9.2% in 2010.

Currently litigation that relies on Turkey’s judicial system is the primary mode of commercial dispute resolution in Turkey, but complex commercial litigation can take over six years to complete.  The primacy of litigation is due in part to technological innovations such as electronic proceedings and increased courthouse construction that have enhanced the effectiveness of the Turkish court system, but is mostly due to the fact that Turkish businessmen are still quite reluctant to initiate arbitral proceedings at distant venues that utilize unfamiliar rules and procedures.

That being said, the legal framework exists in Turkey for both foreign and domestic companies looking to avoid a legal system mired in political conflict by using impartial, independent forms of ADR to resolve commercial disputes.  The primary law governing international arbitral proceedings that could be used by multinational enterprises (MNEs) is the Turkish International Arbitration Law (IAL), which is based on the UNCITRAL Model Law and the Swiss Federal Statute on Private International Law  Domestic disputes are regulated under the Turkish Civil Procedure Law, which also draws heavily from the UNCITRAL Model Law.

In 2012 Turkey added a modern mediation law—the Law on Mediation for Civil Disputes—to its legal code.  This law, which was opposed by the Istanbul Bar Association, took to heart the most cherished principles of mediation, such as insuring equal treatment of both parties by the mediator, confidentiality, and a duty to inform parties about the process of mediation.  Although most disputes resolved thus far have been employment related, commercial disputes can certainly use mediation as a dispute resolution strategy as well.

Organizations like the Istanbul Chamber of Commerce and the Turkish Union of Chambers and Commodity Exchanges (TOBB) generally administer arbitrations, and a newly established institution, the Istanbul Arbitration Centre, was founded by the government effective January 1, 2015, to facilitate the settlement of domestic and international disputes through arbitration.

In sum, ADR processes in Turkey are slowly advancing toward becoming common practice, making Turkey both a potentially promising ADR marketplace and an ADR destination to watch.  It may well be that government interventions in the judicial system will push the business community in Turkey towards more thoroughly utilizing ADR options at their disposal.

The CPR Institute would like to thank Boaz Cohon and Ngutjiua Hijarunguru for this contribution. Boaz, a summer public policy/legal intern at CPR, is majoring in Political Science and History at Vanderbilt. Ngutjiua is a LLM graduate from the Center of the Study of Dispute Resolution at the University of Missouri-Columbia.

Interview: Users Respond to CPR’s New International Rules – Most surprising and valued reported features

InternationalRulesSlimJimCPR recently launched a new set of Rules for Administered Arbitration of International Disputes for use in cross-border business transactions. These new Rules reflect best practices, including the arbitration work of UNCITRAL, and address current issues in international arbitration, such as arbitrator impartiality, lengthy time frames to reach resolution, burdensome and unpredictable administrative costs and requirements. To celebrate their release, and introduce them across the globe, CPR held a series of well-attended launch events in London, Paris, Miami, Geneva, Madrid, Brazil and Washington, DC.

CPR’s newest event takes a deeper dive into one of the Rules’ most buzzed-about aspects, the Screened Selection Process for Party-Appointed Arbitrators ™. Responding to the need to both preserve the right of the parties to appoint their arbitrators and guarantee the fairness and impartiality of arbitration, the Screened Selection Process ™ is available under the new CPR Arbitration Rules, and will be discussed from the perspectives of the users, outside counsel and arbitrators on July 30, 2015 at Jenner & Block in Chicago and via live webcast.

Olivier P. AndreToday, we sat down with CPR’s Olivier André, Vice President, International and Dispute Resolution Services, for a recap of the launch events and a preview into our upcoming event.

To begin, could you provide a quick recap of CPR’s recent launch events celebrating the new rules? 

Over the past few months, we have organized eight events to celebrate the launch of the new CPR Rules for Administered Arbitration of International Disputes.  At each of these events, panelists discussed the key benefits and innovations of the rules from different perspectives – the corporate counsel, arbitration practitioner, arbitrator, and institutional perspectives.   The events were well attended and, whether they were held in the US, Europe or Brazil, they triggered a lot of interest.

What were some of the most memorable responses you received about the rules, either at the launch events or otherwise. What are people most surprised about, thrilled about, etc.?  

The new rules triggered a lot of interest because attendees felt that they really address many of the criticisms we currently hear about arbitration, such as high costs, lengthy timeframes, and bureaucratic administration of the proceedings.   With the new rules, CPR provides only the services that are necessary from an administering institution, and no more.  Thus, CPR gets involved at the very beginning – at the commencement and arbitrator appointment stages – and at the end – to provide a “light” review of the awards and to issue them.

In between, CPR handles all billing aspects, but lets the tribunal interface directly with the parties on all other matters.  All pleadings and filings to CPR are in electronic format only.  As a result of this “lean administration,” CPR is able to offer a very competitive schedule of administrative costs.  Administrative costs are capped at US$34,000 for disputes over US$500 million.   At a time when all companies are trying to contain the costs of dispute resolution – and where smaller companies simply cannot afford an expensive dispute resolution process – that was particularly appealing.

Another feature which triggered a lot interest is the provision under the rules for the issuing of the award within 12 months of the constitution of the tribunal.  Very often, users of arbitration have had terrible experiences of proceedings that lasted longer than court proceedings, when arbitration is supposed to offer a fast dispute resolution process.  The CPR rules require all actors of an arbitration to use their best efforts to comply with this time requirement.  Any scheduling order or extension from the tribunal that would result in extending this timeline must be approved by CPR.  Such extension requests are not new, but what was interesting to the attendees of these events was the fact that these approvals are not automatic.  Whenever such an approval is requested, CPR can convene all involved in the arbitration to discuss the factors that have led to the extension request.  This mechanism increases the accountability of all actors of the arbitral process while asking them to comply with a reasonable timeframe.   I say reasonable because historically the average length of CPR cases is a little over 11 months.

Finally, there was a lot of interest – particularly from the corporate counsel – for the provision in the rules which encourages the arbitral tribunal to propose settlement and assist the parties in initiating mediation at any stage of the arbitration proceedings.

CPR’s event in Chicago delves deeper into one of the most unique and valued features of the rules—the screened selection process. What were the challenges that necessitated this specific Rules feature? How did we address those challenges? What have responses from users of the new rules been like on this point in particular?  

Arbitrator selection is a key phase of any arbitration and getting qualified arbitrators appointed for a particular dispute is critical to ensure smooth proceedings.  The ability for the parties to choose their decision makers is also one of the main advantages of arbitration.  The CPR rules offer many options that arbitration users can choose from in their arbitration clause depending on the specific nature of the disputes they anticipate.  The bottom line is that they have the ability – and are encouraged – to really control the arbitrator selection process.

One of the options provided is called the CPR Screened Selection Process ™ for party-appointed arbitrators.  That process – which is unique to CPR arbitration rules – enables each party to choose their “party-appointed” arbitrators without them knowing which party has designated them.  CPR acts as a screen between the parties and their candidates.  This is an interesting process because, even though all arbitrators under CPR Rules must be impartial and independent, there can be some degree of ambiguity around the role that a party-appointed arbitrator is supposed to play.  This selection offers the parties the ability to choose their arbitrators while, at the same time, removing that ambiguity and changing the working dynamics among the members of a tribunal.

Olivier André is CPR’s Vice President, International and Dispute Resolution Services. In this capacity, Mr. André is responsible for CPR’s international activities, as well as international arbitration and mediation matters which are brought before CPR pursuant to its rules. He can be reached at oandre@cpradr.org. For Mr. André’s full bio, click here.

ADR Around the World: Taiwan

This article is the third in a four-part CPR summer series that examines ADR in a number of rapidly changing locales around the world. If you missed it, you can find the first post, about Colombia, here, and the second about Mexico here.

ADR in Taiwan: Strong Foundations and a Chance to Build

By Gideon Hanft, CPR Research Assistant and Ngutjiua Hijarunguru, CPR Student Intern

In 2013, research institute Business Environment Risk Intelligence S.A. (BERI) ranked Taiwan as the fourth-best investment environment globally. Taiwan’s largest trading partners are the world’s three largest economies, Japan, China and the United States, and, as a leader in technology production, Taiwan has a dynamic and expanding role in the global economy. Taiwan’s economic growth has corresponded with a growth in commercial litigation, but Taiwan’s government and cultural legacy has also built a strong ADR foundation and offers opportunities for further expansion.

Confucianism has historically cultivated an “anti-lawsuit” attitude, and this heritage has served as “fertile soil for the development of mediation.” However, Taiwan’s strong history of societally promoted mediation has not prevented a rapid expansion of civil litigation. Professor Yun-Hsien Diana Lin of National Tsing Hua University, Taiwan ascribes this development to the “increase in judicial staff…, the progress of economic development and the growing prevalence of education among Taiwanese people.” Despite this expansion of litigation, Taiwan’s government has continued to promote mediation as an alternative through two main avenues.

First, Taiwan has legislation that creates mandatory mediation through Article 403 of Taiwan’s Code of Civil Practice. As Salvatore Casabona, ‎Associate Professor of Comparative Law & International Trade Law at University of Palermo, describes, “Originally provided only for small value claims, the range of civil dispute subjected to mandatory mediation were gradually broadened, including a variety of cases from neighbourhood and real property controversies to traffic accident and medical treatment ones.” This type of mediation is conducted in the courtroom by mediators appointed by the presiding judge. A settlement is legally enforced by the judge, but if mediation does not result in settlement litigation follows. Casabona’s analysis suggests Taiwanese litigants have been resistant to this mandatory mediation; for example, less than 1% of debt discharge cases that provoked mandatory mediation have seen mediation sustained. Nevertheless, the number of successfully sustained mediations has risen over time and this act’s expansion points to recognition of the value of ADR procedures.

The second type of mediation in Taiwan is not conducted through the court but, rather, similarly to mediations abroad, is conducted by outside institutions under mutually agreed upon procedures. For example, mediation under the Chinese Arbitration Association, Tapei (CAA) is regulated under the institution’s rules, passed October 2008, which parties may choose to use unless they mutually agree to other rules. Article 45 of Taiwan’s arbitration law specifies that an arbitrator can propose and accept a mediated settlement with legal enforceability.

Beyond these two main avenues, Taiwan has an additional type of out of court mediation that is more unique. This is called Town Mediation, and many see it as an outgrowth of the Confucian tradition. Regulated by the Town Mediation Act, Town Mediation was first passed in 1955 and this local process has been amended frequently since. Townships and administrative divisions maintain mediation committees of seven to fifteen to mediate civil disputes and minor criminal cases. This act specifies “Mediators are appointed by the mayor of township and county–administered city ‘from the men of eminent fairness, within the administrative district, who have legal knowledge or other expertise and good reputation.’” Mediators are often local elders and are not always lawyers.  In recent years, amendments to the Town Mediation Act have increased the role of local courts in overseeing the committees and passed rules to reduce the appearance of bias.

Town mediation retains a distinctly local identity, with traditional mores playing a vital role in the local mediators’ attempts to resolve disputes. As Yun-Hsien Diana Lin, Associate Professor at the Institute of Law for Science & Technology, National Tsing Hua University, Taiwan, writes, “Fairness must be judged in the context of…social relations instead of according to strict justice under the law.” Unlike court mediation, town mediation can only be entered into at the request of both parties, decisions are non-binding until certified by a local court, and the process is free of charge to both parties. Town mediation’s popularity has grown in recent years, especially in the context of minor criminal cases. The number of approved town mediation cases exceeded the number of sustained in-court mediations in 2010 and 96 percent of town mediation settlements brought before courts were approved in that year.

In addition to mediation, arbitration has become a more common method of dispute resolution in Taiwan. The leading arbitration institution is the CAA, founded in 1955. The CAA’s main services are arbitration and mediation conducted in Chinese and English. The CAA specializes in civil, commercial, international banking, construction, distribution, financial/investment, maritime, securities and transportation disputes. The arbitration act and rules governing CAA proceedings are the Republic of China Arbitration Act of 2002, modeled after the UNCITRAL Model Law of 1985, and the CAA Arbitration Rules.

While most arbitral proceeding in Taiwan are conducted under the auspices of the CAA, specialized bodies performing arbitrations include the Taiwan Construction Arbitration Association, the Labour Dispute Arbitration Association and the Chinese Engineering Arbitration Association.

Despite the expanded use of both town and court mediation, it is hard to say that they have kept up with the expansion of civil litigation. In 2008, the number of civil disputes filed with the Taiwanese District Court increased to 2.81 million from 1.37 million in 1998. While this litigious trend may be a concern, it also means there will likely be a greater market for ADR providers and educators in years to come.

In all, the ADR environment in Taiwan is promising. The growth of civil litigation has been met with governmental expansion of mandatory mediation, suggesting that Taiwan’s leaders are eager for an expansion of ADR.  Town Mediation offers an interesting example of local receptiveness to ADR procedures, and judicial willingness to certify proceedings shows a recognition by judges that outside processes can effectively resolve disputes. With these strong foundations, there is room to build an ever stronger ADR culture. As Taiwan’s growing economy and increasingly strong economic ties have made it one of most important and dynamic markets in the world, expanding ADR there could lead to the more effective resolution of disputes in the rest of Asia and beyond.

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Gideon Hanft, a research assistant at CPR, is entering his first year at Columbia Law School.
Ngutjiua Hijarunguru is a LLM graduate from the Center of the Study of Dispute Resolution at the University of Missouri-Columbia.

ADR Around the World: Mexico

This article is the second in a four-part CPR summer series that examines the state of dispute resolution in a number of rapidly changing locales around the world. 

Mexico: A Globally Integrated Economy Moving Towards Effective Commercial Dispute Resolution

By Boaz Cohon, CPR Student Intern

Notwithstanding meager economic growth in recent years, when looking at how Mexico is situated within the global economy it is clear why the country is slated to become the 8th largest economy in the world by 2050. Mexico is fortuitously located adjacent to the world’s largest economy in the United States, which its companies have relatively unfettered access to via the North American Free Trade Agreement (NAFTA). This proximity has made Mexico “an important node in the world trading system” and situated it well in a multitude of global value chains (GVCs). Furthermore, President Enrique Peña Nieto’s financial reforms have broken up telecom oligopolies and liberalized the energy sector, creating even more incentives for multinational enterprises (MNEs) to invest.

One strategy for insuring Mexico reaches its burgeoning economic potential is to improve the efficacy of mechanisms for resolving commercial disputes. Currently, commercial dispute resolution in Mexico offers a mix of problems and potential, with some encouraging, recent improvements but options that are still lacking by international standards. Absent these effective methods, Mexico can still be a challenging place to do business for both domestic firms and MNEs.

Procedural changes to commercial litigation have—auspiciously—already been passed and begun to be implemented. In 2011 the Mexican legislature passed a series of well-received reforms including an expedited process with oral hearings for smaller monetary claims, a reduction in procedural timeframes, and a decrease in the number of appeals (writs of amparo) a disputing party can make.

If implemented, these reforms, coupled with the much larger judicial reform of 2008, would undoubtedly have a positive impact on Mexico’s rule of law and judiciary. The World Justice Project ranked Mexico 79th out of 102 countries in the most recent iteration of its Rule of Law Index, and citizens continue to be skeptical of the judicial system as a whole with 54% of respondents in a recent survey saying that the court system has a bad influence on the Mexican state.

This apparent lack of trust in litigation, even in the face of reforms, has likely contributed to a rapid rise of arbitration as the go-to mechanism for resolving commercial disputes. Mexico has adopted the UNCITRAL model law for both domestic and international arbitrations with only minor modifications, and is a signatory of the New York Convention (1958). Over time the judiciary has also become increasingly accepting of arbitration and has remained appropriately aloof from outcomes, not intervening in decisions and enforcing awards unless a clear procedural issue has been demonstrated.

Interestingly, the same upbeat tone cannot be taken when describing other forms of alternative dispute resolution (ADR) in Mexico in the context of resolving commercial disputes. Even as the business population has warmly taken to arbitration, it has, at least comparatively speaking, shunned mediation — despite its cropping up in many other areas of disagreement, such as medical malpractice suits, juvenile justice cases, and labor dispute resolution. In commercial disputes a culture of Pyrrhic victory and notions of the need to ‘win’ legal battles may be obstructing widespread acceptance of mediation in the business community.

This has remained the case even in the face of powerful drivers of change. In 2001 the American Bar Association (ABA) and Freedom House in conjunction with the United States Agency for International Development in Mexico (USAID/Mexico) pursued a program establishing 28 mediation centers. The program increased use, but only to a limited degree.  A 2008 constitutional amendment that set out principles and procedures of mediation, obligations of participants and practitioners, and created Alternative Justice Centers across the country likewise did not immediately incentivize significantly more disputants to undertake mediation to resolve commercial disputes.

Perhaps change needs to come from inside the ADR community in Mexico, and, if so, two organizations look primed to help realize such a cultural shift. The Mediation and Arbitration Center of the National Chamber of Commerce of Mexico City (CANACO) has a broad focus including arbitration and mediation and is the most well-known mediation provider in the country, and The Arbitration Center of Mexico (CAM) primarily focuses on arbitration but is looking to expand into mediation.

In sum, as the complex economic machine that is Mexico continues to gain momentum, it would no doubt benefit from lubricating the gears with a diverse array of effective dispute resolution tools for domestic and international firms.

The CPR Institute would like to thank Boaz Cohon for this contribution. Boaz, a summer public policy/legal intern at CPR, is majoring in Political Science and History at Vanderbilt.

ADR Around the World: Colombia

Throughout this summer, in part inspired by CPR’s recent activity in Brazil, “CPR Speaks” will be publishing a four-part series looking at the state of alternative dispute resolution (ADR) in a number of other rapidly changing locales. We begin with Colombia, to be followed by Taiwan, Turkey and Mexico.

Colombia: A Dynamic Economy with a Vibrant ADR Environment

By Boaz Cohon, CPR Student Intern

In 2014, market research firm Capital Economics reported that Colombia had surpassed Argentina as the third largest economy in Latin America. This economic success surprised few, as Colombia’s Gross Domestic Product (GDP) had grown close to 5% in both 2013 and 2014, despite the slowdown occurring throughout the rest of Latin America and falling oil prices (one of Colombia’s main exports), all while keeping inflation under 4%. Moreover, Foreign Direct Investment (FDI) in Colombia grew to $16,198,401,721 in 2013 from only $10,564,672,091 in 2008.

Colombia is a paragon of excellence in economic expansion for Latin America, and one factor that has helped contribute to Colombia’s stunning growth—particularly its high levels of FDI—is a corporate and legal environment conducive to international as well as domestic alternative dispute resolution (ADR). Continue reading