Harbour’s 2019 Hong Kong Arbitration Week lecture was another thought provoking thought leadership piece on the question ‘Is Arbitration sustainable?’
Addressing issues as wide ranging as diversity, use of technology, trade sanctions, climate change and the adaptability of arbitral institution rules to the demands of modern business relationships, Sophie Lamb’s lecture was a further great addition to Harbour Lecture tradition which last year saw Meg Utterback discuss The Rule of Law with Chinese Characteristics.
A genuine first to have the rapper JayZ referenced in a Harbour Lecture – arbitration dealing with very 21st Century issues. The full transcript of Sophie’s lecture can be found below. Thank you again to Sophie for a great lecture.
Is Arbitration Sustainable? Sophie Lamb QC
We are living in a world of disruption in which in the scope and pace of change is unprecedented. Entire industries are in transition.
This disruption is pervasive and manifests in geopolitics, resource nationalism, disrupted trade patterns, new trade flows, trade sanctions, wars of words, and possibly worse. So too, technology is challenging traditional constructs, services, and institutions, and is even being used as a weapon.
Disruption can of course be positive. There is huge momentum around the sustainable development goals and in sustainable investing more generally. Civil society is increasingly demanding urgent action on climate change and scrutinising the global use and disposal of plastic.
All of these changes and advancement are happening at pace. They present both a threat and an opportunity for international arbitration. Which has prompted me to ask whether the current system of international arbitration is ready or indeed able to deal with it. And, in particular, whether international arbitration is itself sustainable.
Rapidly changing markets are being driven principally by shifting population demographics, urbanisation, and the Environment, Sustainability, and Governance (ESG) agenda. The global population aged 60 years or over numbered almost one billion in 2017, and is expected to double again by 2050. By that date, 6.5 billion people will likely live in urban centres, placing unprecedented pressures on global infrastructure, resources, and the environment. Tens of trillions of dollars of investment, much from the private sector, will be required to meet this demand.
At the same time, ESG factors are increasingly influencing the business agenda, reflecting a growing demand for focused attention and transparency on sustainable and responsible investment, including recognising that sustainability can be a core driver of business productivity and growth. A number of UN initiatives have provided material impetus to this movement, chief among which are the SDGs covering a range of interconnected environmental and social targets intended to address a number of pressing global challenges.
Implications for Commercial Arbitration
The “great transition” will provide myriad opportunities for the legal profession, including the international arbitration community, given the realities of change, disruption, and global activity at this pace and on this scale. Contracts, relationships, financings, treaties, and more generally the state-to-private sector interface will all be impacted by this transition.
Arbitrators have long been accustomed to dealing with the interface between contract, law, and changed circumstances. That task will be more complex in the years to come, as tribunals are asked to consider the relevance of soft laws and best practices that enjoy near universal consensus, the demands of civil society, and the business judgement of directors in the face of climate risk. The very notion of “holding parties to their bargain” may present significant and indeed novel challenges in the future.
Likely new types of disputes will arise out of radical changes in policy and regulation, at the domestic and international level, and evolving concepts of “responsibility” (corporate responsibility for human rights impacts, for example). These will create multi-faceted dimensions to common business issues, such as: the decommissioning of aging assets, operating standards and practices, and relations more generally with those in the overall supply chain. Those arrangements will be subject to any number of externalities: scrutiny by a growing class of stakeholders, activism, and legal challenge.
The notion of legal “duty” will also likely expand, particularly in the context of the environment. Science may identify yet further categories of liability, to the extent that the emerging science of extreme weather event attribution creates new dimensions to concepts of causation and foreseeability.
International Investment Law
Given the extent of the investment anticipated over the next decade, in international investment law, the categories of qualifying investors and qualifying investments are likely to be further tested.
Much of the finance required to support our aging population and the energy transition will need to come from private sources. Banks are no longer the sole gatekeepers to pools of capital. Much of the funding required to deal with decarbonisation will come from other sources, including pension funds and state owned enterprises or funds. Will all of these investors — particularly when making “green” investments — necessarily attract the protections of international treaties?
Arbitration Plays a Key Role in Upholding Rule of Law
In some very material respects, the system of IA is extremely well-placed to play its role during the great transition. SDG 16 is peace, justice, and strong institutions. This goal incorporates, among other things, promoting and upholding the rule of law and rules of law and reducing corruption and bribery.
International arbitration has played a very significant role in upholding and promoting the rule of law for literally millennia. From boundary disputes in the ancient world; to working conditions disputes at the time of, and as a result of, the industrial revolution, to disputes involving pioneering health technologies, those involving the Kyoto protocol and carbon credits, domain name disputes, remediation following vast industrial accidents, mass consumer class, and Islamic finance. It has been used to broker peace, to avoid conflict; and to deal with aftermath of armed conflict and revolution. There remains huge potential to consider how the existing use of international arbitration can best be promoted to resolve climate related disputes and those involving business and human rights.
Many initiatives have been and are being undertaken by a wide range of governments and international organisations to combat corruption. The ICC’s first anticorruption initiative dates back to 1975, when the world business organisation set up an ad hoc committee on extortion and bribery in international commercial transactions. More recent ICC initiatives include the launch of ICC’s anti-corruption clause in 2012 and the publication in 2013 of the ICC Ethics and Compliance Training Handbook, intended to help equip companies with the necessary in-house expertise to build ethics and compliance systems commensurate with their needs.
One of the greatest challenges for arbitrators is how to obtain and assess evidence of practices that are inherently secret. Recent ICC publications provide practical examples of how arbitrators have approached the key questions of standard of proof and circumstantial evidence, and as such make a useful contribution to the continuing fight against corruption. Many seminars under the auspices of leading arbitral institutions, including here in Hong Kong, have addressed these practical dimensions. And certainly there is an increased tendency of arbitrators, parties, and even third parties to raise the issue of bribery, corruption, or suspected money laundering whenever their presence is suspected.
Other Dispute Resolution Tools Will Play a Key Role During the Transition
The external factors already described may well cause many actors not to stand on their strict legal rights, but instead look to find non-legal outcomes to these new challenges.
Mediation and indeed pragmatism are likely to play a greater role in disputes emerging from and as a result of the great transition. Mediation, which is commonly used in the context of litigation, has been fortified by the UN Convention on Mediation. Once in force, the convention could do for mediation what the New York Convention did for arbitral awards, by providing a streamlined process for the direct enforcement of a settlement agreement by the courts of its contracting states.
Demand for Transparency
Although arbitration has indisputably played an important role in supporting and upholding the rule of law, it has also been a source of friction. The system of investor-state dispute resolution had supposedly de-politicised the resolution of grievances between foreign private investors and states. However, the narrative “justice is being privatized” emerged, not entirely surprisingly, although much of it was based on myth or the concerted peddling of misunderstandings.
We should expect further variants on this narrative as arbitration tackles the issues arising in the great energy transition, not least because such cases will inevitably be subject to a degree of market disclosure, as advocated by the UN SDGs.
The SDGs and associated targets also call for inclusive and representative decision-making, as well as equality of opportunity. In recent years, a number of initiatives, in line with one of the UN SDGs, have sought to increase the number of diverse arbitrators, in particular women, including:
In parallel, the LCIA and ICC have increased the number and percentage of women arbitrators selected and appointed. There remain, however, significant structural barriers to diversity on arbitral tribunals, such as the extensive arbitrator due diligence process (which arguably further reduces rather than expands the pool of decision makers), the challenge of obtaining a first time appointment, and the complexities for would-be arbitrators in major law firms, so far as practices for monitoring conflicts of interest and making associated disclosures are concerned.
The continued limited diversity of many arbitral tribunals has led to a surprisingly high-profile celebrity twist. Last year, an arbitration-related petition was filed in the supreme court of New York by a certain Mr. Shawn C Carter, known to the world as Jay Z, global rap phenomenon and in his own words “one of the most successful African American male entrepreneurs in history”. Mr. Carter and his associated entities were facing a trademark infringement suit and related arbitration proceedings. He challenged the very validity of the arbitration process when, on his case, the relevant neutrals list of the American Arbitration Association contained the name of only one available African American man. Specifically, the arbitration agreement was said to violate the following constitutional and statutory protections: the equal protection clause of the NY State Constitution, NY state human rights law, NY state civil rights law, and the NY City human rights law insofar as the AAA was said to be a place of public accommodation that fails to provide equal access to litigants of colour. Last but not least, AAA arbitration was said to infringe the NY Deceptive Practices Act.
While Jay Z’s arguments did not appear to reflect the overall demographics of the AAA’s neutral lists, or hold sway with a New York judge, and notwithstanding that the challenge was ultimately withdrawn, in the court of public opinion, his arguments were repeated and declared victorious across several social media platforms.
So let this serve as an early warning sign to the arbitral community. So far as tribunal diversity is concerned, we are a sitting target for activists, ingenious counsel, end users, and hip hop artists the world over. And insofar as we can — and we can — we urgently need to up our game.
Technology as Threat and Opportunity
In the legal profession, four digital technologies combine with legal data to offer services that exceed any human advice capacities. Applications are typically built on algorithms which use: big data, blockchain technology, machine learning, and text mining.
Our clients, and today and tomorrow’s users of arbitration, are themselves using or basing their business offering on highly advanced iterations of these technologies, not least to drive efficiency.
Yet the use of technology in international arbitration remains embarrassingly pedestrian: the occasional nod to a video conference, use of secure hosting platforms, the odd electronic bundle (obviously supplemented by paper versions in the hearing room), and last but not least the ubiquitous PowerPoint presentation.
Fast forward 20 years, or even 10 years, perhaps even less, to the crowd-funded robot arbitrators of the Smart City Virtual Dispute Resolution Centre: a fully automated battalion of secure, fast, cost-effective, neutral decision makers. That proposition is not as absurd as you might initially think, when you consider the uses to which artificial intelligence (AI) is already being applied, the speed and ingenuity of development, and the fact that prior forms of arbitral justice have involved such tools and techniques.
Automated dispute resolution is already in use, for example online sales platforms process tens of millions of disputes a year and the vast majority do not involve third-party human intervention. In the Netherlands, online dispute resolution technologies are being used in judicial proceedings concerned with the financial implications of divorce and separation. In the US, online dispute resolution software is being used to resolve tax assessment disputes in Ohio. At WIPO, online dispute resolution of domain name disputes has been occurring via cloud based platforms for almost 20 years. And in the UK, the Lord Chief Justice has asked the UK Parliament to fund the creation for claims valued at less than £25,000 of Her Majesty’s Online Court.
Predictive justice, using machine learning and big data, is also emerging. Highly sophisticated programmes are being used to predict how individual judges might rule on specific types of applications.
The complex analyses that disputes of the future will involve will not be capable of satisfactory resolution by binary application of logic and rules. We will be venturing into unchartered territory in which the relative worth and importance of new regulations, apparently competing policies, emerging standards, norms even, collide, together with a more general interplay between law, policy, and social justice. This exercise is best undertaken by human decision makers and the inherently human factors of our best tribunals — their people skills, consensus building attributes, and attention to due process — are essential and irreplaceable.
The Opportunity for the International Arbitration Community
With every era of change, every ostensible threat, comes opportunity. So what can we do to create a sustainable arbitration platform?
There is undoubtedly a much greater role for technology and it will help us to generate efficiencies, reduce our carbon footprint, authenticate evidence, even scrutinise our own reasoning and logic. Used as a complementary tool, technology can reinforce the correctness of our decision making, enhancing the integrity of the proceedings and commending its continued use by new generations and industries for whom such technology is both essential and common place.
In terms of our impact on the environment, I commend Lucy Greenwood’s green pledge for consideration. As a community we are able to act collectively where it is essential to our business purpose.
To improve diversity, we should look carefully at how we operate guidelines on disclosures and conflicts of interest for would-be arbitrators to ensure that they are not unnecessarily impeding inclusiveness of the many diverse candidates operating in large law firms. We also need to address the experience gap — perhaps by exploring the possibility of disclosed shadow appointments to aspiring arbitrators.
We would also do well to align our efforts more closely with global initiatives, such as the World Women’s Forum, that cut across the entire economy so that we can learn from quite possibly more developed thinking on tackling diversity and also leverage those platforms to raise awareness of diverse arbitrators. Such steps would also help to further integrate arbitration into the wider commercial ecosystem.
Our community has the right foundations to identify the action points against we need to urgently deliver.
Identifying and promoting global best practices is in our DNA as international arbitration practitioners, and it is simply a question of using that experience, that practice, and that platform to position us for the disputes of the future and address the weaknesses that call into question our overall sustainability.
Harbour Litigation Funding Limited (“Harbour") - Reg. No 06426478 - is authorised and regulated by the Financial Conduct Authority and acts as the sole investment sub adviser to Harbour Litigation Investment Fund, L.P., Harbour Fund II, L.P., Harbour Fund III, L.P. and Harbour Fund IV, L.P. (the "Harbour Funds”).