Choosing the Right Form of International Arbitration in London

Arbitration is usually the dispute-resolution method of choice in international contracts. London, like other dispute resolution centers worldwide, offers a broad range of arbitral bodies and available rules. Some are industry-based, while others are institutional.

Choosing the right form of arbitration is crucial, however, because it will ultimately tie the parties to a particular procedure—in some cases, a procedure with which they may have little experience and which, had they considered it at all when signing the relevant contract, they may have wished to avoid. The following overview examines the pros and cons of several of these options.

Arbitration under the 1996 Act

The statutory framework for arbitration in London is set out in the United Kingdom's Arbitration Act 1996. The act obliges the arbitrators "to adopt procedures suitable to the circumstances, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined."

The Arbitration Act does not provide for any specific procedure. Its approach is that whatever procedure is adopted must comply with the above guideline or be one that has been agreed to by the parties. For this reason, arbitration under the act benefits from a mutual willingness to exercise flexibility.

Typically, the first step for the tribunal conducting this form of arbitration is to hold a preliminary meeting at which the parties can explain their cases and debate with the tribunal the most appropriate procedure to adopt. This of course involves the parties in the arbitral process at the earliest time, gives them an opportunity to influence both the type of procedure to be chosen and the timetable and has the greatest chance of resulting in the adoption of a cost-effective procedure.

This form of arbitration is unique in London in that it gives the parties the greatest influence in framing the arbitration. All other common forms of arbitration have their own rules, none of which are identical.

LCIA Arbitration

The London Court of International Arbitration (LCIA), in its various forms, dates back to 1883. At its inauguration, it was stated that the court was "to have all the virtues which the law lacks. It is to be expeditious where the law is slow, cheap where the law is costly, simple where the law is technical, a peacemaker instead of a stirrer-up of strife."

The LCIA has its own set of rules. As in International Chamber of Commerce arbitration, discussed below, the process begins when one party makes a request for arbitration to the LCIA. The opponent must respond to this within 30 days, after which the LCIA appoints arbitrators to deal with the case. Importantly, in urgent cases, there is a provision for expedited constitution of the tribunal.

Once the arbitrators have been named, the parties are free to agree upon their own procedure. There are, of course, provisions for the submission of written statements of case, which operate in default of the agreement of the parties, but the freedom of the parties enables procedures to be selected that are most suitable for the determination of the particular dispute. These may or may not be the same as the default provisions.

An important factor distinguishing LCIA arbitration from all other forms of arbitration is that, in addition to the power to order security for the anticipated costs of the process (granted to arbitrators in London under Section 38 of the Arbitration Act 1996), the LCIA has the right to order the provision of security for the claim or counterclaim. This can be a very valuable tool indeed; along with the flexibility offered by the procedure, it provides a strong incentive to use LCIA arbitration.

ICC Arbitration

Arbitration before the International Chamber of Commerce (ICC) is widespread not only in London but also in various dispute-resolution centers around the world. Two critical features of ICC arbitration include the existence of the ICC court, which supervises the conduct of the arbitration and the arbitrators, and the role of the ICC secretariat to act as a liaison between the court and the parties involved. Parties should also note that ICC rules require that they pay a percentage of the sums in dispute as administrative expenses and that there is a scale of remuneration for the arbitrators themselves, similarly based on a percentage of the amount in dispute. These sums have no real connection to the complexity of the matter, the amount of time spent or other qualitative yardsticks.

Thus, ICC rules provide some certainty concerning the costs of an arbitration. Also, by subjecting the arbitrators to control by a private body (the ICC court) as opposed to the courts of the nation in which the arbitration takes place, the parties are able to maintain a higher level of privacy. These features are often regarded as quite attractive.

Also unique to ICC arbitration are the terms of reference, which comprise a central document in any ICC arbitration that sets out the rival positions of the parties and their disputes. It is prepared by the tribunal and signed by the parties. It is only at this stage that the arbitration commences and that the tribual begins seeking to establish the facts of the case "by all appropriate means."

The finalized terms of reference define the tribunal's jurisdiction. Article 19 of the ICC rules provides that no party shall make new claims or counterclaims that fall outside the terms of reference without authorization by the tribunal. Therefore, in order for the arbitration to proceed smoothly, the disputing parties need to do considerable work at an early stage to ensure that the terms of reference fully reflect their disparate positions. The process of early analysis of claims and definition of issues, although having obvious cost consequences, severely restricts the possibility of last-minute amendments to the case. However, while working out an agreement on the terms of reference, parties often engage in discussions that lead to an early settlement and protect the award from future challenge.

LMAA Arbitration

One of the most common forms of commercial arbitration that takes place in London is that conducted under the auspices of the London Maritime Arbitrators Association (LMAA). An estimated 2,000 maritime arbitrations are initiated in London each year.

This type of arbitration is conducted in accordance with LMAA terms, the latest edition of which was published in 2006 and contains a full set of procedural rules. The LMAA has never restricted use of lawyers by the parties to an arbitration. The rules provide for exchange of submissions by the parties with pleadings allowed only with consent of the tribunal. Submissions are to append documents relied upon, and the parties complete a procedural questionnaire after submissions are closed. It is on the basis of these questionnaires that the procedure leading to a hearing —and indeed whether a hearing is required —will be determined. The parties are encouraged to reach agreement on all matters and are discouraged from seeking interlocutory orders from the tribunal. In contradistinction to ICC and other forms of arbitration, the LMAA's rules are designed to minimize the need for early involvement of the tribunal. This means that if early settlement is achieved, there will more often than not be no significant costs for the parties, as arbitrators have not spent any significant time working on the case.

Trade Arbitration

London has long been home to many trade organizations, a number of which operate arbitration services and promulgate their own rules suitable for the particular trade. These include: GAFTA (Grain and Feed Trade Association), RSA (Refined Sugar Association), LME (London Metal Exchange) and FOSFA (Federation of Oils, Seeds and Fats Associations). Typically, their trade rules do not allow for third-party representation, although lawyers are often involved in preparation of the cases that will ultimately be presented by the parties themselves. Sometimes, the rules also provide that only members of the relevant trade association may serve as arbitrators. Underpinning these groups' rules is the belief that disputes in the given trade should be determined by those engaged in that trade.