Why International Arbitration and How? Reflections and Visions for a new generation.

Afterthoughts from my guest lecture on “New Perspectives on the Advantages of Resolving International Commercial Disputes in Arbitration” at the Istanbul University on 29 September 2017

In this article I reflect upon what makes international arbitration so attractive for aspiring professionals, why international arbitration is bound to be the disputes resolution mechanism of choice for international commercial disputes in a global economy and what it takes to built a successful career in international arbitration today.

There is now doubt, international arbitration has become one of the most popular subjects for law students around the world. The practice of international arbitration attracts such huge numbers of talented aspiring lawyers that unfortunately the vast majority of them has little to no opportunity to pursue their dream legal career in this field.

I have the great fortune of being regularely invited by leading universities and law schools around the globe as a guest lecturer on the subject of international arbitration and related subjects. This short article is inspired by my guest lecture on “New Perspectives on the Advantages of Resolving International Disputes in Arbitration” at the Faculty of Law of the Istanbul University on 29 September 2017. I held this lecture upon the kind invitation of Professor Dr. B. Bahadir Erdem and his distinguished colleagues from the Private International Law Department of the Istanbul University.

Although it was the first day of the academic year, the auditorium was packed with students to the very last seat. However, it was evident from the first minutes, if not seconds, of the lecture that most of the students had no idea of the basic concepts of arbitration, let alone how arbitration differs from court litigation and other (alternative) dispute resolution methods. This was nothing unique for this particular lecture. To the contrary, I encounter this phenomenon (great interest in the subject despite little knowledge about it) almost every time, even in the context of specialized dispute resolution/arbitration programs. Whenever I encounter this phenomenon it triggers a number of questions in me, such as: What is it that makes international arbitration so attractive for students if they don’t even know what it is all about? More importantly: Whith around 20 years of experience in the field, what is it that I want these students to to take home about international arbitration and working in this field? And, most importantly: What advice can I give them to help them to create oportunites for them in today’s competitive environment?

In this article, I want to share some of my current reflections on these questions with you.

Why International Arbitration?

There are some obvious features of international arbitration which may at least to some extent explain why this practice area is so attratctive. At the top of the list is most probably the fact that it is one of the very few areas of the legal profession which provides the opportunity to continuously work internationally across national borders, legal systems and cultures. Arbitration professionals like myself plead and hear cases involving parties from all over the world at venues around the globe, such as Geneva, Hong Kong, Paris, London, Moscow, New York, Singapore, Stockholm or Vienna, to name some of the popular venues. All of this irrespective of the laws governing the dispute and the process.

The prominence of the parties to international arbitration proceedings, frequently national states and their governments, intergovernmental organizations, major international corporations or prominent individuals, such as oligarchs, highly successful entrepreneurs or athletes, is equally attractive as are the types of disputes which are commonly resolved in international arbitration.

All of the above does not really come as a big surprise. Parties choose arbitration as dispute resolution mechanism when the commercial and/or legal stakes are high, the relationship is international and/or confidentiality shall be best possibly preserved. Disputes which either arise under major investments, larges construction and engineering or sophisticated R&D projects or under headline commercial or corporate transactions more often than not form the substance of international arbitration proceedings.

It is however my personal experience from teaching so many students all over the word that the above summarized shiny facets of international arbitration are not the main reasons why so many aspiring legal professionals are drawn to it once they know more about it. What I find instead is a sincere interest in the professional and personal growth opportunities which practicing in international arbitration promises and, as a matter of fact, provides.

International arbitration is rightfully perceived by many as one of the supreme disciplines in the practice of law. It is a mix of best practices of civil and common law systems of contentious dispute resolution which in its entirety makes up an efficient and effective process in its own right. International arbitration attracts pedigree lawyers who can easily navigate across legal systems and cultures and who are committed to consistently delivering best results and to constantly and continuously take best efforts to improving the process in the interests of the parties taking recourse to it to have their disputes resolved.

What makes arbitration stand out

There are a number of text book features which characterize international arbitration and which distinguish it from litigation and other dispute resolution methods. The finality of the proceedings, the relatively easy international enforceability of arbitral awards as well as the opportunity to choose ones own fact finder and decision maker and to thereby aim at securing neutrality as well as case specific expert competence are of equal prominence as is the flexibility, (cost) efficiency and effectiveness as well as the expected confidentiality of the process.

Unfortunately, the main standards works on international arbitration which elaborate on the above and some other main distinctive features of international arbitration have not been updated lately in a manner which fully reflects how arbitration was perceived by many users and how it has further evolved recently reflecting user feedback.

Almost any of the distinctive features of international arbitration listed above has been, often for good reason, questioned in practice. A club-like rather then merits based arbitrator selection process, for example, has been equally criticized as the perceived excessive length and costs of proceedings, lack of provisional and emergency procedures and court assistance which might be necessary from time to time due to the lack of state authority of arbitrators.

International arbitration service providers and professionals, such as in international arbitration institutions, arbitrators and party representatives, as well as their respective representative bodies, like the International Bar Association, have taken great efforts to address the criticism and shortcomings of the process. Most importantly, a great number of regional and specialized niche arbitral institutions, such as the Singapore International Arbitration Centre (SIAC) and P.R.I.M.E. Finance, have emerged and established themselves as valid alternatives to the incumbents like the ICC or the LCIA.

The increasing competition between arbitral institutions benefits the users as it has spurred quality and cost competition. Literally every inistutions has revised its rules multiple times in order to address past shortcomings and to meet user expectations as well as to increase cost transparency and decrease costs. National arbitration laws as well arbitration rules of institutions have been substantially amended as state have recognized the economic value of being perceived as viable venue for international arbitration.

But also competition between arbitrators and law firms/lawyers representing parties in arbitration proceedings has increased substantially. Again, this increased competition is to the benefit as it raises the bar for all involved and provides an incentive to become more effective and efficient.

A body of soft laws, such as the various IBA Guidelines on (international) arbitration, aimed at creating a level playing field providing for more certainty and predictability has also emerged.

These are just a few examples and reasons of how international arbitration has evolved lately in order to address observed shortcomings in a manner which is not yet fully reflected in the vast body of writing about its main features, characteristics and advantages to resolve international commercial disputes merits extensive editions.

What does it mean to work in international arbitration

The know-how, expertise and sills required for a successful career in international arbitration, be it as arbitrator or party representative, changed significantly over the years. I like to describe the changed requirements in what I refer to as the “three generations of arbitration practitioners” although I sense that a fourth generation is on the raise.

The first generation were the pioneers, those who ventured out to establish arbitration as viable private alternative to state court litigation. The legal and procedural framework with which this first generation worked was rudimentary and the cases they handled were moderately complex, mostly relating to the international sale of goods, distribution and construction and engineering cases. To be a first generation arbitration practitioner required mostly the capability to speak different languages, an interest in international, private international and comparative law, as well as the willingness to understand and accommodate cultural differences.

With a substantially increasing number of cases being referred to arbitration instead of litigation, a number of substantive and procedural issues arose at all stages of the process, including the enforcement phase. This triggered the need for more in-depth advance regulation to provide more legal certainty for the process and to thereby gain or regain the trust of its users. This need led to the emergence of a second generation of arbitration practitioners. They focused on the development of elaborate procedural rules as well as best practices which today are reflected in a number of amendments of arbitration rules, be it in international model laws like the UNCITRAL Model Law on International Commercial Arbitrastion, the repeatedly amended arbitration rules of the various arbitral institutions or state arbitration laws as well as best practices which are often encoded in guidelines like the various IBA Guidelines or Guidelines of the International Institute for Conflict Prevention and Resolution (CPR). Based on the experience of the first generation, this second generation elevated arbitration to the sophisticated and effective dispute resolution process it is today.

Globalization and technology were the drivers for the creation and establishment of truly global markets in a myriad of industries and sectors. Global markets require for their smooth functioning transnational commercial, transactional and legal standards as well as transnational dispute resolution processes. Arbitration is best placed to assume the role as default dispute resolution process in global markets. This is to a great extent due to the fact that its private and commercial nature subject its players, institutions and professionals, to market forces and competition. Competition is the best guarantor for the necessary fast evolution to pick up and serve market demand.

As a consequence of this evolutionary process, it is no longer sufficient for a successful career in international arbitration to pair the basic know-how and skill set which secured success to the first generation with the know-how and skills of the second generation. Instead, this combination of know-how and skill is the bare minimum. In addition to these minimum requirements, the third generation of arbitration practitioners needs extensive legal, business and industry know-how and experience in those areas which generate the disputes they are called upon to resolve in order to succeed in today’s competitive landscape. Third generation arbitration practitioners are not only master advocates and neutrals versed and experienced in the fundamentals of international and private international law as well as the ins and outs of international arbitration, but also experts in specific legal fields, such as antitrust/competition law, corporate and M&A, financial regulation, IP/IT etc. as well as insiders in certain industries, such as construction and engineering, energy, life sciences, media and entertainment etc.

I am aware of the debate of how much specialization would really be needed in international arbitration and the voices propagating that a too extensive legal and industry focus would not be necessary or may even be detrimental. My daily practice and repeatedly observed user preferences however suggest the opposite. Efficiency and effectiveness requires in-depth (specialized) knowledge and expertise.

In my daily practice, I beginn to sense the need of the emergence of a fourth generation, combining the know-how and skills of the three generations described above with a competence in non-legal disputes management and disputes resolution skills. Private as well as corporate institutional users of dispute resolution processes look more then ever to various ADR methods as viable and sometimes even very much preferred alternatives to litigation and arbitration. This is in my experience not only due to mere economic considerations, but stems more from an increasing maturity in dispute resolution and the realization that purely judicial processes, which arbitration is in essence as well, offer limited and often not optimal ways of resolving a specific dispute.

In order to meet the needs of the users today, arbitration practitioners will have to shift their inner mindset and attitude from being mere litigators and/or arbitration experts to being professional dispute managers, i.e. professionals who at every phase of a (potential) dispute deliberately determine and reassess the most effective and efficient way to prevent or resolve a dispute and who manage a dispute in every phase effectively and efficiently. This requires fare more than knowledge of the relevant procedural and substantive law as well as familiarity and experience with available ADR methods. Consistent evaluation and application of emerging case assessment/analysis and case management tools, such as early case assessment tools, screening tools, analytical tools, technological and visual tools will be a must.

It is obvious that the bar for the next generation has raised. They will have to be literates in all disputes resolution methods, most importantly in the various ADR methods, as well as be knowledgeable and skilled in dispute management.

What is required today in the field of international arbitration and more broadly in the field of dispute resolution poses challenges to the way dispute resolution professionals are still being trained in academia as well as in practice. To this day, the training focus in law schools is on substantive law and the procedural rules of state court litigation. Arbitration is, if at all only skretched at the outside and other ADR methods are often not touched upon at all.

In particular in civil law jurisdictions in Europe legal training strongly focuses on academic (scientific) theory, substantive law and state court litigation procedures. Practical training is left to the hoped for subsequent professional training. Young and, unfortunately, often also senior lawyers are, as a consequence, often not capable of applying their academic knowledge to real world problems. Moreover, their capabilities of resolving disputes is limited to the methods they have studied in theory and to the the way they have studied it. They are neither equipped with the skills required to identifying the best dispute resolution method nor with the skills of adapting individual dispute resolution processes to the requirements of the actual problem presented to them. Instead, they try to squeeze a specific case into the processes the have studied and with which they are familiar.

In reality, however, practical training is unfortunately very limited as well. More often than not the people who were trained in the way described above are the ones who train the next generations in practice, thus passing on the shortcomings of their own training and practice to the next generation.

Typical departmentalization in private practice perpetuate the problem by segregating dispute resolution practitioners (litigators and arbitration practitioners) from other subject matter or industry specialists like corporate and M&A lawyers or IP/technology experts which prevents disputes professionals from acquiring the necessary subject matter and industry expertise which is so much needed for arbitration specialists today.

My advise to aspirants and my vision and mission

I understand that the above (limited opportunities and extremely high bars) can be intimidating to the novice. But Rome was not built in one day and the substantial changes in the fundamentals to build a successful career also provides great opportunities to those who recognize this fact.

In carefully selecting electives at law school and specialized (postgraduate) programs aimed at a healthy mix of substantive, procedural and (private) international law as well as continued training and practice of ADR methods and non-legal analytical and management tools, but also in seeking employment in firms which will allow training in different practice areas and thereby plant the seeds for the necessary cross-fertilization, the next generation will prepare itself for the opportunities in international arbitration.

My vision is the emergence of a new generation of holistic and flexible disputes professionals who can effortless navigate between processes and who are equipped with non-legal analytical and case management skills displacing all too specialized process experts with limited vision. My mission is to contribute inspiring and training this generation.