This article first appeared in The ICLG to: International Arbitration Laws and Regulations, which covers common issues in international arbitration laws and regulations - including arbitration agreements, governing legislation, choice of law rules, selection of arbitral tribunal, preliminary relief and interim measures - in 34 jurisdictions.
Across the globe, not an hour passes without an utterance of the words COVID-19, an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). Since its identification in Wuhan, China in December 2019, it has sparked a global economic, societal, political and environmental response affecting almost every facet of our lives, with theatres closed, travel restricted and social distancing observed. Many predict that we will be feeling the effects for years to come.
One epiphenomenon of COVID-19 is its impact upon dispute resolution. Attendance at hearings was simply not possible due to travel restrictions; hearings were postponed or even cancelled; alternative ways of providing access to justice were sought.
Arbitration is one of the most flexible forms of dispute resolution and, as such, is well equipped to assist parties to negotiate their way through the COVID chaos, although it will still need to be managed carefully. The point, however, as this chapter seeks to set out, is not simply to weather the storm. What we will look at is the impact of COVID-19 and whether arbitration can be said to have been revolutionised as a result.
The impact of COVID-19 on arbitration - and will it cause a revolution?
The most tangible impact of COVID-19 on arbitration has been the adoption of virtual hearings. According to a survey published by Queen Mary University in 2018, 78% of arbitrators had never, or only rarely, utilised virtual hearing rooms. The sea-change has been dramatic and can properly be considered revolutionary. Two preliminary questions arise in this regard:
Do national arbitration laws allow for virtual hearings?
The short answer is that many do, even where one party objects. Beware, however, that there are some jurisdictions where both parties must consent to a virtual hearing, i.e. China; failing which, a party risks enforcement issues with the arbitral award.
Do arbitral institutional rules allow for virtual hearings?
Regrettably, the position varies between institutions. Few make express provision for virtual hearings. The LCIA Rules 2014 is one of the more progressive set of rules. Article 9(2) states: “As to form, a hearing may take place by video or telephone conference or in person (or a combination of all three).” We will come back to a discussion on “combination” or “hybrid” hearings later.
Other institutional rules are less clear and institutions have supplemented their Rules with guidance intended to try and resolve the interpretative difficulties, sometimes leaving this to the parties and the tribunal to resolve between themselves. For example, the ICC Rules 2017 provide that a tribunal “…shall hear the parties together in person if any of them so requests”. On 9 April 2020, the ICC issued a Guidance Note on possible measures aimed at mitigating the effects of the COVID-19 pandemic. The Note seeks to construe “in person” as “…referring to the parties having an opportunity for a live, adversarial exchange and not to preclude a hearing taking place ‘in person’ by virtual means if the circumstances so warrant”. This construction, of course, was not what was envisaged when the Rules were drafted.
Since arbitration is a consensual process, in the absence of both parties agreeing to a virtual hearing, parties face a risk with an arbitral award being challenged in enforcement. A party seeking to create delay may also benefit from this ambiguity by objecting to a virtual hearing. What is required, therefore, is a clear amendment to those arbitral institutional rules that do not expressly provide for virtual hearings. Failing that, what we may see is parties reconsidering their choice of arbitral institution, particularly where potential enforcement difficulties arise.
Thereafter, COVID-19 and the virtual new world has forced parties to reconsider their ideas as to what constitutes a hearing. Various aspects of a hearing have had to adapt, including:
1. Forum. Pre-COVID-19, the primary manner in which hearings took place was in person. This has been replaced by virtual hearings rooms. There are a litany of platforms available, including Zoom, Microsoft Teams, Blue Jeans, GoToMeeting, etc. All have slightly different functionality and are in continued and rapid technological development. For example, Microsoft Teams has been developing breakout rooms and Zoom has been addressing its security issues. The advancement in technology development and the use of this technology brought about by COVID-19 has been remarkable. But with technology comes technical difficulties, such as weak WiFi signal leading to visual and audio output not running in tandem, or participants dropping offline. It has become important to test run the access to and functionality of platforms in advance of hearings to seek to resolve these difficulties and ensure the familiarity of participants with the new systems. While this helps to prevent technological “hiccups” on the day, it also adds to the time and, therefore, cost of these hearings. Some have managed this process through the creation of new roles in the hearing environment, such as the Virtual Hearing Manager or Technology Manager.
2. Document management. Overnight, hard-copy bundles have been replaced by electronic bundles as access to offices was restricted. Document management could not be more critical than it is with virtual hearings; thus, detailed document management protocols have been developed. The benefits are obvious: they assist the practical management of case documents with search, bookmark and notes functionality, and also enable a significant environmental saving. Whilst many practitioners already operate via electronic bundles, it is about time this practice became universal. Again, however, all participants’ technological capabilities need to be compatible and able to handle an often vast amount of data.
3. Hearing arrangements. Considerations here include the arrangements required to manage the multiple parties involved (counsel, solicitors, arbitrators, experts, witnesses, transcribers, interpreters, etc.) and to manage intra- and interparty communications, especially when the participants are all in different locations. What separate lines of communication are required? Are online notes between clients and counsel as effective as paper scribbles passed across a desk? Is it necessary for participants to have multiple screens – one to display counsel, one to display a witness/expert (or two if hot tubbing)? Is a “tribunal-only” screen also needed to enable a sense of tribunal reactions? All of these variants need consideration and all take time and money to resolve.
4. Hearing length and timing. Pre-COVID-19, standard hearings ran in person from around 10am for six to seven hours, not including the lunch break. Virtual hearings have been reportedly shorter than in-person hearings since it can be difficult to concentrate for long periods online. Time differences between hearing participants have also led to shorter hearings and unusual hearing hours. This has brought to the fore questions as to the fairness of hearings when participants are required to engage during what is their early morning or late evening. Going forward, one can see that parties and institutions may pay more attention to time differences during the arbitral appointment process.
5. Hearing structure. Pre-COVID-19, the most common hearing structure comprised a single final hearing on all matters of liability and quantum. During COVID-19, there has been an increased use of split hearings (i.e. of discrete issues) and hybrid hearings (i.e. hearings part in person and part virtual). This has often been born out of the issues arising with hearing length and timing discussed above. Split hearings are generally well known. Much less well-known or used, however, are hybrid hearings, although they are not a novelty arising out of COVID-19. As explained above, some institutional rules already provide for such combination hearings. Hybrid hearings allow for the most flexible form of hearing. The issues arising from such hearings are how to ensure fairness and equality between the parties. For example, if one party attends a hearing in person with the tribunal and the other attends virtually – is this fair on the party attending virtually, or does it open a tribunal award up to challenge in enforcement? Certain courts are already finding that such hearings are not unfair, but this will be jurisdiction dependent.
6. Evidence. One of the benefits of virtual hearings has been the focus of participants upon the necessary, as opposed to the “nice-to-have”, evidence at a hearing. This saves an abundance of time and money. Parties, however, have also had to give consideration as to how to manage the virtual cross-examination of experts and witnesses. It is more difficult virtually to control the evidence of an opposition expert or witness during cross-examination, or to object to lines of cross-examination of one’s own expert or witness, since both involve interrupting that evidence. Online interruptions are difficult to manage and may cause difficulties in the transcription of the evidence given. A benefit could, however, be the ability to virtually remove a witness from proceedings temporarily to allow parties and/or the tribunal to speak confidentially.
There also need to be sufficient arrangements in place to assist the witnesses and experts giving evidence. For example, assistance when they take the oath, and ensuring no unauthorised assistance is provided from persons or papers (other than what is available in the virtual bundle). Can these issues be resolved by attestations of the witness or expert, a 360-degree screen, the presence of an independent person, or evidence given at the offices of an independent person such as a notary public? All options are being explored. In addition, does a virtual arbitration allow better assessment of facial expressions of a witness or expert? This remains to be seen. Questions have been raised on the inability to properly assess a person’s body language when giving evidence remotely, but questions should also be raised as to how good we are at assessing credibility by reference to body language and facial expressions in any event.
So where does this take us? What we can see from the above discussion is that in a very short space of time, the move into the virtual world has brought with it significant advancements in technology, processes and procedures. There have also been significant cost savings. Flights and hotels have not been required, nor has the cost of participants’ travel. There has, however, been more time – and therefore more cost – involved in virtual hearing preparation, including rehearsals, increased breaks during hearings, and the time taken to electronically format evidence bundles. But the practical issues arising are all capable of being addressed (and in due course many will no doubt be streamlined), and virtual hearings are proceeding successfully.
This begs the question of whether, post-COVID-19, virtual hearings will become the norm. Certainly, we expect that they will become more common, particularly in smaller and/or less complex disputes, or where great cost savings can be achieved. In respect of the larger and/or more complex disputes, or in relation to disputes of a certain nature (such as cases involving fraud), one is likely to see parties revert to in-person hearings if only because of the longer hearing durations and the desire (and in some cases, the perceived need) to see evidence given in person.
With the progress achieved above, there is one possible inhibitor to the virtual revolution – enforcement.
Arbitration is currently renowned for its ease of enforcement by comparison to other methods of dispute resolution, owing to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (the “New York Convention”); and for this reason, it is the preferred method of dispute resolution for many international companies.
In the event that hearings go ahead remotely, tribunals will be cautious to avoid challenges to recognition and enforcement of an award under Article V of the New York Convention. They will be especially mindful of potential challenges under the following Articles:
Article V(1)(b), which provides for challenge where “…the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case”.
Article V(1)(d), which provides for a challenge where “…the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place”.
Article V(2)(b), which provides for a challenge where recognition and enforcement would be contrary to public policy of the country where recognition and enforcement are sought.
The easiest starting point is for tribunals to seek to secure the prior express agreement of all parties to a virtual hearing. Detailed processes and procedures should then be put in place to manage the virtual world.
Difficulties may arise, of course, where one or both parties object to, or where specific institutional rules or laws do not clearly provide for, virtual hearings (including in combination formats). We also know that while technology has the ability to streamline the arbitral process, it has the potential to disrupt the substance of a hearing; and where parties experience technical difficulties, they may raise assertions as to an unfair hearing. This very question has been examined previously. For example, in the 2016 case Sino Dragon v Noble, the Federal Court of Australia dismissed an application challenging an award on the basis that, amongst other things, there were technical glitches concerning video images and witness evidence given via video conference. The court did later say, however, that the challenge on the basis of technical difficulties did not have “no reasonable chance of success”.
Time will tell as to whether these and other challenges will arise, but one must be cautious as to their validity. Given that many domestic courts which enforce arbitral awards have equally been thrust into the virtual revolution by COVID-19, the fear around technology and its impact upon procedural fairness may have subsided.
Whilst there has been a virtual revolution in respect of the final hearing, the arbitration process has otherwise not greatly changed as a result of COVID-19. For the most part, the process proceeds as normal. Parties continue to electronically prepare pleadings, witness statements and expert reports, submissions, applications, and discovery and hearing bundles. Institutions have quickly transitioned into full e-filing capabilities, although they were already well on their way in that regard. If anything, COVID-19 can be said to have assisted in the adoption of paperless working.
What parties may have seen, however, is a revived interest in certain arbitral powers and procedures, including document-only decisions, emergency arbitrators and expedited procedures. But, the use of these powers and procedures, in and of themselves, is hardly revolutionary. What is important to note, however, is their assistance in the virtual revolution. Whilst there is ambiguity in some institutional rules as to the permissibility of virtual hearings, emergency arbitrator provisions and expedited procedures in general expressly permit remote hearings.
COVID-19 has had an effect on all forms of dispute resolution.
The main competitor to arbitration is litigation. In the more advanced jurisdictions, litigation has fared similarly to arbitration during COVID-19 with courts mostly capable of moving virtual. Courts in progressive jurisdictions are increasingly hosting virtual hearings, both interlocutory and final, and are even looking to move these on a more permanent basis post-lockdown. It is predominantly in the less advanced jurisdictions that courts have seen shut-downs and hearing adjournments to such a degree that there are severe backlogs of cases that will likely take months, if not years, to resolve.
Where parties face difficulties with the courts of any jurisdiction, it is likely to prompt them to reconsider the appropriate forum for dispute resolution; and arbitration is well placed to step in and assist parties to avoid court backlogs and lengthy delays in the resolution of disputes, particularly at a time where it is important for businesses to control their cash flow and liabilities.
Of course, there are courts in some jurisdictions that are far ahead in the technological revolution, and have been for some time, even prior to COVID-19. In 2017, China began establishing “Internet Courts”, which decide predominantly digital disputes without requiring litigants to attend court. The intention was to streamline litigation using technologies such as blockchain and artificial intelligence to ease the judicial burden upon the human resource available. Given this, it would seem that other forms of dispute resolution (including arbitration) may simply be playing catch-up as opposed to revolutionising the space. An advantage of this, however, is that lessons can be learned from the initial iterations, including how to combat cyber threats and the unintended consequences of artificial intelligence systems.
Since lockdown, it is also important to note that mediation, once the domain of in-person gatherings, is now conducted virtually and successfully so. This was “virtually” unheard of pre-COVID-19 (pun intended) and the transition has been extraordinary, with a number of the same hurdles as faced by arbitration being overcome.
So, do Internet Courts and e-mediation push arbitration off the revolutionary perch? We would suggest not, but arbitration practitioners cannot be complacent about the available alternatives. They must observe the developments elsewhere and use the flexibility of arbitration to stay ahead of the game.
So, in consideration of the above, has COVID-19 revolutionised arbitration? That, of course, depends upon what you consider to be “revolutionary”.
What we have not seen is a paradigm shift in the concept of arbitration, or in the elements of the arbitral process. Instead, what we have witnessed is innovation at its best in a very short period of time in both technology, practices and procedures. Whilst bred out of necessity, this reactivity, in and of itself, is revolutionary. Without COVID-19, it is likely that such advancements would have taken years to achieve. Certainly, the speed of change has been possible because of the inherently flexible nature of the arbitration process.
Perhaps, then, the more important question is: will the progress achieved to date be maintained and continued post-pandemic? Unfortunately, there is as of yet no clear answer to this.
It is clear that things will not go back to the way they were. There will no doubt be arguments that large and complex disputes, or those of a certain nature (i.e. involving, for example, fraud), should remain the preserve of in-person hearings; but what COVID- 9 has done is prove that many disputes are entirely capable of swift and cost-effective resolution by virtual means.
Accordingly, virtual hearings will be a bigger part of our future. It will be interesting to see how the arbitral process, emboldened by the disruption of COVID-19, will progress further. The expectation is that the longer the disruption continues, the greater the revolution will be.
As in most cases, the main inhibitor to change and innovation is psychological. Casting our minds back to the 2018 Queen Mary survey, one might recall that there is a general reluctance by practitioners to familiarise themselves with and to implement new technology. At present, that reluctance is overcome by circumstance. COVID-19 has forced practitioners to change, and this a key factor assisting the revolution. It will be a matter of time before we see whether practitioners ultimately stepback into old ways and habits. No doubt in some cases, they will. Old habits do die hard. But that is not to say that psychology is the only reason for taking steps backwards. In some cases, disputes really can be best served by in-person rather than virtual hearings – for now, anyway. The goal is to get the balance right.
At this time, we are at the early stages of ironing out the creases, but platforms and procedures will improve and laws and institutional rules will change, as will acceptance and trust. As long as there are systems and procedures in place to ensure fairness and equality between the parties, as well as the opportunity for the parties to be heard, virtual hearings can be expected to continue. And that is a step in the right direction, not least given the likely time, cost and environmental savings.
A word of caution, however. With advancements in technology and procedures in other forms of dispute resolution, it is important that arbitration continues to keep pace. Of course, we would expect that arbitration will not only keep pace, but harness its inherent strengths to make significant progress, which recent events have kick-started. COVID-19 is the ember that has sparked the flame of revolution. Long may the revolution continue.