Do International Commercial Courts compete with International Arbitration?

Introduction

A few weeks ago, for London International Disputes Week, I organised an event which looked at this question.  As it was of interest, I decided to share my views more openly in the hope it may prompt others to do the same.

The real question for me, was what is the point of a so called “International Commercial Court” (ICC)?

Many states have commercial courts.  London and New York are prime examples of successful commercial courts, that are made up of a significant volume of international work.  Singapore’s commercial court was also well respected and gained a significant amount of international interest.  Why then, would Singapore decide to establish the Singapore International Commercial Court (SICC)?

International Commercial Courts

There are several ICCs around the world and organising their taxonomy can be a challenge.  A number of commentators have attempted this.  An early commentator, in 2014^[1], advanced 7 primary characteristics for an ICC: (1) must be permanent and exist independently from a particular case or series of cases; (2)        must have been established by an international legal instrument or some international legal acts deriving their force from treaties; (3) in deciding the cases submitted to them, they must resort to international law; (4) must decide those cases on the basis of rules of procedure, which pre-exist the case and usually cannot be modified by the parties; (5) outcome of the process must be legally binding. (6) the judges hearing the case must not have been appointed ad hoc by the parties, but rather chosen before a case is submitted through an impartial mechanism; and (7) the international judicial body must decide disputes between two or more entities, of which at least one is a sovereign state or an international organisation.

More recently, as the phenomenon of the emergence of ICCs grew, further commentators tried to tackle the taxonomy question.  Two authors have put forward different propositions.

First, a proposition that we can categorise them in three main camps.^[2]  Traditional, domestic commercial courts such as those that have already been mentioned in London and New York, and perhaps Delaware.  Then new “common law” courts such as the SICC, the Dubai International Financial Centre (DIFC) courts, the Abu Dhabi Global Markets (ADGM) courts, Qatar International Court and Dispute Resolution Centre (QICDRC) and the Astana International Financial Centre (AIFC) courts.  Finally, the so called “Brexit” ICCs.  These are the various courts in Europe some of which preceded the UK’s exit from the European Union, such as the courts in Frankfurt, Amsterdam, and Paris.  The number of known cases in the latter category, are not yet, encouraging.

Secondly, a proposition that ICCs are categorised in accordance to how much they differ from their ordinary, domestic commercial court.^[3]  On this assessment, the Brexit courts for the first category, which differ only from their domestic courts, in the fact that English is permitted as a language, in varying degrees.  The local civil and procedure codes still apply, and although there may be some amendment, it is, in reality, negligible. In this same category would be the China ICC, created to hear Belt and Road initiative cases and which although appear to have foreign judges, they in fact, compose an “international expert committee” who advise local judges.  Then we have the SICC itself, which appears to be stand alone in tis set up and class.  Finally, new common law courts DIFC, ADGM, QICDRC and AIFC.  These tend to create their own jurisdiction, with common (or English) law, distinct from the “onshore” civil law systems, with separate procedures, and international judges.

ICCs v International Arbitration

When we look at the success of international arbitration, the fundamental reason, which I think is uncontroversial, is simply because there is no other viable alternative to cross-border dispute resolution.  International Arbitration is not, on any view, Alternative Dispute Resolution (ADR), as there is no alternative, as in domestic arbitration.  There is no single court with global jurisdiction.  Even if there were enough international political goodwill to make, for example the Hague Convention on Choice of Court Agreements 2005 a success, this would still be unlikely to achieve the same success as the New York Convention 1958.  Gary Born has written his three-part series^[4] on this very blog, about his reservations to the convention.  I would suggest that even if it did have a significant number of jurisdictions ratifying it, beyond the EU and five other nations, it would create a two-tier international legal order, for those “inner circle” countries that are signatories, and those that are not.

If we take the QMUL White and Case Survey^[5] (the “Survey”) as a benchmark, 98% of responders state they use arbitration (with or without another form of ADR) in 2018 and 90% in 2021.  In 2018, 92% of in-house counsel prefer international arbitration for resolving cross‑border disputes.  The reasons given were the same you would expect to hear in any arbitration course in order of preference – (1) enforceability of awards; (2) to avoid specific legal systems/national courts; (3) Flexibility; (4) ability to select arbitrators; (5) confidentiality; (6) neutrality; (7) finality; (8) speed; and (9) cost.

The fact is ICCs do not offer any of the solutions that international arbitration does.  That then begs my original question – what is the point of ICCs?  What do they offer that ordinary, domestic commercial courts cannot?  We know it is not what arbitration can offer.  So, what is it?  And whatever it is, why can that not be offered by their ordinary, domestic commercial courts?

I have not yet heard a persuasive answer or explanation.

As pointed out to me by my fellow panellist in the LIDW event, Michael Frisby, the SICC website^[6] states its raison d’etre as follows:

“While parties may be able to pursue their claims in international arbitration, they may prefer to resolve their disputes in the SICC to take advantage of a well-designed court-based mechanism which will enable parties to avoid one or more of the following problems often encountered in international arbitration:

1. over-formalisation of, delay in, and rising costs of arbitration;
2. concerns about the legitimacy of and ethical issues in arbitration;
3. the lack of consistency of decisions and absence of developed jurisprudence;
4. the absence of appeals; and
5. the inability to join third parties to the arbitration.”

It seems to me that no court that adheres to the seven principles at the beginning of this text, could offer less “formalisation” than international arbitration.  These are reason (2) and (3) in the Survey.  Costs may well be high in international arbitration, as are the values and resources used.  Ultimately, I am not sure what the basis for a claim that the SICC is cheaper than international arbitration is.  But I would like to see it.

I am uncertain as to what issues of legitimacy or ethics in arbitration the SICC refers to.  If, it is referring to the issue of investor-state dispute settlement (ISDS), then again, I am perplexed at the proposition that a particular sovereign state’s court, which is ultimately what the SICC is, is a legitimate venue to decide issues affecting another sovereign state.

A lack of consistency and jurisprudence was a criticism publicly put forward by Lord Thomas in his 2016 Bailli Lecture^[7].  However, as reasons (4) and (5) of the Survey suggest, international arbitration users elect arbitration for the purpose of confidentiality and the ability to choose their “judges”.  This is not compatible with a binding precedent like system.  Ironically, Lord Thomas himself is now appears practising as a full-time arbitrator.

A lack of appeals is, addressed by reason (7) in the Survey.  Indeed, the Arbitration Act 1996, which contains section 69, a right of appeal on a point of law, is rarely used, save for in predominantly maritime arbitrations.  There is no equivalent provision in the UNCITRAL Model Law, it is excluded in ICC and LCIA arbitration rules and many international users see its existence as a reason not to elect London as a seat of arbitration, albeit on the misunderstanding that it cannot be derogated from.

And the last reason given, is first, the cost of confidentiality, but secondly, this is not strictly speaking true, depending on the jurisdiction.  For example, in Brazil, the “arbitral letter” provided for pursuant to section 22C of its Arbitration Law 1996, does amount to a mechanism to reach third parties.

Conclusion

None of the instances cited by the SICC, resonate with me as “problems” of international arbitration.  Perhaps this is why the SICC, on the same webpage, goes on to state:

“The SICC serves as a companion rather than a competitor to arbitration as it seeks to provide parties in transnational business with one more option among a suite of viable alternatives to resolve transnational commercial disputes. It enhances Singapore’s share of the global legal services pie without compromising Singapore’s success as a seat of international arbitration as well as the international recognition and acclaim enjoyed by the Singapore International Arbitration Centre (SIAC).”

A much softer approach to its opening gambit.  Nonetheless, I cannot see that, for the reasons given by the SICC, parties who chose arbitration would choose to include an exclusive jurisdiction of the SICC clause into their commercial contracts, because of the so called “problems” of international arbitration.  If the SICC does not exist to compete with arbitration, then I continue to be stumped as to the purpose of its existence.  It seems to me that it is only competing with the Singapore High Court.

Please send your answers on the back of a postcard!

Article by Frederico Singarajah

[1] Wong, Denise, The rise of the international commercial court: what is it and will it work? (Civil Justice Quarterly, 2014, Issue 33)

[2] Gu, Weixia and Tam,  Jacky, The Global Rise of International Commercial Courts: Typology and Power Dynamics (Chicago Journal of International Law, 2022, Issue 2)

[3] Alcolea, Lucas Clover, The Rise of the International Commercial Court: A Threat to the Rule of Law? (Oxford Journal of International Dispute Settlement, 2022, Issue 13)

[4] https://arbitrationblog.kluwerarbitration.com/2021/06/16/why-states-should-not-ratify-and-should-instead-denounce-the-hague-choice-of-court-agreements-convention-part-i/; https://arbitrationblog.kluwerarbitration.com/2021/06/17/why-states-should-not-ratify-and-should-instead-denounce-the-hague-choice-of-court-agreements-convention-part-ii/; https://arbitrationblog.kluwerarbitration.com/2021/06/18/why-states-should-not-ratify-and-should-instead-denounce-the-hague-choice-of-court-agreements-convention-part-iii/

[5] https://arbitration.qmul.ac.uk/research/

[6] https://www.sicc.gov.sg/about-the-sicc/establishment-of-the-sicc

[7] https://www.judiciary.uk/wp-content/uploads/2016/03/lcj-speech-bailli-lecture-20160309.pdf