The war in Ukraine is having a bearing on the number and type of disputes that are coming before the London Court of International Arbitration (LCIA), according to data published by the institution.
According to its annual casework report for 2022 (2.14MB / 16-page PDF), the LCIA administered 293 cases under the LCIA Rules last year. Transport and commodities disputes were the most common types of disputes, rising from 14% of all LCIA cases in 2021 to 37% of its caseload in 2022.
The LCIA said: “The fluctuation in energy prices impacted by the war in Ukraine is likely to have had a ripple effect in the supply chain of commodities resulting in more disputes. The 16 related cases and an increase in shipping cases being referred to the LCIA has also contributed to a higher proportion of transport and commodities cases in 2022.”
The LCIA expects the increase in commodities-related disputes to continue in 2023. The prediction chimes with the results of a major study conducted by Queen Mary University of London (QMUL) in partnership with Pinsent Masons, which paid special attention to the causes of disputes in the energy sector against the backdrop of recent global events and the international agenda towards clean energy. The study (50-page / 20MB PDF) revealed that the volatile price of raw materials and energy supply were predicted to be primary causes of disputes in the energy sector globally over the next five years.
Disputes concerning banking and finance were the second most common type of case handled by the LCIA in 2022, making up 15% of its work, with disputes over energy and resources representing 11% of its cases. Disputes relating to construction and infrastructure accounted for 5% of cases.
The international reach of the LCIA is demonstrated among the other data it published. Just 12% of parties to LCIA disputes stemmed from the UK, with the highest proportion of parties, at 24%, based in Asia Pacific. In 2021, just 8% of parties to LCIA proceedings came from the Asia Pacific region.
“This striking increase is largely connected to the increase in commodities involving parties from Asia, in particular, from Singapore,” the LCIA said in its report.
Diversity of arbitrators remains a central theme discussed by the LCIA. In terms of diversity of nationality, the LCIA appointed non-British arbitrators in 63% of its court appointments despite 85% of LCIA arbitrations being governed by English law and 88% of arbitrations being seated in London, up from 85% in 2021.
International arbitration expert Jason Hambury of Pinsent Masons said: “The historical link between the choice of English law and the selection of London as a seat continues and comes as no surprise. When we asked respondents to our survey to rank their five top choices out of 11 seats, using a points system, London was a considerable way ahead of the others with 49% of respondents having selected London as their first choice of arbitral seat. Reasons included ‘the stability of its commercial law’.”
The LCIA’s report also provided an insight into gender diversity in arbitrator appointments. As in previous years, party appointments represented a disproportionately small contribution to this. “The percentage of women selected by co-arbitrators decreased from 33% in 2021 to 23% in 2022,” the LCIA said. “Parties selected a slightly higher percentage of women in 2022 (19%) than in 2021 (16%). However, it remains a low percentage, and notably lower than the rate for co-arbitrators.” The imbalance in contribution to diversity is compounded by a greater proportion of repeat appointments being made by the parties and co-arbitrators compared with direct appointments by the LCIA.
Scheherazade Dubash of Pinsent Masons said: “Diversity is clearly an intersectional issue with myriad contributing factors, in which parties have a greater and more lasting role to play to achieve full gender parity for women in tribunal appointments. One way of doing so is for parties to specifically request law firms to include qualified female candidates in proposed shortlists for arbitrator appointments. Following some of the recommendations detailed in the ERA Pledge Corporate Guidelines will help, including setting internal processes for selecting arbitrators that require gender and racial diversity.”
“It is a well-accepted fact that diverse groups of people are known to bring a variety of perspectives to the table, and ‘a diverse tribunal may be better prepared, more task-oriented, and more attentive to parties’ arguments than a non-diverse tribunal’ according to a previous study published on the topic (227-page / 3.5MB PDF),” she said.
The LCIA’s report also highlighted that it is the beneficiary of a general licence issued by the UK’s Office of Financial Sanctions Implementation (OFSI) in the context of the ongoing war in Ukraine and imposition of Western sanctions against Russia. The licence “permits receipt of, and payments for, arbitration costs enabling the LCIA to continue to assist parties in resolving their disputes efficiently”, it said.
The LCIA said that, beyond affecting the administration and funding of an arbitration, sanctions also “feature prominently as part of the dispute between the parties”. Issues arising in that regard include “the applicability and scope of sanctions and their potential impact on the performance of contracts”, it said – again reflecting findings from the QMUL and Pinsent Masons study into energy sector arbitration.
Hambury said: “The 2022 statistics draw some light on how international disputing parties are adapting to the ongoing global socio-economic and political environment. Although the number of new referrals to the LCIA marginally decreased in 2022, the LCIA and international arbitration in general continue to remain an attractive forum for resolving disputes between businesses.”
“Russia’s invasion of Ukraine in February 2022 has had a profound effect on global energy markets and led to a period of extraordinary turbulence. This continues to pose challenges for commercial entities, due to price volatility, supply shortages, security issues and economic uncertainty, and has contributed to what the International Energy Agency (IEA) has coined ‘the first truly global energy crisis, with impacts that will be felt for years to come’. As expected, these disputes are now finding their way before arbitration tribunals with arbitration remaining the most popular method for the resolution of energy disputes, according to our survey,” he said.
Out-Law Analysis
25 Apr 2023