Out-Law News 3 min. read

Arbitration 'thriving' in Australia, ACICA study finds

The increased prominence and success of virtual hearings in light of the coronavirus crisis highlights an opportunity to grow international arbitration in Australia, according to a new report that offers an insight into the dynamics of the arbitration market in the country.

According to the 2020 Australian arbitration report, arbitration in Australia is already "thriving" and becoming increasingly popular in sectors other than construction, infrastructure, mining and resources sectors where it has traditionally been the most common forum for resolving disputes.

International arbitration expert Karah Howard of Pinsent Masons, the law firm behind Out-Law, said: "Australia has long been in the shadow of Hong Kong and Singapore as a popular seat of arbitration, due to geography and perhaps parties’ and practitioners’ unfamiliarity with ACICA arbitration rules. This report shows that Australia is now a clear contender, particularly as virtual hearings become the norm in this Covid era."

The report, published by the Australian Centre for International Commercial Arbitration (ACICA) in collaboration with FTI Consulting, the WA Arbitration Initiative, Francis Burt Chambers and the Australian Bar Association, is the first empirical study of arbitration activity in Australia which analyses results obtained from a nationwide survey of 111 arbitration professionals and looked at 223 arbitrations commenced between the beginning of 2016 and beginning of 2019. The total value in dispute for those reported arbitrations was AU$35 billion ($26.9bn), of which international arbitration accounted for 75%.

Respondents indicated that they and their clients were mostly satisfied with the arbitration process in Australia, though the report indicated that some users of arbitration had been frustrated by "the use of rigid, formal procedures" which they felt made the process less efficient than it may have been: speed, cost and similarity to litigation were three of the four most commonly reported weaknesses in arbitration.

However, the report said that about 60% of lawyers included or recommended inclusion of arbitration clauses in international contracts worth over AU$5m ($3.8m). Clients mostly followed their solicitors’ advice when they were recommended to include arbitration clauses in their contracts. When asked about the reasons for recommending arbitration as a method of dispute resolution to clients, enforceability and confidentiality were the two most cited advantages for including arbitration clauses in international contracts.

ACICA arbitration rules were one of the top three most preferred rules included in arbitration clauses in international contracts, but the most frequently used rules in international arbitration were those of ICC, SIAC and UNCITRAL instead with ACICA being the fourth. Australia also came behind Singapore, London and Hong Kong as the fourth most frequently recommended arbitration seat by lawyers. However, according to the survey, respondents would consider recommending or using an Australian seat subject to the client’s and the counterparty’s preference.

The report reflected on the impact that the Covid-19 pandemic has had on dispute resolution practice, as well as the opportunities for innovation and growth for Australia and Australian practitioners. It highlighted how the pandemic had shown how some of the perceived disadvantages of arbitrating in Australia could be overcome.

"Despite many other attractive features of selecting Australia as a seat for international arbitration, Australia’s distant geographical location in the antipodes has frequently been referred to as a reason for it attracting less international arbitration than other more ‘convenient’ locations like Singapore and Hong Kong," the report said. "With the emergence of virtual hearings and participants from all around the world in different locations (continents), the relevance and constraints of Australia’s ‘tyranny of distance’ have receded, if not evaporated."

"It is a well-established principle of international arbitration law that the juridical seat and the ‘venue’ of the arbitration need not be the same. In the new world of virtual hearings, parties are free to choose a seat less constrained by any particular geographical location for the conduct of the arbitration. After-all, even though the supervisory seat must be tied to a particular jurisdiction, the conduct of the arbitration itself can now ‘float’ seamlessly throughout the virtual world without being anchored to any particular location," it said.

The report, however, highlighted that diversity continues to be challenge for arbitral institutions to address.

Karah Howard said: "Gender diversity in arbitration has been a heated topic for decades. The ICCA report of the cross-institutional task force on gender diversity in arbitral appointments and proceedings reveals that female arbitrators only accounted for 21.3% of the total number of arbitrators appointed globally in 2019. The ACICA report, however, reveals that only 12% of arbitrators appointed were female and most of them were appointed by ACICA rather than nominated by the parties. Some commentators think that Australia may be about five years behind the global trend in terms of appointing female arbitrators." 

"The data also reveals that the shallowness of the pool of available arbitrators and parties’ tendencies to choose experienced or renowned arbitrators contribute to the lack of diversity of arbitrators appointed," she said.

Co-written by Kingston Yeung of Pinsent Masons.

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