International disputes in 2020: the outlook for Australian business

Australian businesses are well and truly integrated into the global economy and the international disputes landscape has seen a number of changes in the past year. While many cross-border transactions proceed without issue, a small number will not, requiring resolution or determination by courts or an arbitral tribunal. 

In this article, we explore likely trends in international dispute resolution in 2020, taking guidance from developments in Australia and internationally over the past twelve months.

1. Increased focus on mediation

In August 2019, 46 States signed the United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore Mediation Convention), which has been hailed as signalling a new era in international dispute resolution.

The Singapore Mediation Convention is designed to ‘complement the existing legal framework on international mediation and contribute to the development of harmonious international economic relations’[1]. It facilitates the enforcement of international agreements resulting from mediation, operating in a similar way to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitration Awards (New York Convention), which facilitates the recognition and enforcement of foreign arbitral awards.

The Singapore Mediation Convention does not apply to agreements approved by a Court or ‘concluded in the course of proceedings before a court or to agreements that have been recorded and are enforceable as an arbitral award’.[2] These exclusions make it important to understand the context in which any mediated settlement agreement is concluded.

A mandatory step in litigation in most State and national courts, mediation is not new to Australian business. There is no stigma associated with mediation in Australia, and an offer to mediate is not seen as a weakness or a concession. Refusal to mediate as part of the litigation process is usually met with a court order to do so.

Settlement agreements resulting from mediation are enforceable in Australia as contracts. In practice, parties generally comply voluntarily with their obligations under settlement agreements. In this area of dispute resolution, Australia is well ahead of many other jurisdictions.

Under the Singapore Mediation Convention, settlement agreements that fall within the scope of the Convention may be enforced directly by the courts of a member State. A party seeking enforcement does not need to commence litigation or arbitration to enforce the settlement agreement as a contract. The Singapore Mediation Convention will also operate to stay litigation in a member State court by allowing a party to a mediated settlement agreement to ‘invoke the settlement agreement […] in order to prove that the matter has already been resolved’.[3]

While the Singapore Mediation Convention has raised the profile of mediation as a valid and effective tool for resolving disputes, it has also elevated mediation to a stand-alone option in the international commercial dispute landscape. Commercial entities are more likely to consider mediation as an alternative to international commercial arbitration for cross-border disputes rather than as an adjunct to the arbitration or litigation process.

Australia has not yet signed the Singapore Mediation Convention, however there is some pressure on it to do so. Irrespective of when or if that occurs, it is important for Australian businesses operating in the global market to understand how the Singapore Mediation Convention works because we are expecting to see an increased focus on mediation in the resolution of international commercial disputes during 2020.

2. Artificial intelligence

Given artificial intelligence (AI) has application in many areas of legal practice, its introduction to international dispute resolution comes as no surprise.

Online dispute resolution has already moved beyond the trial stage – AI is used to assist parties to resolve disputes of varying types around the world, particularly low value disputes. In complex litigation and arbitration, AI is invoked as a matter of course during the disclosure or discovery phase.

Commentators have suggested that in the future AI might help parties choose arbitrators, analyse evidence and draft arbitral awards. The 2018 Queen Mary University of London International Arbitration Survey – The Evolution of International Arbitration (2018 Queen Mary Survey) surveyed respondents about their use of AI. Over 50% of respondents had never used AI in international arbitration, although 73% saw value in using it more. The respondents associated use of AI with increased efficiency (but also increased cost), and its implementation was also seen as providing potential interference with the adjudication process. This latter issue is challenging. Debate over the role of tribunal secretaries is ongoing, and the introduction of AI to assist tribunals is bound to lead to further robust debate.

The arbitration rules of most of the world’s leading arbitral institutions were drafted on the premise that steps in the arbitration would be completed by human resources (setting aside document management and ‘hearing room’ technology). Dispute resolution clauses in transaction documents, even complex clauses, rarely contemplate the involvement of AI in case management or the adjudicative process.

Given the pace at which technology is being developed and adopted in trade and commerce, it is likely that we will see changes in arbitral rules and dispute resolution clauses to specifically accommodate AI sooner rather than later.

3. International commercial courts

The Singapore International Commercial Court was launched in 2015. The Court is a division of the Singapore High Court and matters are heard by judges from the Singapore High Court and international judges from around the world. Its jurisdiction covers claims which are international and commercial where the parties have agreed in a written agreement that those claims will be determined by the Court. There are some limitations on the relief which may be granted by the Court. In practice, the Singapore International Commercial Court hears a number of matters transferred from the Singapore High Court.

Since 2015, a number of other jurisdictions have launched international commercial courts, including China, France, the Netherlands, Qatar and the United Arab Emirates. Each has its own processes and rules and several have appointed international judges.

The jury is still out as to whether Australia needs an international commercial court – whilst it appears to have been under consideration for some time, there is no suggestion that an international commercial court will be launched in the near future. The high calibre and integrity of Australia’s national and State courts no doubt casts a question mark over whether there is a true need – the greatest benefit would most likely arise from profiling Australia alongside those jurisdictions who already offer an international court.

For many Australian businesses who are engaged daily in the global economy, the availability or otherwise of specific international courts to resolve disputes is somewhat abstract – they already have the option of international commercial arbitration and, where enforcement is not an issue, the local domestic courts are the default forum. However, while international commercial courts are of questionable practical relevance when things are going well, the enthusiasm with which local courts in foreign jurisdictions promote their international courts makes it possible, or even likely, that an Australian company will find itself litigating in an international court.

Forewarned is forearmed – international commercial courts are no longer something unusual, but an established part of the international dispute landscape.

4. Business and human rights

The Hague Rules on Business and Human Rights (Hague Rules) were officially launched on 12 December 2019 in the Peace Palace in The Hague.

The Hague Rules set out procedures for the arbitration of disputes related to the impact of business activities on human rights and are based on the widely adopted UNCITRAL Arbitration Rules.

The Hague Rules have been created to provide:

• the possibility of a remedy for those affected by the human rights impacts of business activities, as set forth in Pillar III of the United Nations Guiding Principles on Business and Human Rights (UN Guiding Principles), serving as a grievance mechanism consistent with Principle 31 of the UN Guiding Principles; and
• businesses with a mechanism for addressing adverse human rights impacts with which they are involved, as set forth in Pillar II and Principles 11 and 13 of the UN Guiding Principles.

There are specific articles in the Hague Rules which recognise, given the subject matter, that there may be inequality of arms between the parties to an arbitration. By way of example, Article 18(1) provides, relevantly, that:

‘The arbitral tribunal, in exercising its discretion, shall conduct the proceedings so as to avoid unnecessary delay and expenses and to provide a fair, efficient, culturally appropriate and rights-compatible process for resolving the parties’ dispute, including in particular by giving due regard to the urgency of addressing the alleged human rights impacts.’

Australia’s Human Rights Commission notes that ‘[t]he business and human rights agenda has evolved significantly in recent years, and there is now global recognition that business can be a vehicle for the promotion and realisation of human rights’.[4]

Consistent with this, the Commonwealth Modern Slavery Act 2018 (Modern Slavery Act) came into force in Australia in early 2018. The Modern Slavery Act imposes obligations on entities based in or operating in Australia with annual consolidated revenue of more than A$100 million to report annually on risks of modern slavery in their operations and supply chains. Similar legislation has been introduced in other jurisdictions, for example, in the United Kingdom.

In 2020, we expect to see elements of business and human rights arise within the context of international commercial disputes. Where supply chains traverse different jurisdictions, arbitration will offer a means of resolving disputes which arise across often incompatible legal systems and accommodating cultural diversity. The introduction of human and business rights claims may add complexity to many commercial disputes.

5. Climate change and environmental issues

Moving into the new decade, we expect that climate change and environmental issues will have two related but very different impacts on international dispute resolution.

First, practitioners, arbitrators and parties are already identifying ways in which arbitration is conducted sustainably and in a way which limits environmental impact.

International disputes have historically involved large quantities of paper and extensive and extended travel – a three member tribunal usually comprises arbitrators from three different countries, and the parties to international disputes by definition have their base in different jurisdictions. Further, complex disputes involve complex legal and technical issues, often requiring experts to be sourced from around the world; and in spite of email, technology and the cloud, lawyers continue to produce volumes of paper in prosecuting or defending their clients’ case.

Courts in Australia (as in many other countries) are moving largely to electronic files and an electronic courtroom. Many hearings are conducted by video or involving video evidence. Court books in superior courts around Australia are almost entirely electronic with courts well equipped to accommodate new technologies.

Disputes that traverse different jurisdictions are more difficult to regulate. International arbitration hearings take place outside of purpose-built courtrooms and cannot always be accommodated in arbitration hearing centres. In the past this has made the implementation of an electronic ‘courtroom’ difficult, but the increasing focus on climate change and environmental solutions is having an impact. Individually (and collectively), lawyers and their clients are consciously making choices to reduce the impact on the environment, including using technology to limit travel and, in recent times, using AI to efficiently manage data and reduce the need for paper.

We expect to see an increasing focus by parties and counsel in 2020 on protecting the environment and reducing the footprint of international dispute resolution.

Second, there is already an emergence of disputes arising out of climate change and global warming. In 2018, the International Chamber of Commerce Commission released its report on Resolving Climate Change Related Disputes through Arbitration and ADR. For the purpose of the report, climate change related disputes include any dispute arising out of or in relation to the effect of climate change and climate change policy, the United Nation’s Framework Convention on Climate Change (UNFCCC) and the Paris Agreement. This report demonstrates the focus of the international commercial arbitration community on the increasing significance of climate change disputes and the need for an effective process to resolve those.

We expect this focus to expand over the next twelve months.

6. Cybersecurity

Businesses around the world are increasingly vulnerable to cyber attacks. Cyber risk increases with each interface with third party systems.

One of the key advantages of international commercial arbitration is the confidentiality offered by the process – the protection of information during the arbitral process is key to ensuring continued user confidence. A breach of data security during an arbitral proceeding can have significant commercial and reputational consequences for a party. This issue will continue to attract the interest of arbitration practitioners and arbitrators around the world in the coming year.

The ICCA-NYC Bar – CPR Protocol on Cybersecurity in International Arbitration (2020 Edition) (Protocol) was launched during New York Arbitration Week in November 2019. It provides ‘a framework to determine reasonable security measures for individual arbitration matters’, and is offered as a comprehensive guide for practitioners, users and arbitrators (not as a replacement for arbitration rules and other binding obligations of confidentiality) based around 14 principles. It covers topics such as:

• procedural steps and measures available to address information security issues;
• factors to consider when determining what measures are reasonable in a particular matter; and
• the arbitral tribunal’s authority to determine information security measures.

Amongst other things, the Protocol offers suggested language to incorporate into arbitration agreements to record the obligation of parties to take reasonable measures to mitigate risks of cyber-attack. We expect to see obligations of this kind to emerge in dispute resolution clauses more frequently over the next twelve months.

7. World events

A number of recent global events may also impact the international dispute landscape.

The ongoing political unrest in Hong Kong, has led to concerns about Hong Kong’s position as a safe seat for international arbitration. The 2018 Queen Mary Survey found both Hong Kong and Singapore to be in the top five most preferred seats of arbitration. In 2018, a total of 521 cases were submitted to the Hong Kong International Arbitration Centre, whilst a total of 402 new cases were received by the Singapore International Arbitration Centre. The adverse economic effect we are seeing in Hong Kong is likely to be reflected in the 2019 statistics which are yet to be released.

Brexit is also a hot topic, and the arbitration community is questioning the impact this might have on London as an arbitral seat. On the one hand, Brexit might see European parties move to a European seat. But on the other, challenges in enforcing national court judgments in England may bring about an increase in arbitration for cross-border transactions and a corresponding increase in enforcement proceedings in the English courts.

Finally, the recent spread of the coronavirus in China has already seen a number of witness depositions and scheduled conferences and meetings cancelled, and it is highly unlikely that any arbitrators or international lawyers will be flying into China to conduct business for the foreseeable future. The virus will not only impact international disputes, but also the way in which international business will be handled. Arbitrators, lawyers and their clients are likely to turn increasingly to technology (including video conferencing) to work around travel bans. The health scare might be a significant contributor to the implementation of AI.

Looking ahead

International dispute resolution is not one dimensional and its processes are not set in stone. Both litigation and arbitration are developing to keep pace with international business, offering increased transparency, the opportunity for increased efficiency and broader and faster dissemination of best practice.

The developments we have seen over the past twelve months and the changes we predict in the next equivalent period will bring challenges for businesses engaging in cross-border transactions. To manage these challenges, companies must plan ahead, properly consider the dispute resolution clause in their transaction documents and take time to understand the options for dispute resolution and the consequences of each.