Claudia Salomon is the President of the International Court of Arbitration of the International Chamber of Commerce (ICC Court), the first woman in this role in its 100-year history. She spoke to The Statesman during a recent visit to India.
Q: As President of the International Court of Arbitration, I understand you have visited India often and met various stakeholders. How evolved, in your view, is the practice of arbitration in India? What steps would you advise policymakers and litigants to take in order to make arbitration the preferred mode of dispute resolution?
A: Parties in India increasingly use arbitration to resolve their commercial disputes, both for domestic and international contracts. Historically, however, Indian parties have opted for ad hoc arbitration, rather than institutional arbitration, resulting in a dispute resolution process that is frequently inefficient, with lengthy delays and costs that are not commensurate with the amounts in dispute. In ad hoc arbitration, a party can easily slow the proceedings by, for example, refusing to agree on the appointment of a particular arbitrator, forcing a court to make the appointment. In my experience, dispute resolution works best when parties choose institutional arbitration as it is the most cost-effective means of resolving a dispute.
Q: Singapore has recently announced that disputes between neighbours must be referred to mediation. Do you believe some disputes must mandatorily be referred to mediation? If so, what may they be?
A: Courts around the world have been mandating mediation for various types of disputes, as a way to address a growing backlog of cases. Mediation can help the parties understand each other’s positions and interests and consider a broader range of possible approaches to find a mutually acceptable resolution. However, an underlying principle of mediation is that the decision to resolve the dispute is entirely voluntary. One problem with mandated mediation as a precondition to litigation or arbitration is that it is frequently too early in the process to be effective for commercial disputes. When proceedings have not yet commenced or at a very early stage, parties may not have enough information to fully ascertain their case’s strengths and weaknesses of their case. I would encourage parties, however, to consider mediation and other ADR techniques, even if an arbitration or litigation has already started. Last year, the ICC Commission on Arbitration and ADR released two new guides: Effective Conflict Management, and Facilitating Settlement in International Arbitration – to raise awareness of different dispute resolution techniques, especially when parties seek to maintain a business relationship.
Q: Many people had hoped that amendments to the arbitration law in India would reduce the backlog in courts. But this has not happened. On the contrary, litigation on various aspects of the Arbitration Act has added to the mass of cases clogging the judicial system. How would you suggest dealing with judicial backlog, and making arbitration/ADR the preferred route for dispute resolution?
A: Parties chose arbitration for a domestic dispute – when all of the parties are from the same country or an international arbitration where the parties are from different countries because they want: decision-makers with specialized knowledge; a process that is faster and cheaper than litigation; flexibility to tailor the dispute resolution process; and/or confidentiality. In cross-border disputes, the primary reason parties choose arbitration is because they want an enforceable award. Unlike court judgments, arbitration awards can be enforced in more than 170 countries under the New York Convention, one of the most successful and important treaties in the field of international trade law. Parties also want a neutral process that is outside the judicial system of either country. As ad hoc arbitration is popular in India, however, many of the potential advantages of arbitration are lost, resulting in a process that is often even longer and more costly than court proceedings. Arbitrators lack any incentive to conduct the proceedings efficiently and there are numerous opportunities for the parties to derail the process. To help the legal and business communities learn more about arbitration, the ICC Court is offering comprehensive training and education programmes in the country – focusing on institutional arbitration. We welcome the opportunity to partner with the judiciary and government to promote greater use of institutional arbitration. Additionally, we encourage India to streamline the process for enforcement of awards. This could include specialized courts or a single court to consider arbitration matters; harmonized procedural requirements to reduce delays and improve clarity; and/or a reporting system for the judicial review of arbitration awards, ensuring consistency and control in the decision-making process. I understand too that efforts are already underway to clear the backlog of cases. The Government has proposed changes to the Indian Arbitration Act to promote institutional arbitration, further reduce court intervention, and facilitate the timely conclusion of arbitration proceedings.
Q: How has international arbitration evolved since you became President of the ICC Court? What would you like to see change?
A: I began my term in July 2021 amid the COVID pandemic. Although travel has resumed, the pandemic changed how technology is used in international arbitration. Before the pandemic lockdowns, we assumed evidentiary hearings would be in person unless there were specific reasons for a witness or expert to testify remotely. Restrictions on travel and social gatherings flipped that presumption. For evidentiary hearings, there is more openness to video and hybrid hearings, although some parties want to be in person for major matters. Concerning procedural matters, it is now rare for a tribunal to conduct a procedural hearing or hold a case management conference in person, and videoconferencing is the norm. I must say this is not unique to arbitration, and I have observed and noted how Indian courts and the parties in Indian litigation have likewise embraced technology. The artificial intelligence revolution that is transforming everything in our lives is also having an impact on dispute resolution services. At the ICC Court, we are embracing new technologies and platforms to make it easier for parties and other stakeholders to access our services. These include the launch of ICC Case Connect to enable more streamlined communication and file sharing among parties, the arbitral tribunal, and case management teams. We are also updating our infrastructure to benefit from potential AI efficiencies, especially for small and medium-size businesses (SMEs). Remember though that while technology has tremendous potential – it also carries tremendous risks. That’s why the ICC Commission on Arbitration and ADR has recently launched an AI task force to examine these issues closely, so we can meet the rapidly evolving needs of global business.
Q: India has not seen the development of institutional arbitration at the same pace as in many other jurisdictions. If you agree, why do you think this is the case?
A: One reason may be the persistent belief that ad hoc arbitration is less expensive than institutional arbitration because it requires the parties to pay the arbitral institution, as well as the arbitrators. However, a study shows that in ICC arbitration, the institutional fees are typically less than 2 per cent of the total costs. In reality, ad hoc arbitration is frequently more expensive than institutional arbitration. Let me explain this calculation. If one party fails to appoint an arbitrator or there is a lack of cooperation between the parties or the arbitral procedure, a party may need to seek court intervention because there are no institutional rules or case management team to address these issues. Litigation costs would not only negate the cost advantages of ad hoc arbitration but also typically result in lengthy delays. Second, in ad hoc arbitration, arbitrators’ fees are decided by negotiations between the parties and the arbitral tribunal. This can be awkward and unfair for the parties. The arbitrators have to determine ways to administer those expenses unless they allow an institution to handle these issues. This means the parties are paying for the administration of the fees – or the arbitrators’ additional time managing these issues. These additional costs negate any perceived savings in ad hoc arbitration. Finally, if the arbitral institution uses an ad valorem fee structure, according to the ICC arbitration rules, there is more certainty and predictability concerning the cost of a case. The fees are based on the amount in dispute, rather than the arbitrator’s hourly rates. With an ad valorem system, there is no risk of an arbitrator padding their hours to get increased fees. In India, for example, despite a fee schedule in the Arbitration Act, we know that arbitrators in ad hoc arbitration often charge on a per-hearing basis. These hearings may last a couple of hours, without any limit or incentive to conduct the arbitration efficiently – thereby escalating costs.
Q: Does India have what it takes to become a global arbitration hub? What should it do? Would a robust institutional framework make an impact?
A: To become a global arbitration hub, India would first need to be recognized as an arbitration-friendly jurisdiction. In the 2021 Queen Mary Survey of International Arbitration, respondents said that three key factors influence this: greater support for arbitration by the local courts and judiciary; increased neutrality and impartiality of the local legal system; and a better track record in enforcing agreements to arbitrate and arbitral awards. The most preferred seats, including London, Paris, and Singapore all have these characteristics: unhindered access to arbitration promoted by local courts, neutrality and impartiality of the local judiciary, and an enforcement track record. Notably, these cities do not have a strong domestic arbitration culture. For domestic contracts, parties are comfortable in the courts. Instead, parties choose those cities as a seat of arbitration even when the dispute has no connection whatsoever to the location This might happen when, for instance, non-French companies may choose Paris as the seat of arbitration.
Q: There is criticism that the absence of unambiguous judicial precedent and frequent changes in the law have held India back from becoming a global arbitration hub. Would you agree?
A: India’s potential to become a global arbitration hub doesn’t depend on whether it has strong local arbitral institutions. Rather, it requires that the entire legal ecosystem can handle these disputes efficiently and effectively, to attract international parties seeking a neutral ground. Compared to other established arbitration hubs, India offers a significantly more cost-effective option and talented lawyers and arbitrators. With the support of an active judiciary and government, I am confident that India can make further progress by addressing challenges such as efficiency in enforcement and investing more in its arbitral infrastructure.
Q: How does the ICC set itself apart in the crowded international arbitration market? Have you identified any special focus areas for India?
A: Our experience and expertise, rigorous approach, efficient processes, and innovative rules have made the ICC the world’s leading arbitral institution. What’s more, the services we offer are unrivalled. Parties know they are dealing with a trusted institution and that proceedings are guided by the ICC Rules of Arbitration and are recognized and respected as the benchmark for international dispute resolution. I want to also point out that everyone can benefit from ICC arbitration’s flexibility and effectiveness. The only requirement is to consent to ICC arbitration in a contract. The ICC Court and its Secretariat are always ready to assist parties and arbitral tribunals with any questions relating to the conduct of the arbitration and strive to ensure ICC awards are enforceable. We are acutely aware of India’s crucial role in the global arbitration landscape. India has been an important focus of our work, and Indian parties have consistently ranked among the top 10 in ICC arbitrations. Many prominent Indian arbitrators are at the ICC Court, including Vice President (Sanjeev Kapoor, Partner, Khaitan and Co) among the 19 Vice Presidents, plus two Court Members (Mr Amar Gupta, Partner, J. Sagar Associates, and Ms Payel Chatterjee, Partner, Trilegal). Indian lawyers also work at ICC’s Singapore office and in Delhi at ICC India. To underscore India’s growing importance to the ICC and global arbitration, I have visited every year during my Presidency and plan to do so again in the years ahead. It is clear to me that Indian parties trust ICC arbitration for both domestic and international disputes. While Singapore is among the top 10 seats for ICC arbitration and the most popular one in Asia, ICC arbitrations are also seated in Delhi, Mumbai, and other cities in India. We are committed to working with the Indian legal and business community to strengthen the arbitration infrastructure, promote arbitration in India and Indian arbitrators, and equally important, to meet the needs of Indian parties regardless of where the arbitration takes place. Over the past century, businesses around the world have come to trust ICC for its unprecedented arbitration services and I firmly believe that India is poised to become an even more trusted partner in the future.