Arbitration is on the rise in Australia

On 9 March 2021, the Australian Centre for International Commercial Arbitration (ACICA) released the inaugural Australian Arbitration Report. The Report analysed data obtained by ACICA and FTI Consulting in the inaugural Australian Arbitration Survey. The Survey collected data on arbitrations commenced, conducted and concluded in the period between 2017 and 2019 with an Australian ‘connection’ from 111 respondents.

Key takeaways

Please click on our infographic below for a summary of the key takeaways, which include:

• The total amount in dispute for arbitrations that were active during the relevant period exceeded A$35 billion.
• For international arbitrations, the Survey indicated that the most favoured arbitration rules were those of the SIAC and ICC and the most popular arbitration seat was Singapore.
• For domestic arbitrations, the most favoured arbitration rules of Survey respondents were those of ACICA followed by the Resolution Institute, with no particular city leading as a favoured seat.
• There is significant use of arbitration by ‘other’ industries (about 20%), including property, banking, agriculture and others (in addition to construction, engineering, mining and infrastructure).
• Regrettably, less than 10% of arbitrator appointments were women.

Booming arbitration industry

Strong international and domestic application

The Report identified 223 unique arbitrations with an Australian ‘connection’, meaning: one or more of the parties involved in the arbitration was an Australian entity; the seat of the arbitration was in Australia; or there were participants based in Australia involved in the conduct of the arbitration. The total amount in dispute for these 223 arbitrations exceeded A$35 billion.

Of these 223 arbitrations there was almost a 50:50 split between international (111) and domestic (109) arbitrations (for three arbitrations this question was not answered). However, the amount in dispute in international arbitrations (approx. A$26 billion) far exceeded that in domestic arbitrations (approx. A$9 billion), with about 75% of the quantum in international arbitrations.

For international arbitrations, the Survey indicated that the most favoured arbitration rules were those of SIAC and the ICC and the most popular arbitration seat was Singapore. However, there was also indication of a growing inclusion of ACICA arbitration clauses (now almost equal to the use of SIAC / ICC rules) in cross-border contracts, which we would expect to translate into a greater proportion of Australian-seated ACICA arbitrations in the future.

For domestic arbitrations, the most favoured arbitration rules of Survey respondents were those of ACICA followed by the Resolution Institute. There was no clear winner on which city in Australia was the most favoured seat. This is likely due to the largely uniform commercial arbitration laws applicable in each State/territory of Australia, and the widespread support of the courts in each State/territory for arbitration.

Broad industry use

The bulk of the 223 arbitrations referenced occurred in relation to construction, engineering and infrastructure (about 43%), oil and gas (about 20%), mining and resources (about 13%), and transport (about 4%) industries. There was also a significant use by ‘other’ industries (about 20%), including property, banking, agriculture and others.

These trends are largely consistent with expected sector trends projected by the Queen Mary University of London in the 2018 International Arbitration Survey: The Evolution of International Arbitration released on 9 May 2018, including a strong use of arbitration in construction, engineering and infrastructure, and oil and gas sectors. However, we expect to see greater uptick in arbitration use by the technology, consumer product and banking and finance sectors in the future given the confidentiality and enforceability of the arbitral process.

Tribunal diversity challenges

The Survey also asked questions about diversity, although not all respondents answered those questions. Of the responses received:

• Less than 10% of arbitrator appointments were women. Regrettably, this is significantly lower than the appointment statistics of the ICCA Report of the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments and Proceedings released on 28 July 2020, which reported that the total number of female arbitrator appointments globally was approximately 21%.
• The nationality of the arbitrators appointed were overwhelmingly that of Australia and the United Kingdom.

These two data trends indicate a preference to appoint high-profile arbitrators who fall within a narrow demographic. A strong track record and familiarity with the common law legal systems found in Australia and the United Kingdom are desirable characteristics for arbitrators involved in disputes with an  Australian connection. However, a more nuanced approach to arbitrator appointments based on sector and subject matter experience will result in a broader pool of arbitrators, and more desirable results for arbitration users.

Chasing efficiency

While 80% of Survey respondents indicated that they were satisfied with arbitration, two key perceived weaknesses of the arbitration process, for some respondents, were costs and time. Further, users remarked that, particularly in the domestic context, there was a “tendency for arbitration to resemble litigation” and “not always follow international best practice”.

The “tendency to conduct arbitration like litigation” can impede arbitration users from maximising the time and cost efficiencies that arbitration can achieve. To unlock tangible efficiency gains, both arbitrators and party representatives must: embrace the flexibility of arbitration; incorporate only those stages of a dispute resolution process that serve a particular dispute; condense stages of the process where appropriate; and leverage international best practices. This can simply be achieved by appointing arbitrators and representatives who have a deep appreciation of arbitration and who can steer the arbitration process in a way most beneficial to parties.

For further information, please contact Brenda Horrigan, Partner, Chad Catterwell, Partner, Guillermo Garcia-Perrote, Senior Associate, Imogen Kenny, Solicitor, or your usual Herbert Smith Freehills contact.