Book in Press with Elgar: ‘International Commercial and Investor-State Arbitration – Australia and Japan in Regional and Global Contexts’

[The following book’s 160,000-word manuscript has just been submitted to Elgar, to be published in early 2021, after careful kind proof-reading by James Tanna (CAPLUS student intern, 2020) and research assistance from Dr Nobumichi Teramura (CAPLUS Associate and co-editor/author in other works).]

Abstract: The COVID-19 pandemic has forced many international arbitrations online, potentially making the field increasingly global and informal, as arbitrators adopt more efficient procedures and experience fewer challenges. But will it last? We have seen a similar trend before, over the 1990s, reacting to concerns over growing costs and delays over the 1970s and 1980s, linked to the influx of Anglo-American law firms into the international commercial arbitration world. Yet formalisation has resurfaced over the last 10-15 years, despite arbitration’s move East and consequent globalisation, partly due to the rapid growth of treaty-based investor-state arbitration. This 12-chapter book examines how international commercial and investor-state arbitration has been framed by this evolving relationship between twin tensions, ‘in/formalisation’ and ‘glocalisation’. Interweaving historical, comparative, empirical and doctrinal research over two decades [updating and expanding several publications hyperlinked below], the book focuses on attempts by Australia and Japan to become less peripheral players in international arbitration, especially in Asia-Pacific context.

Keywords: international dispute resolution, international commercial arbitration, investor-state dispute settlement (ISDS), foreign investment (FDI), Asian and comparative law, treaty-making and law reform processes

Special features: The book (1) combines analysis of both international commercial and investment treaty arbitration, (2) using mixed methods (historical, comparative, empirical and doctrinal research), (3) presenting the first detailed comparison of Australia and Japan, (4) drawing implications for their stakeholders as well as post-pandemic arbitratio

Chapter 1. In/formalisation and Glocalisation Tensions in International Arbitration

Abstract: This introductory Chapter outlines the trajectory of two growing fields of cross-border dispute resolution – international commercial arbitration (Part I of the Book) and international investment treaty arbitration (Part III) – as well as some crossovers (Part II). Australia and Japan, bearing important similarities in both fields and a few significant differences, are examined in Asia-Pacific and global contexts. An evolving and complex tension emerges between more formal versus informal approaches within international arbitration (‘in/formalisation’) and between globalisation and national or local circumstances (‘glocalisation’). International arbitration was first quite informal yet global, then became more formalised under growing influence of the common law tradition. It then saw some pushback towards more informal (or at least speedier) arbitrations amidst further globalisation over the 1990s, a tendency now re-emerging amid the COVID-19 pandemic. Yet the last 10-15 years have seen resurgent costs and delays, which could well resurface.

Part I: International Commercial Arbitration in Japan and Australia

2. The Vicissitudes of Transnational Commercial Arbitration and the Lex Mercatoria: A View from the Periphery

Abstract: This Chapter outlines two important empirical studies from the 1990s, setting an historical and theoretical benchmark for assessing the past and future of international arbitration. Those highlighted a growing formalisation of international commercial arbitration’s over the 1970s and 1980s, influenced by growing influence from Anglo-American legal practice. Yet this Chapter finds some pushback by the late 1990s towards more informal and global approaches. It also highlights further historical contingency by outlining Japan’s attempts around then to revamp its arbitration law. Although that was partly aimed at meeting the evolving international standard, epitomised by the UNCITRAL Model Law, it was part of a much wider justice reform program over 1999-2004 focusing primarily on domestic dispute resolution. Such ‘localised globalism’ contrasts with Japan’s efforts from 2018 to promote itself as another regional hub for international arbitration (outlined in Chapter 4), which therefore instead suggest more ‘localised globalism’.

3. The Procedural Lex Mercatoria: The Past, Present and Future of International Commercial Arbitration

Abstract: The substantive lex mercatoria (international contract law) is showing signs of growing formalisation. Similarly, international commercial arbitration law and practice – as the procedural lex mercatoria – became increasingly formalised over the 1980s. However, during the 1990s there was some shift back towards more informalism (especially to regain the advantage of speedier proceedings compared to cross-border litigation) as well as more global solutions to major issues arising in the arbitration world. This is illustrated by outlining developments across thirteen key ‘pressure points’ in international commercial arbitration law and practice, covering hot topics related to the arbitration agreement, arbitral procedure, award enforcement, and overarching issues. The Chapter indicates scope for further and more consistent developments towards restoring globalised and informal approaches. Yet it leaves open the possibility of international arbitration reverting to greater formalisation – in fact found especially over the last 10-15 years (as illustrated in Part II of this Book).

4. Japan’s Arbitration Law of 2003: Early and Recent Assessments

Abstract: Japan’s Arbitration Act 2003 was part of justice system reforms focused on domestic dispute resolution, although based on the UNCITRAL Model Law. The Act left few major interpretive issues, and created scope eventually to enhance international arbitration in Japan. Yet neither type of cases has grown significantly. There were also significant continuities evident from the persistent use of Arb-Med to promote early settlement during arbitrations. The stagnation in annual arbitration filings cannot be linked to adverse Japanese case law. That developed in an internationalist, pro-arbitration spirit, evident through a comparative analysis for example with Australian case law. Other institutional barriers to arbitration remain, despite Japan’s new initiatives since 2018 demonstrating ‘localised globalism’. General, organisational and legal culture in Japan will likely keep mutually reinforcing economically rational motivations helping to curb costs and delays in dispute resolution, even as Japan now seeks to promote international arbitration through updated global models.

5. International Commercial Arbitration in Australia: What’s New and What’s Next?

Abstract: Not much had changed by 2013, after Australia amended in 2010 its International Arbitration Act 1974, incorporating most of the 2006 revisions to the UNCITRAL Model Law. There was no evidence yet of a broader anticipated ‘cultural reform’ that would make international arbitration speedier and more cost-effective. One dispute engendered at least five sets of proceedings, including a constitutional challenge. Case disposition statistics for Federal Court cases decided three years before and after the 2010 amendments revealed minor differences. Various further statutory amendments therefore seemed advisable to encourage a more internationalist interpretation. However, an updated analysis notes only a few minor revisions. There remains a significant step-up in annual cases filed under the Act, and some improved Federal Court case disposition times only since 2017. Despite generally more pro-arbitration case law, challenges remain in pushing international arbitration in Australia towards a more informal (especially time- and cost-effective) and global approach.

Part II: Crossovers from International Commercial to Investor-State Arbitration

6. In/formalisation and Glocalisation of International Commercial Arbitration and Investment Treaty Arbitration in Asia

Abstract: International (commercial) arbitration has experienced a dramatic diffusion from West to East, but ‘in/formalisation’ and ‘glocalisation’ tensions endure. Empirical research shows that delays and especially costs have been escalating world-wide, reflecting and promoting formalisation. This is not just due the growing volume and complexity of deals and disputes. It parallels a dramatic worldwide expansion of international law firms, and large home-grown law firms emerging in Asia. Confidentiality in arbitration exacerbates information asymmetries, dampening competition. Such developments are particularly problematic as large law firms have moved into investment treaty arbitration. Yet moves underway towards greater transparency in that burgeoning and overlapping field could eventually help reduce some of these problems. Somewhat ironically, they are likely to persist in the world of international commercial arbitration despite the growing concerns of users themselves, including a new wave of Asian companies that have started to resolve commercial disputes through international arbitration.

7. A Weather Map for International Arbitration: Mainly Sunny, Some Cloud, Possible Thunderstorms

Abstract: This Chapter helps anticipate the future trajectory of international arbitration by first revisiting how Anglo-American influence over the 1970s and 1980s contributed to the formalisation of international arbitration, generating costs and delays. Over the 1950s and 1960s, many cases involved investment disputes with host states, yet the normative paradigm was more global and informal. Despite arbitration’s ‘move East’ over the last 20 years, formalisation of international commercial arbitration persists, linked to information asymmetries. Investment treaty arbitration may exert counterbalancing influence, through its greater transparency. Yet it risks promoting even greater formalization, and there are serious doubts about its long-term viability, including in Asia. The main theoretical underpinning for international commercial arbitration has settled into a variant of ‘neoclassical’ theory in contract law, with some recent arguments for even greater formalisation, but investment treaty arbitration opens the possibility for more theoretical diversity and therefore debate about international arbitration’s foundations and future.

8. Confidentiality versus Transparency in International Commercial and Investor-State Arbitration in Australia and Japan

Abstract: Confidentiality is still widely seen as significant advantage of international commercial arbitration over cross-border litigation, especially in Asia. This is evident in most arbitral rules, and many arbitration statutes – including eventually in Australia. Yet no confidentiality is provided in Japan’s later adoption of the Model Law, although parties mostly choose local arbitral institutions so opt-in to their Rules, which have somewhat expanded confidentiality obligations since 2014. Another recent complication is growing public concern over arbitration procedures through (especially treaty-based) investor-state dispute settlement, particularly in Australia. Statutory amendments in 2018 reverse automatic confidentiality for Australia-seated arbitrations applying the 2014 UNCITRAL Transparency Rules. Yet such concerns may impede enactment of provisions extending confidentiality to court proceedings involving commercial arbitrations. Confidentiality could allow more informal and efficient arbitrations, but exacerbate information asymetries allowing service providers increase costs. Greater transparency is more justified (and increasingly found) in investment arbitration, implicating greater public interests.

Part III: International Investment Treaties and Investor-State Arbitration

9. Throwing the Baby with the Bathwater: Australia’s 2011-13 Policy Against Treaty-Based Investor-State Arbitration

Abstract: Treaties allowing investors to initiate arbitration claims directly against host states, for illegally interfering with cross-border investments, are increasingly common in Asia. Yet a centre-left government declared over 2011-2013 that Australia would no longer include such protections in future treaties. This risked undermining the entire investor-state arbitration system, and major then-pending treaty negotiations by Australia with Japan, China and Korea, significantly reducing FDI flows and having other adverse effects. This Chapter criticises the underlying cost-benefit analysis conducted in 2010 by an Australian government think-tank. The arguments and evidence are more nuanced, justifying more tailored and moderate changes for future treaties. Yet an interest-group analysis suggests surprisingly few public or private constituencies preferring such reforms, and the problem could spread around Asia. A sharp shift would indicate a more idiosyncratic, nation-centric rather than global approach, but with somewhat mixed effects regarding formalisation of the overall international arbitration field.

10. Investor-State Arbitration: Why Not in the Japan-Australia Economic Partnership Agreement?

Abstract: Japan signed a bilateral Free Trade Agreement with Australia in 2014, notably omitting investor-state dispute settlement (ISDS). Japan seems not to have offered enough to secure this extra protection for its firms’ investments in Australia, for the latter to risk domestic political controversy. Japan probably also hoped to obtain the protection through a mega-regional treaty– in fact achieved from 2019. The omission should also be understood in the wider context of Japan’s investment treaty practice. That was initially belated and flexible, but has become more pro-active since 2013. Japan’s practice overall presents another example of ‘localised globalism’. Japan’s treaties have also become more formalised as they have adopted more consistently US-style drafting since 2002 (like Australia). This greater detail may perversely result in to more costs and delays if and when the mostly ISDS-backed treaty provisions are invoked. Yet there are few claims formally pursued by Japanese investors, and none yet filed against Japan.

11. Investor-State Arbitration Policy and Practice in Australia

Abstract: Australia has investment treaties in force with 32 economies, all with investor-state dispute settlement (ISDS), except regarding New Zealand and the USA. Yet ISDS only started being debated politically as Australia signed its FTA with the US in 2004, and particularly around 2011 when a mega-regional treaty was being negotiated and Philip Morris Asia brought the first ISDS claim against Australia over tobacco controls. A centre-left Government over 2011-13 eschewed ISDS for future treaties, but centre-right governments reverted to allowing it on a case-by-case assessment, and the Greens’ ‘anti-ISDS’ Bill went nowhere. The debate belatedly raised awareness of how Australia’s domestic law provides some lesser investment protections than under international law. More bipartisanship has been emerging since 2019. Australia may therefore keep reverting to a more globalised approach towards ISDS, while continuing to target reforms that can reduce formalisation, particularly in the form of ISDS-related costs and delays.

12: Beyond the Pandemic: Towards More Global and Informal Approaches to International Arbitration

Abstract: Overall, this Book traces the trajectory of both international commercial arbitration and investor-state arbitration, especially since the 1990s, focusing on Australia and Japan in regional and global contexts. It demonstrates the usefulness of the dual themes or vectors of ‘in/formalisation’ and ‘glocalisation’ for understanding the past and for assessing future developments in international arbitration. Part I of this Chapter considers the longer-term impact of the COVID-19 pandemic from 2020. It speculates about the future for the observed proliferation of webinars, and the pandemic’s push towards virtual hearings or e-arbitrations, as well as further diversification of arbitral seats – including potentially for Australia and Japan. Part II ends more normatively with recommendations for more productive cooperation, bilaterally but also regionally, among academics, lawyers and arbitrators, judges and governments. It identifies key Asia-Pacific organisations and opportunities for promoting a global and somewhat more informal approach to international arbitration into the 21st century.

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.